Revitalizing the industry starts with renewed focus on productivity
TORONTO, June 5, 2013 /CNW/ - While the Top 40 mining companies
increased volumes by six per cent, softer commodity prices meant that
2012 revenues of $731 billion was only the second year in a decade that
mining revenue did not increase, according to the latest PwC report: Mine: A confidence crisis.
The Mine report highlights a range of activity causing stakeholders to
question the mining sector's value proposition:
Net profits were down 49% to $68 billion
Gold equities declined despite steady gold price increases
Mining stocks in the first four months of 2013 fell nearly 20%
"Miners are faced with a confidence crisis and they're focussed on
trying to restore confidence," says John Gravelle, Mining Leader for Canada and the Americas, PwC. "Across the board, there's a renewed focus on maximizing returns from
existing operations through managing productivity and improving
efficiencies. Looking at the leadership changes last year, it reflects
an industry that values experience and operational understanding over
deal-making and growth."
Gravelle adds, "The importance of returning to a lower cost base rather
than relying on higher commodity prices should be on every miner's
agenda. Miners must deliver this while operating in an environment of
intense resource nationalism where we see governments in traditional
mining jurisdictions legislating substantial tax increases and emerging
mining jurisdictions ignoring mining contracts after substantial
investments are made."
Re-balancing capital spending
While 2012 marked a record year for capital spending, the overall
message from the Top 40 is that the capital expenditure tap is being
tightened, the report states. Project hurdle rates have increased, with
the Top 40 stating that only projects with a return above 25% will be
The availability of cheap debt financing influenced the Top 40 to add
leverage to their balance sheets, adding $108 billion in debt in 2012.
"Favourable debt markets have helped to maintain liquidity," says
Gold left out in the cold
Despite a turbulent year for commodity prices, the Top 40 miners' total
market capitalization was around the same at the end of 2012 as the
start - roughly $1.2 trillion. But not for gold miners - the Top 40's
gold miners lost $29 billion or 15% of market capitalization in 2012.
The Top 40's gold miners lost a further $58 billion in value,
particularly due to a significant sell-off in April following the
largest one-day drop of gold prices ever.
China's changing role
According to the report, half of the industry's 40 largest miners by
market capitalization have the bulk of the operations in emerging
countries - the most ever.
"Emerging and developing markets have become the world's growth engine -
with China leading the way. Demand is only one part of the China story.
They're fuelling growth in their backyard and immersing themselves as a
mining consumer, supplier, financier and regulator," says Gravelle.
Chinese companies will likely consolidate and with a few domestic
mega-mergers and large overseas acquisitions, more Chinese companies
will be part of the Top 40, if not the Top 10, notes the report.
In its 10th edition, PwC's annual Mine publication provides analysis on the financial performance and position of the
global mining industry as represented by the Top 40 mining companies by
For more information, please visit PwC's mining site at: www.pwc.com/ca/mining.
LinkedIn: Join the PwC Mining Community www.pwc.com/ca/mining-linkedin
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