3
06.13
MODERN
M I N I N G
Cover
A 220-t capacity Belaz-75302
truck, one of several Belaz
machines which have recently
been supplied to mining con-
tractor Tau Mining by Mynbou
Rigs Afrika. See page 18 for
the full details.
Publisher
Jenny Warwick
Editor
Arthur Tassell
Advertising Manager
Bennie Venter
Design & Layout
Darryl James
Circulation
Karen Pearson
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Average circulation
(October–December 2012)
4 268
A
s many readers will
know, every year since
2004 professional ser-
vices firm PwC has issued a report – titled
Mine
– which analyses the state of the global
mining industry, based on the activities, per-
formance and results of the 40 largest listed
international mining companies by market
capitalisation.
Mine 2013
– which has just
been released – covers the reporting peri-
ods from 1 April 2011 to 31 December 2012,
with each company’s results included for the
12-month financial reporting period that falls
into this timeframe.
Each year
Mine
has had a specific sub-title
summing up its general conclusions. For ex-
ample, the sub-title for the 2005 edition was
‘Enter the Dragon’, acknowledging the growing
importance of China to world mining, while
in 2009 it was ‘When the going gets tough …’,
reflecting the depressed state of mining after
the onset of the global financial crisis in the
second half of 2008.
This year we have ‘A Confidence Crisis’,
with PwC arguing that the market has lost
faith in the mining industry’s ability to con-
trol costs, to exert capital discipline and to im-
prove returns on capital. There is also, it says,
scepticism as to whether the new CEOs at the
helms of many of the Top 40 companies will
deliver on their promises and a belief that once
prices rebound, the industry will once again
revert to its damaging habit of piling into new
projects and expensive deals.
The 2013 edition of
Mine
was introduced to
the South African media at a recent function
hosted by Hein Boegman, PwC Mining Leader
for Africa, who noted that the total revenue
of the Top 40 companies was flat at US$731
billion, with a 6 % increase in production
volume being offset by softer prices, while
net profits were down 49 % to US$68 billion,
with this decrease being partly attributable to
US$45 billion of impairments. He said that
estimated capex for 2013 was US$110 billion,
21 % lower than in 2012.
There is always a wealth of fascinating sta-
tistical and financial information in
Mine
and
the latest edition is no exception. It reveals for
example that copper, coal, iron ore and gold
accounted for 79 % of the Top 40’s capital
spend in 2012 with iron ore – in first place –
attracting roughly US$30 billion. The capex
apparently is not always well directed and
total write-offs over the past five years have
been equivalent to an astonishing 20 % of the
Top 40’s total investing cash flows.
Return on capital employed (ROCE) contin-
ued to fall after peaking at 23 % in 2006. At
8 % it is now at the lowest level in a decade
with
Mine
attributing this to a number of fac-
tors including outsized capital expenditure,
increased operating costs, falling head grades
and lower commodity prices.
On the subject of commodity prices and not-
withstanding recent falls,
Mine
says that the
Global mining
in a
crisis of confidence
past decade has seen “unprecedented growth”
in both prices and global production volumes
with gold, for example, going up 372 % in
price and 4 % in volume and copper 384 %
in price and 25 % in volume. In terms of vol-
ume iron ore has shown the biggest increase at
168 % followed by thermal coal at 48 %.
The Top 40 companies featured in
Mine
vary from year to year. This year there are five
new entrants, including three debuts and the
first ever rare earths company (in the shape of
China’s grandly named Inner Mongolia Baotou
Steel Rare-Earth Hi-Tech Co). “The Top 40’s
market capitalisation is dominated by the ma-
jor diversified miners – namely BHP Billiton,
Rio Tinto, Vale, Anglo American, Glencore
and Xstrata,” says
Mine
. “Companies we con-
sider to be diversified make up a total of 38
% of the Top 40’s 2012 market capitalisation.
Gold companies made up the second largest
segment at 16 % of the total.”
South Africa, incidentally, accounts for only
three of the Top 40 companies – these being
AngloGold Ashanti, Gold Fields and Impala.
Its two biggest traditional mining rivals, Can-
ada and Australia, both do better with Canada
having no less than nine companies in the Top
40 and Australia four (although two of the
Australian companies, BHP Billiton and Rio
Tinto, are also partly domiciled in the UK).
The mining industry is making an effort to
restore the confidence of investors and eight
of the top ten have publicly announced that
they will maintain or increase dividend levels.
Commenting on this, Boegman said, “Miners
are trying to rebuild the market’s confidence
– capital expenditures have been scaled back,
hurdle rates are being increased and non-
core assets are being disposed of. Across the
board there is a shift from the days of maxi-
mising value by solely increasing production
volumes, to a renewed focus on maximising
returns from existing operations through man-
aging productivity and improving efficiencies,
both of which have suffered in recent years.”
Looking ahead,
Mine
2013 says that long-
term global demand fundamentals remain
intact. It points out, however, that it will be
emerging and developing markets driving
growth rather than the advanced First World
economies. “Emerging and developing mar-
kets have become the world’s growth engine,”
it says. “However, for mining the one that real-
ly counts is China. The Chinese government is
focusing on reducing risks in its economy and
making it more sustainable following a once
in a decade political leadership transition in
2012. While the outlook for the Chinese econo-
my looks cautiously optimistic, miners should
not ignore the potential for further declines in
real growth rates.”
As always, it all comes back to China – I hate
to be negative but my guess is that at some
stage we’ll be paying the price for this over-
dependence on the fortunes of a single country.
Arthur Tassell
