What follows are highlights from PricewaterhouseCoopers’ 10th annual review of global trends in the mining industry, as represented by the top 40 mining companies by market cap.
During 2012, the Top 40s production volumes increased by 6%, but softer commodity prices meant that 2012 revenue of $731 billion was only the second year in a decade that mining revenue did not increase.
Net profit was down 49% to $68 billion. Decreased commodity prices, an escalating cost base, and $45 billion in impairment charges hit the bottom line. At only 8%, return on capital employed (ROCE) was the lowest it’s been for a decade.
Operating cash flows fell with reduced profits, down 23% to $137 billion, while investing cash outflows increased 22% to $169 billion. The Top 40s cash position fell 10% to $104 billion, salvaged by the issuing of $108 billion in new debt.
Still it wasn’t all bad news. The Top 40 increased dividends by 9% to $38 billion – an average yield of 3.7% based on 30 April 2013 share prices.
Since April 2012, half of the Top 10’s CEOs have been replaced.
Other key findings in the report:
Half of the industry’s 40 largest miners by market capitalization have the bulk of their operations in emerging countries – the most ever.
China consumes around 40% of the global metal production and will continue to be the industry’s most important customer.
2012 was a particularly poor year for gold miners. Of the five companies whose market capitalisation shrunk the most, four were gold producers. – Barrick Gold Corp. (TSX: T.ABX, Stock Forum) (NYSE: ABX, Stock Forum), Anglo Gold Ashanti Ltd.(NYSE: AU, Stock Forum), Goldcorp Inc. (TSX: T.G, Stock Forum) (NYSE: GG, Stock Forum) and Newmont Mining Corp. (NYSE: NEM, Stock Forum).
In 2012 the Top 40s gold miners lost $29 billion or 15% of market capitalisation.
But if 2012 was good for some and bad for others, the first four months of 2013 have been rough across the board. Market capitalisation fell for 37 of the Top 40 – losing over $200 billion, or 17% of the year end level.
The Top 40s gold miners lost a further $58 billion, particularly due to a significant sell-off in April, following the largest one day drop of gold prices ever.
Why has confidence been lost?
When commodity prices picked up three years ago, the industry rushed to bring capacity online, setting new records for capital expenditures, but in the process, decreasing productivity.
The industry’s operating costs have also increased faster than other industries, impacting margins.
Head grades have fallen, mines have deepened, and new deposits are in riskier countries. With the structural change in the cost base that has occurred, moderate price increases will not be enough to claw back the lost margin.
How are the Top 40 trying to regain their appeal?
A renewed focus on rewarding shareholders seems to be here to stay. All but two of the Top 10 have publicly assured shareholders that current dividend levels will either be maintained or improved. Based on 2013 share prices and 2012 dividends, the Top 40s dividend yield is now almost 4%. This is significantly higher than recent historical levels and is closing the gap with other capital intensive industries such as oil and gas.
In 2012, the Top 40 paid out record dividends – increasing the dividend payout ratio from 25% in 2011 to 57% in 2012. From 2009 to 2012, the Top 40’s dividends have increased by more than 150%, from $15 billion to $38 billion.