June 2014
MODERN MINING
3
COMMENT
I
f any confirmation is needed that the
mining industry, both in South Africa
and globally, is indeed in bad shape it
can be found in PwC’s just published
eleventh annual review –
Mine 2014
–
of global trends in the mining industry. Based
on the financial performance and position of
the Top 40 mining companies worldwide by
market capitalisation,
Mine 2014
– which es-
sentially covers 2013 – makes for depressing
reading. The year is described as “one of the
toughest years in memory for mining” with the
Top 40’s market value declining by US$280
billion (down 23 % on the previous year) and
profits sinking by 72 % to US$52 billion.
Commenting on the report, Hein Boegman,
PwC Mining Industry Leader for Africa, says:
“The industry is adjusting to tough times in
the short-term with strategies in place to regain
confidence. For example, we have seen new
faces at the helm of almost half of the largest
40 mining companies in the last two years.”
His colleague Dion Shango, PwC Mining
Partner, adds that PwC’s analysis of the top
40 chief executives indicates that the industry
is looking to leaders with operational experi-
ence, who can deliver projects on schedule and
within budget.
On commodity prices,
Mine 2014
notes that
commodities “dipped again” with double-
digit decreases being not uncommon. Gold
producers were hardest hit as a result of gold
suffering its greatest annual decline in over 30
years. “Many commodities encountered short
term demand volatility coupled with calls for
restraint over projected growth rates in the next
3-5 years, although China’s expected growth
remains strong in absolute and relative terms,”
says the review. “At current prices, many pro-
ducers are on the wrong side of the marginal
cost curve, which cannot be sustained for
extended periods.”
Dealing with the vexed subject of resource
nationalism,
Mine 2014
says that the industry
continues to face ongoing geopolitical issues
that threaten both planned projects and oper-
ating mines in jurisdictions around the globe.
It adds that “Frustrations are building within
the ranks of CEOs around the challenges of
operating in some emerging markets, where
governments have changed laws and regula-
tions with inadequate consultation, disrupting
the regulatory certainty needed to support long-
term investment decisions.”
An interesting point made by PwC is that
Top 40 companies are less willing to take a
chance on commodities in cases where they
cannot make a meaningful profit. It cites the
example of BHP Billiton, the world’s largest
mining company, which has announced – or
completed – divestments in a number of coun-
tries, including South Africa, involving mineral
sands, uranium and diamond assets.
Despite the poor trading conditions, the
Top 40 companies grew production across
most commodities during 2013. Compared
with 2012, copper production was up 8 % to
12 Mt and iron ore up 4 % to 825 Mt. Somewhat
smaller increases were recorded for coal and
gold. Coal production went up by 2 % to
1 470 Mt while gold output was also up 2 % to
25 Moz. PwC says it is not clear whether these
increases were a result of companies attempt-
ing to reduce unit costs through economies of
scale or the result of the de-bottlenecking of
operations.
One might have thought that 2013 would
have seen a drop in mining capex given the fact
that almost half of the Top 40 companies had
announced plans to cut or defer capital expen-
diture. The expected decline did not occur,
says PwC, and the overall total capital expen-
diture actually rose by 2 % to US$130 billion
during 2013. The news for the current year is
not so good. Says
Mine 2014
: “Based on initial
guidance from the Top 40, overall forecasted
capital expenditure is expected to decline by
approximately 11 % to US$116 billion in 2014
as capital budgets are tightened.”
According to PwC, the Top 40 appear to be
moving away from greenfield projects. As evi-
dence of this, it quotes Glencore Xstrata CEO
Ivan Glasenberg’s comments, made in March
last year: “We are afraid of greenfields. And
it’s been proven: we were correct. Greenfields
are risky. Greenfields do have capital overruns.
Greenfields do have delays which kill the NPV
on those projects.”
Finally, just who are the Top 40 mining com-
panies? Looking at the list of names in
Mine
2014
, I find it remarkable just how many of
them I hardly recognise. For example, there
is Russian company Uralkali, Mexico’s Grupo
México SAB de CV, Poland’s KGHM Polska
Miedz Spolka Akcyjna and Canada’s Yamana
Gold Inc – none of whom are exactly household
names. It’s probably worth mentioning that
there is only one South African company on
the list – Impala Platinum. South Africa used
to be one of mining’s ‘super-powers’ but clearly
– and sadly – this is no longer the case.
Arthur Tassell
2013 –
one of the toughest
years in
memory for mining
“Frustrations
are building
within the ranks
of CEOs around
the challenges
of operating in
some emerging
markets, where
governments
have changed
laws and
regulations with
inadequate
consultation,
disrupting the
regulatory
certainty needed
to support long-
term investment
decisions.”
