The global mining industry is facing a confidence crises following multiple constraints, according to a report released by advisory firm PricewaterhouseCoopers (PwC).
The tenth annual PwC Mine report suggests that these constraints include confidence over whether mining costs can be controlled, if return on capital investments will improve and if commodity prices will not collapse as witnessed during 2013.
The report analysed 40 of the largest listed mining companies by market capitalisation in several major economies, including the UK, the US, Canada, Australia, China, South Africa, Russia, India, Brazil, Poland and Mexico.
The financial information for 2012 covers the reporting periods from 1 April 2011 to 31 December 2012, with each company’s results included for the 12-month financial reporting period that falls into this time frame.
PwC says although it was a turbulent year for commodity prices, the report shows total market capitalisation was roughly the same at the end of 2012 as the start – US$1.2trillion – but not for gold miners. The gold miners in the top 40 lost US$29 billion in 2012, while in the first four months of 2013, they lost a further US$58 billion in value. This followed a major sell-off in April after the largest one-day percentage drop in gold prices since the 1980s.
The advisory firm notes that shareholders have called for change, which started at the top. Since April 2012 half of the CEOs have been replaced at the largest 10 miners.
“On the demand side, long-term fundamentals are still there but regaining investor confidence depends on how the mining industry responds to its rising costs and in particular labour, increasing volatile commodity prices and other challenges, such as resource nationalism and that new CEOs can deliver on promises,” says Hein Boegman, PwC’s leader for Africa.
Further, PwC explains that to help restore confidence, shareholders have called for increased capital discipline and higher returns, noting that eight of the top ten global miners have publicly announced that they will maintain or increase current dividend levels.
“Miners are trying to rebuild the market’s confidence – capital expenditures have been scaled back, hurdle rates are being increased and non-core assets are being disposed of,” added Boegman.
Nonetheless, despite this drop in confidence, PwC feels it is not all bad news as production volumes and dividend yields are up and while prices have fallen, they have not crashed – long term fundamentals are positive.
“It’s important to recognise that the industry’s emphasis continues to shift. For the first time ever, half of the top 40 miners are from non-traditional markets. China continues to be the industry’s most important customer. While Chinese growth rates are slowing down, they are coming from a bigger base, so future demand for commodities still looks healthy,” concludes Boegman.