BY Fraser Tennant
The mining sector experienced a challenging 2015 with its 40 largest companies hit by a collective net loss of US $27bn, according to a PwC report published this week.
In ‘Mine 2016: Slower, lower, weaker... but not defeated’ – the 13th in a series of PwC reports which analyse financial performance and global trends – it is also revealed that market capitalisation fell by 37 percent (in a number of cases below net book value), a development which PwC says "effectively wipes out all the gains made during the commodity super cycle".
The aggregated results found in the PwC report were sourced from the latest publicly available information, primarily annual reports, with all figures reported in US dollars.
“Last year was undoubtedly challenging for the mining sector,” said Jason Burkitt, PwC’s UK mining leader. “A 25 percent year-on-year decline in commodity prices meant mining companies had to ratchet up their productivity efforts, while some found themselves in a fight for survival, with asset disposals and closures to follow.
“We’re also seeing shareholders persist with a short term focus, impacting the capital available for investment and, as a result, constraining options for growth. But this is a hardy industry, and while miners may be down now they are certainly not out.”
The PwC report also found that: (i) investors punished the top 40 mining companies for poor investment and capital management decisions and, in some cases, for squandering the benefits of the boom; (ii) concerns over the 'spot mentality' from shareholders focused on fluctuating commodities prices and short term returns rather than the long term investment horizon required in mining; and (iii) there was a focus in 2015 on maximising value from shedding assets as well as mothballing marginal projects or curtailing capacity.
Although Mr Burkitt concedes that the mining sector will continue to face significant market challenges and constraints, he is also confident that there is a still a long-term positive outlook. “In the first five months of the year, we’ve been encouraged by some recoveries in market capitalisations and commodity prices – but with high volatility still in play, hopes of a sustained rebound are tempered.
“Many of the top 40 mining companies appreciate what is required for the marathon of mining and have their eyes firmly fixed on the long term rewards," he concluded.
The PwC analysis of the mining sector was published to coincide with this week’s London School of Mines conference on 8 June.