Mining slower and weaker, but not defeated – PwC
The report finds that the world’s 40 largest miners had a significant drop off in capex, signalling an almost stagnant investment environment.
Year 2015 was a race to the bottom with many new records set by the world’s 40 largest mining companies, according to PwC’s annual Mine report.
The 13th in PwC’s industry series analysing financial performance and global trends, the report reveals a first ever collective net loss (USD27-billion) for the Top 40 miners with market capitalisation falling by 37%, effectively wiping out all the gains made during the commodity super cycle.
“Last year was undoubtedly challenging for the mining sector. The Top 40 experienced their first ever collective net loss, their lowest return on capital employed, a significant drop in market capitalisation, and an overall decline in liquidity with the result that they were more vulnerable and carrying heavier debt loads than in prior years,” says Michal Kotzé, Mining Industry leader for PwC Africa.
“We are also seeing shareholders persist with a short term focus, impacting the capital available for investment and, as a result, constraining options for growth. But this is a hardy industry, and while many miners may be down they are certainly not out,” he adds.
The report analysed 40 of the largest listed mining companies by market capitalisation. Four new entrants in this year’s Top 40 were Chinese companies. AngloGold Ashanti has re-emerged in the Top 40 for the first time since 2013. The number of emerging companies included in the Top 40 has increased by two and now totals 19.
The report reveals a first ever collective net loss of USD27-billion for the Top 40 miners with market capitalisation falling by 37%, effectively wiping out all the gains made during the commodity super cycle.
Mine 2016 also found:
- Investors punished the Top 40 for poor investment and capital management decisions, and in some quarters for squandering the benefits of the boom.
- Concerns over the ‘spot mentality’ from shareholders focused on fluctuating commodities prices and short term returns rather than the long term investment horizon required in mining.
- A focus on maximising value from shedding assets as well as mothballing marginal projects or curtailing capacity by Top 40 miners. This is further evidenced by a significant drop off in capex signalling an almost stagnant investment environment.
- A positive focus on cost reduction resulting in a 17% drop in operating costs against a backdrop of higher production volumes and lower input costs – an impressive achievement given the production increases seen during 2015.
China not the industry hero
While China is still critical to the success of the mining industry, accounting for about 40% of overall commodity demand, it can no longer be relied on to supercharge returns.
As the country moves from a manufacturing based economy to a services-based economy the previously rampant demand for commodities will still not resume with the same intensity. Despite this shift, the number of Chinese mining companies in the Top 40 continued to increase from nine to 12.