Mining: PwC's annual Mine report was released today
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Thursday, June 4, 2015
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danielmjema.blogspot.com
PRESS RELEASE
Gloves are off for the global mining industry - PwC
• Overall market values plummeted $156 billion due to commodity price declines
• Free cash flow turned positive again to $24 billion; but net profit down 9%
• Capital velocity declined for the first time since 2010 and continues to slow
• Dividend yields at an all-time high of 5%
• Government intervention and conflict abound with strategy debates as effect of lower prices felt by many
JOHANNESBURG, South-Africa, June 4, 2015/ -- 2014
was expected to be a tough fight for the global mining industry with
commodity prices down and short-term volatility increasing. The initial
scorecard for the largest 40 miners was mixed and now the gloves are off
for the industry with widespread government intervention, internal
industry conflicts and rising shareholder activism, according to PwC’s
annual Mine report released today (http://www.pwc.com).
According
to a new analysis of the 40 largest global miners from PwC, the
industry trimmed spending and largely managed expectations through
higher production and unexpected help from currency devaluations and
lower input costs, despite continued headwinds from weak commodity
prices.
Michal
Kotze, Head of PwC’s Africa Mining Centre of Excellence, says: “The
success of cost-saving initiatives became more apparent in 2014 as
operating costs decreased 5%. While the mining industry had been
indicating for the last two years their intention to reduce capital
spending, such reductions were actually realised in 2014 as expenditures
on significant projects declined 20%.
“A
key measure of the industry’s investment agenda, capital velocity,
slowed to just over 12% with further decreases expected in 2015 and for
the first time, the total asset base shrunk 1%.”
The
report analysed 40 of the largest listed mining companies by market
capitalisation. Two of the three new entrants in this year’s Top 40
were Chinese companies and one was North American. The financial
information for 2014 covers the reporting periods from 1 April 2013 to
31 December 2014, with each company’s results included for the 12-month
financial reporting period that falls into this time frame.
While
commodity prices decreased across a number of commodities and drove
lower revenues, the report found this was partially offset by increased
volumes, particularly in iron ore where supply expanded on the back of
large expansion programs of the past few years.
“The
decline in the iron ore price is having a significant impact on the top
40 miners. While slower demand from China is making headlines, the
price declines are more related to the current oversupply in the market.
“With
few exceptions, market supply and demand trends result in miners
operating on the assumption that lower commodity prices will continue
and the focus will therefore remain on containing operating costs and
maintaining capital discipline,” adds Kotze.
Mine
also found, for the second year, the majority of the largest mining
companies came from emerging markets Brazil, Central & Eastern
Europe, China, India, and Saudi Arabia, rather than OECD markets, with
another two top entrants from China and a lower overall decline of only
7% - compared to an OECD drop of 21% - in market capitalisation. This
decrease was despite a lower adjusted profit contribution from companies
in the emerging markets.
Andries
Rossouw, PwC Assurance Partner, says: “Mining companies from emerging
markets tend to focus on mining in their own jurisdictions whereas those
in the OECD tend to have more diverse global portfolios. This divide,
coupled with the wealth of new development potential in emerging markets
and differing shareholder expectations, continues to create
divergence.”
“How
the industry will grow in the years ahead will be impacted by a number
of factors, including the ability of tier 1 assets to produce
substantial quantities at costs significantly below average; the demand
for commodities from China and other emerging markets; the impact of
changing tax, environmental and beneficiation regimes; and the
willingness by the industry to enter into greenfield projects, instead
of only developing smaller brownfield projects,” concludes Rossouw.
Distributed by APO (African Press Organization) on behalf of PricewaterhouseCoopers LLP (PwC).
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