Mine 2015: The gloves are off

Review of global trends in the mining industry

Welcome to Mine: PwC’s 12th annual review of the top trends in the global mining industry. Our analysis is based on the financial performance of the Top 40 global mining companies by market capitalisation.

It has been another challenging year for the sector, and these senior producers in particular. The prolonged downswing in commodity prices has forced companies to fight hard to implement various measures to improve free cash flow.

A major focus was on reducing costs. The Top 40 know lower prices aren’t temporary and need to cut costs to allow appropriate returns to be generated in the current environment. As we forecasted in last year’s report, these cost-reduction and efficiency efforts have started to pay off. Another cash-conservation strategy was to reduce capital spending. The Top 40 have been saying for a few years that they will reduce capital spending, and came through in 2014. Meantime, the pace of mergers and acquisitions has slowed dramatically, especially compared to 2011, when many commodity prices were at or near record highs.

While these strategies have helped drive improvements in most financial statement metrics across the Top 40, market values continued to decline. The Top 40 miners lost $156 billion, or about 16% of their combined market value in 2014. The Top 40’s total assets also declined by 1% in 2014, driven by $26 billion less capital expenditure and another round of impairments, valued at $27 billion. Although net profit increased, when adjusted for impairments, the result was a decline in adjusted net profit of 9% to $72 billion.

How the industry will grow in the months and years ahead will be heavily impacted by a number of factors, including:

  • Existence of tier 1 assets that can produce substantial quantities at costs significantly below average;
  • Demand for commodities from China and other BRICS countries;
  • Mining cost increases related to local taxation, increased environmental regulations and export limitation policies; and
  • Unwillingness by majors to enter into greenfield projects, with a focus instead on developing smaller brownfield projects.
View the full report.