Although the world’s top 40 mining companies demonstrated stellar financial results in 2021, it is unclear how long this record run can continue, since the industry is experiencing unprecedented change, says PwC.
The enterprise services and advisory company finds in its ‘Mine 2022’ report that the net profits of the top 40 mining companies globally rose by 127% in 2021, while market capitalisation grew by 7%.
These companies’ capital expenditures grew by 18% and dividends were up 130% in 2021.
The top 40 mining companies recorded a combined $159-billion in net profit in 2021, compared with a combined net profit of $70-billion in 2020.
Four South African-headquartered companies form part of the global top 40 mining companies, including AngloGold Ashanti, Sibanye-Stillwater, Gold Fields and Impala Platinum.
PwC Africa energy, utilities and resources leader Andries Rossouw lists the major influencing factors of the moment as being surging demand for critical minerals, increasingly difficult operating environments and rising competition from new players emerging.
“Success will hinge on whether or not the top 40 can take a leading role in the world’s clean energy transition and continue to generate significant stakeholder value.
“To do that, miners must use their strong current financial position to meet challenges including development timelines, price volatility, geopolitical risks, stakeholder expectations, economies of scale and economic resource scarcity,” he explains.
The shift to net-zero requires more mining, not less, with the rapid scaling of low-emission systems being highly material-intensive.
The International Energy Agency estimates that the annual demand for critical minerals from clean energy technologies will surpass $400-billion by 2050, which is equivalent to the annual revenues of the current global coal market.
The supply and price of input battery metals will have the greatest impact on whether electric vehicles will reach cost parity with traditional internal combustion engine-powered vehicles.
“Demand will significantly exceed the ability for miners to supply key metals such as lithium, copper and cobalt by 2040. The top 40 can play a leading role in the world’s clean energy transition and generate significant stakeholder value, if they use current capital gains efficiently,” Rossouw reiterates.
For example, some mining companies are moving down supply chains into value-added processes, such as Anglo American South Africa with its own-developed hydrogen fuel cell-driven mine haul dump vehicle.
Another emerging trend is that of original-equipment manufacturers (OEMs) and end-users partnering directly with mining operations.
“We have seen a number of deals where big corporations are cooperating with the mining industry to secure supply for the future,” Rossouw explains.
He suggests that the top 40 miners review their exposure to critical minerals and materials for the energy transition; evaluate opportunities to own more of the supply chain and to partner directly with OEMs and local suppliers; incorporate low-emission technologies into operations to position as a preferred supplier for carbon-conscious end-users; and increase transparency into environment, social and governance (ESG) performance and stakeholder engagement.
Moreover, he recommends that these companies evaluate development models around shared infrastructure, potentially expediting development timelines and lower upfront capital costs, all while preparing for a more challenging and assertive push by regulators.
Meanwhile, the value of deals among the top 40 mining companies globally tripled in 2021 compared with 2020, while the number of deals increased by 60%.
Gold deal activity accounted for 70% of total deal value in 2021.
PwC Africa tax partner Laetitia le Roux says the top 40 deal value for critical minerals doubled last year and that the shift to net zero is not just creating opportunities in critical minerals, but also coal and iron-ore, as these materials continue to enjoy high demand
The top 40 are not the only ones making moves in critical minerals; in fact, about half the total merger and acquisition value in 2021 happened outside the group.
To illustrate the impact of rising material demand and shortage of supply, PwC points out that various commodity prices surged in 2021, compared with 2020, such as copper growing by 26% on average, iron-ore rising by 59% year-on-year, coal prices growing by 54% and cobalt and lithium prices skyrocketing by 119% and 280%, respectively.
For one, coal is forecast to overtake copper as the leading revenue source of the top 40 mining companies this year, which is a consequence of pressure on supply, lack of investment in supply, and/or the volatility being experienced amid the energy transition.
Moreover, in addition to catering for cleaner operations, mining companies are feeling the pressure to operate cleaner.
Rossouw says ESG is no longer optional or a point of differentiation, but rather the minimum operating standard.
Le Roux agrees, saying the industry will experience continued ESG pressure, and the need to improve stakeholder trust and strengthen the social licence to operate.
“Government and regulators, especially in the European Union, are sending clear signals that they will hold companies accountable to operate in more sustainable and ethical ways,” she states.
PwC finds in the ‘Mine 2022’ report that 83% of mining and metals CEOs see meeting customer expectations as an influential factor in their net-zero commitments.
This leaves mining companies with limited choices – either divest or decommission projects that lack proper environmental and social credentials, or reduce emissions and increase the positive impact of existing operations.
“ESG performance affects the cost of capital. Increasingly, banks and investors are cutting ties with projects that are viewed as unsustainable or unethical.
“This while green premiums will only continue to grow as consumers become more discerning about supply chains and provenance,” Le Roux adds.
To this end, it is vital that all mining companies adopt ESG-related disclosure frameworks sooner rather than later.