In its 11th annual review of global trends in the mining industry, PwC identifies key trends for the end of 2013, beginning of 2014.
1. THE CONFIDENCE CRISIS: WE’RE NOT OUT OF THE WOODS YET
During 2013, the market value of the top 40 mining companies by market capitalization declined by 280 billion dollars, representing a drop of 23%. Commodity prices went down again.
2. STILL DISAPPOINTING RESULTS
After reporting record impairments of $40 billion during 2012, a further $57 billion of assets were wiped off balance sheets during 2013. Gold companies suffered the lion’s share, impairing $27 billion of assets. The Top 40’s aggregate net profit sank $52 billion (72%) to a decade low $20 billion; gold companies were responsible for $20 billion of net losses. Only seven of the Top 40 increased profits year on year. However, in light of the significant decrease in commodity prices, and the difficulties in slowing the inertia of operating costs, underlying performance as represented by adjusted EBITDA withstood the tough conditions, only down 8%.
3. EXPLORATION EXPENDITURES ARE DOWN
Exploration was down more than 30% during 2013 and capital expenditure in 2014 is expected to diminish by more than 10% based on announcements from the Top 40.
4. STRATEGIES TO REGAIN CONFIDENCE
The leadership changes continued, with seven new faces taking the helm. Almost half of the Top 40 CEOs have changed over the last two years.
Despite diminished profitability and shrinking cash, dividend yields from the Top 40 continued to increase, with gross dividends paid up 5% and dividend yields slightly up to 4%. Were dividend pay-outs a short term means of shoring up investor support for the Top 40 CEOs while they work hard to build sustainable performance improvements going forward?
Traditional quick-fixes to falling commodity prices were widely adopted; park your fleet, reduce head count, slash costs, defer capital expenditure. However we are also starting to see some more fundamental shifts in strategy emerge, namely:
- active portfolio management with a push to simplify structures and a focus on extracting value from higher quality assets;
- with capital constrained budgets, a move to sharing mining infrastructure as a means to reduce operating costs, realise efficiencies and spread capital and risk;
- and a commitment to addressing diminishing productivity levels.
5. THE NEW SAVIOR: EMERGING MARKETS
2013 has for the first time seen a majority of the Top 40 come from emerging markets, and given their current performance and greater recent appetite to spend on capital, this trend looks set to continue. Splitting the profit of the Top 40, emerging market companies netted $24 billion (2012: $39 billion) while the developed market companies lost $4 billion. collectively (2012: profit of $33 billion). Of note is the fact that developed market companies have seen a much greater impact from asset impairments, particularly related to intangibles and goodwill, demonstrating the higher M&A driven investment in the developed markets during the recent boom times.
These key trends have an impact on all the players, big or small, in the mining sector, notably, the rock support industry, the services sector to the mining industry at every stage from exploration to closing, the equipment suppliers and the consumable suppliers.
We can also see a trend toward a greater consolidation concerning the suppliers to the mining industry.