JOHANNESBURG (miningweekly.com) – More private equity investment is on the horizon for the mining sector, Deloitte South Africa mining industry leader (assurance) Tony Zoghby said on Wednesday.
In 2012 alone, eight mining funds raised private equity of $8.5-billion as mining majors wrote off asset value of $75-billion in impairments.
Zoghby and Deloitte South Africa mining industry leader (advisory) Abrie Olivier were speaking at the presentation of Deloitte’s sixth 'Tracking the Trends' yearly report, which outlined how mining companies would next year continue to face rising costs, falling commodity prices, supply-and-demand imbalances and decreased productivity levels.
Olivier disclosed that Deloitte would soon be releasing a study on how South Africa’s Mining and Petroleum Resources Development Act (MPRDA) Amendment Bill stacked up against the country’s National Development Plan (NDP).
“The NDP talks about the nation and everything in it. From a mining perspective, there could be misalignment in certain areas, and we need to understand what needs to be done to achieve alignment,” Olivier said.
On mining investment, Zoghby said that traditional means of funding were becoming increasingly scarce and banks were shying away from over-committing their balance sheets to mining finance.
As a result, mining majors were forced to pursue other financing, including the issuing of bonds, and they were also cutting back on their capital projects.
The divestiture of the large companies out of noncore assets was, in turn, presenting favourable buying opportunities to organisations with cash holdings, which were recognising the potential to turn stressed assets around as entities unfettered by onerous corporate overheads and free to concentrate solely on operational improvement.
“We’re seeing more innovative forms of financing, and here I’m talking about private equity. I think we’re going to see more private equity funds getting into investing in mining and turning around these assets,” Zoghby said.
He expected South African private equity to target individual mining assets out of which the majors were divesting, restore those to profit and then sell them off.
In South Africa, private equity investment was expected to take place at asset level rather than holding company level.
NATIONAL DEVELOPMENT PLAN
Deloitte is currently undertaking a study that will indicate the extent to which the MPRDA Amendment Bill meshes with the NDP.
Last week Deloitte facilitated discussion between the mining industry and the African National Congress (ANC) on the state of the mining sector and what is needed to grow the industry and create more jobs, which will be the subject of a media release in the next fortnight.
The discussions took place within the framework of the Progressive Business Forum, an arm of the ANC, with Deloitte engaged as the facilitator.
Attempts are under way to create a new level of understanding of the NDP through the presentation of well-analysed industry overlays.
Deloitte’s latest trends annual says that mining companies, which embrace new forms of innovation, can lay the foundation for long-term business growth and be best positioned for future success, which is juxtaposed against mining productivity falling still further, market imbalances wreaking havoc on commodity prices and junior miners fighting for survival.
Meanwhile, the demands of near-mine communities are escalating, governments are growing more hostile and executive suites are growing short of talent.
Shareholder activism is on the rise and boards are light on technical nonexecutive directors.
“It’s not a pendulum swing, it’s a seismic shift,” is the publication’s summing up of the current atmosphere in mining. By the second half of 2014, a number of companies and their management teams are expected to be knocked out of the ring.
In the meantime, calls are being made for a relentless focus on productivity and the embrace of far-reaching innovation.
The mounting cost of doing business tops the list of trends for the third year running, with lower grades and higher strip ratios pushing costs higher.
Between 2001 and 2012, the weighted average head grade for copper fell 30% and three-quarters of new copper discoveries are below 300 m, pushing up strip ratios.
Many mines have gone from marginal to loss making and mining sector market capitalisation fell 21% in the 12 months to May 30.
The talent pool is being shrunk, executive compensation is being reduced and funding approvals are being limited strictly to the highest quality projects in mining-friendly geographies.
Production visibility tools and automated visuals of mining operations from pit to port are advocated as palliatives against the trends of stubbornly high input and production costs.
In safety, emphasis on zero fatalities rather than insistence on zero harm is being advocated.