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Operating environment remains challenging, despite 2016 improvement for top 40 miners – PwC

Srinivasan Venkatakrishnan’s AngloGold Ashanti is the only South African company to make PwC’s list of the world’s top 40 mining companies

Srinivasan Venkatakrishnan’s AngloGold Ashanti is the only South African company to make PwC’s list of the world’s top 40 mining companies

Photo by Duane Daws

7th June 2017

By: Ilan Solomons

Creamer Media Staff Writer

     

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JOHANNESBURG (miningweekly.com) – The world’s top 40 miners recovered from a “race to the bottom”, with bolstered balance sheets and a return to profitability in 2016, giving them much-needed space to pause and take a breath.

This is according to advisory firm PwC’s ‘Mine 2017’ report, which was released on the sidelines of the Junior Indaba conference, in Johannesburg, on Wednesday.

The report analysed 40 of the largest listed mining companies by market capitalisation. The financial information for 2016 covered the reporting periods from April 1, 2015, to December 31, 2016, with each company’s results included for the 12-month financial reporting period that fell into this time frame.

The number of emerging companies included in the top 40 decreased by two to 17. There were seven new entrants from the previous year, five of which had made appearances on previous rankings in either 2014 or 2015. The top ranked South African company was AngloGold Ashanti, which was ranked at number 40, down one place from last year.

PwC Africa energy, utilities and mining industry leader Michal Kotzé quipped that the narrative of the top 40 mining companies in 2016 tended to read like a mine site safety mantra: “Stop. Think … Act.” He commented that the industry had “moved out of danger” but that 2016 was not a year of “significant action”.

“We now wait to see who will be bold and step out beyond the fluctuating market confidence,” Kotzé remarked.

He pointed out that the report recognised a return to profitability in 2016, with an aggregate top 40 net profit of $20-billion, which was a significant improvement from the aggregate loss of $28-billion recorded in 2015.

Kotzé stated that the improved fortunes of the industry were then directed to strengthening balance sheets.

“Overall, the market capitalisation of the top 40 increased in 2016 by 45% to $714- billion, approaching the 2014 level. This was mainly due to rising commodity prices,” he explained.

Kotzé commented that revenue from the top 40 remained relatively flat – up just 1% from the previous year’s $491-billion – despite a rebound in commodity prices, particularly coal and iron-ore prices in the second half of the year.

However, he noted that capital expenditure (capex) fell “dramatically again” by a further 41%, to a new record low of about $50-billion. Kotzé said that after achieving a near-record in 2015, impairment charges tumbled last year to a “less-alarming” $19-billion.

Further, he highlighted that debt repayments totalled $93-billion, which was an increase from the $73-billion a year earlier, with most of the debt issued to refinance, rather than fund acquisitions or mine development.

“We see an improved gearing ratio of 41%, down from the 2015 record of 49%. However, this is still well above the ten-year average of 29%. Interestingly, we also found that around half the capex figure was invested in sustaining activities, so the growth capital portion was strikingly small compared with previous years.”

Kotzé commented that the rapidly rising commodity prices sparked renewed market optimism and improved credit ratings across the top 40 firms. He moreover mentioned that valuations also climbed, particularly for the traditional miners with the trend continuing through the first quarter of 2017 even as commodity prices remained flat.

However, he pointed out that valuations aside, there was “little to suggest” that the group made any substantial advances throughout the year.

“For the fourth consecutive year, the industry reduced spending on exploration – $7.2-billion was invested in 2016, barely one-third of the record $21.5-billion allocated in 2012 with the funds cautiously targeted at less risky, later-stage assets, typically located in politically stable countries,” he elaborated.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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