2013 was a year that forced the global mining industry to realign expectations in one of the most difficult operating environments for years, according to PwC’s annual Mine report.
According to new analysis of the largest 40 miners from PwC, no one was immune. Commodity prices, led by gold’s greatest annual decline in over 30 years, decreased significantly and mining stocks fell 23%. This, along with record impairments, means profitability in the industry was at its lowest level in a decade.
Mine found that for the first time, 2013 saw the majority of the 40 largest mining companies come from emerging markets, and given their current performance and greater recent appetite to spend on capital, this trend is set to continue.
The change in the global mining landscape also saw a divergence in the collective performance between emerging market companies and their developed market counterparts. 2013 net profits from emerging market companies were $24 billion in aggregate, compared to an aggregate net loss of $4 billion for developed market companies, impacted particularly by impairments.
The licence to operate in all corners of the globe is becoming more challenging, with governments increasingly eager to expand their share of royalties and taxes. Election results in 2014 in Brazil, India, Indonesia and South Africa may further alter the influence of emerging markets on mining.
Meanwhile, measuring the success of cost-saving initiatives will become more apparent this year, as operating costs had not slowed in 2013 (up 4%) while free cash flow entered negative territory for the first time in the Mine series. Deferral of expenditure on significant capital projects was commonplace, particularly in light of current returns on capital employed against targeted project hurdle rates.
Maintaining dividend levels, exercising more selective capital allocation and active portfolio management are amongst the levers being pulled to restore investor confidence in the sector.
Visit the Mine 2014: Realigning Expectations.