Mine 2014: Realigning Expectations

Review and outlook of top 40 miners’ performace

Review and outlook of top 40 miners’ performace

Communications review
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The Top 40’s market value declined $280 billion during the year, a 23% reduction on the prior year, down to $958 billion at 31 December 2013, with gold particularly hard hit. Diversifieds and coal didn’t fare much better as the sector took a beating. Early 2014 saw some semblance of calm return to mining markets with market capitalisation for the Top 40 stable, evidence that some level of confidence may be returning.

Results near rock bottom…

After reeling from then 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. Operating cash inflows went backwards, down 7% from 2012, partially offset by lower investing cash outflows. The full extent of reported cash saving initiatives across the Top 40 will only become apparent during the remainder of 2014 and beyond.

Capital allocation decisions remain Challenging

For the first time in a decade, free cash flow (operating cash flows less investment in property, plant and equipment) entered negative territory. 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.

Realigning expectations – lifting off the bottom

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).