The world’s 40 largest mining companies continued to consolidate their stellar performance of the past several years by delivering steady growth in 2018 according to PwC’s Mine 2019report released yesterday.
- Revenue up 8% to $683 billion
- EBITDA up 4% to $165 billion
- Record dividend paid to shareholders of $43 billion up 13%
- Market capitalisation of the Top 40 down 18% to $757 billion, 31 Dec 2018 with partial recovery thereafter
In line with expectations, capital expenditures started to rise again, albeit from historically low levels. The 13% increase over the previous year to $57 billion suggests that miners are continuing to proceed cautiously; approximately half of the capital expenditure in 2018 was for ongoing projects.Copper and gold dominated spending in 2018, attracting $30 billion of investment. Capital expenditure on coal was consistent, year on year, and we expect miners will maintain current production levels while the coal price remains high. Shareholders, government and other stakeholders rewarded An 11% lift in operating cash flows has allowed the Top 40 to increase shareholder distributions in 2018 to a record $43 billion. Dividend yield for the year was 5.5%. There was a notable jump in share buybacks to $15 billion, up from $4 billion in 2017. Rio Tinto and BHP accounted for 70% of the total activity returning proceeds of non-core disposals to shareholders. In 2018 the share of value distributed to governments in the form of direct taxes and royalties increased from 19% to 21%. Employees received 22% of the total value distribution from the Top 40. “Mining along with oil & gas, distributes a greater share of its value to governments than almost any other sector,” adds Andries Rossouw, PwC Assurance Partner. “A number of countries have also implemented carbon taxes and/or emissions trading schemes.” Of 25 countries in which the Top 40 operate, 13 countries have already implemented these taxes/schemes and nine countries are actively considering implementation. M&A activity picks up After several years of sluggish activity, M&A picked up significantly in 2018. The value of announced transactions rose 137% to $30 billion, driven by a flurry of activity in the gold sector, the on-going push by miners to optimise their portfolios, and momentum to acquire energy metals projects. Rossouw comments further: “This renewed appetite for large transactions looks as though it will continue throughout 2019, with the deal value announced to 30 April 2019 already surpassing the value of all the announced deals in 2017. Gold sector consolidating The gold sector is experiencing a renewed round of consolidation, driven by a shrinking pipeline of projects, fewer new high-grade discoveries and a lack of funding for junior developments. Gold deals increased from 8% of total Top 40 deal value in 2017 to 25% in 2018, and this year are tracking at close to 95% of deals as at the end of April. “Gold mining companies need to be rigorous and disciplined with prospective deals. With substantially all the value generated by mergers and acquisitions between 2005 and 2012 now lost, investors are still reeling from past transactions where purchasers overpaid for assets,” Kotzé comments.