Mine 2013: A Confidence Crisis

Review of global trends in the mining industry

The global mining industry is facing a crisis in confidence, ending years of outperformance and superior returns according to PwC’s 10th annual global mining report, Mine: A Confidence Crisis.

During 2012 the Top 40’s 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.

Operating costs have grown faster than production with cost inflation in double digits. Employee numbers rose 2 per cent but average employee costs were up 13 per cent. Higher costs to develop lower grade assets in increasingly remote locations led to a 10 per cent fall in return on capital to 8 per cent.

Boards and management have heeded investor calls for greater returns, pushing dividends 9 per cent higher to a record $38 billion on a payout ratio that grew from 25 per cent in 2011 to 60 per cent in 2012. Since 2009 dividends have improved more than 150 per cent from $15 billion.

PwC Australia’s mining leader Jock O’Callaghan said the picture had further deteriorated this year.

“The first four months of 2013 have been rougher and tougher than at any time in the past decade, with market values plunging $220 billion, or 18 per cent, for 37 of the world’s top 40.

“After years of outperformance and superior returns the industry is now facing a crisis in confidence,” Mr O’Callaghan said.