Mining shares plunge despite record profit in 2011 – PwC
By: Megan Wait
6th June 2012
JOHANNESBURG (miningweekly.com) – The global mining industry is facing a growing disconnect with a significant decline in market capitalisation, an increase in commodity prices and a lack of shareholder confidence, PricewaterhouseCoopers (PwC) said on Wednesday.
In South Africa, rising input costs such as electricity, labour and fuel, as well as the search for and retention of talent, and its accompanying trials, further exacerbates these challenges.
Although the mining industry started the 2011 year strongly, with the world’s 40 largest miners reaching record profits, company stocks significantly underperformed in the broader equity markets, losing value by year-end as a result of continuing fears stemming from the recent economic uncertainty, PwC stated in its ninth yearly review of global trends in the mining industry, titled ‘Mine: The Growing Disconnect’.
The survey, which was released on Wednesday, further stated that a lack of confidence in the sector’s growth prospects saw market values plunge 25% by year-end to about $1.2-trillion, with only six of the world’s top 40 miners seeing an increase in market value.
The survey analysed companies by market capitalisation in several significant economies, including the UK, the US, Canada, Australia, China/Hong Kong, South Africa, Russia, India, Brazil, Peru and Mexico. Nineteen of the Top 40 companies were either from or primarily concentrated on emerging markets, with iron-ore showing a significant growth spurt.
PwC mining industry leader for Africa Hein Boegman said at a briefing in Johannesburg that demand remained robust, and long-term growth in emerging markets was more significant to the mining industry than short-term jitters in the developed world.
“While the top 40 miners recognised record revenue and profits in a year of high commodity prices, market capitalisation took a downward turn in 2011, raising signals of a growing disconnect.”
Boegman said investors have either not bought into the industry’s long-term growth story or were reacting to other short-term global economic concerns, which were sending share prices lower.
“The onus is clearly on the industry to better articulate what is still one of the strongest investment issues in the world today. Emerging market nations, where hunger for commodities remains strong, is further fuelling this. It is these markets that will decide the future of the global economy.”
As the mining industry battles against a backdrop of the market’s demands for heightened capital discipline, the report showed that supply would be the story for the future. Some companies would look to develop a tailored portfolio of projects to secure supply and increasingly look to locate new mines in remote areas.
“If the demand story dominated the past five years, the next five will be shaped by supply issues. Supply has failed to keep up with demand and that’s likely to remain the case for a while yet,” Boegman added.
The study found that in 2011, revenues increased by 26% year-on-year to over $700-billion. Net profits were up 21% to $133-billion. The top 40 returned 156% more to shareholders than in 2010. However, the top four companies, which comprise BHP Billiton, Vale, Rio Tinto and China Shenhua, lost a total of almost $175-billion in market capitalisation last year.
The top 40 companies’ total assets remained above $1-trillion and grew a further 13% in 2011. They invested $98-billion in capital projects, falling short of the $120-billion in spending announced last year.
THE WAR FOR TALENT
PwC advisory leader for energy and mining Southern Africa Anton van Wyk said talent attraction and retention in the mining sector faced a number of challenges.
“The skills shortage in the sector cannot be solved in the short term. It requires long-term strategies from mining companies and the government to ensure adequate funding of research and education initiatives.”
Van Wyk added that the growth in the industry has led to a surge in the demand for geologists and engineers. Even if miners could find willing candidates, expatriates might not want to stay, or could not stay for extended periods in foreign jurisdictions, resulting in forced turnover that might have an impact on the delivery of large projects.
Recent research carried out by PwC in South Africa identified several issues hampering the attraction and retention of talent in the mining industry. These include low employee engagement levels, limited opportunities for career progression, and the limited number of mining graduates.