SA falls out of Top 40 mining list

The prolonged downswing in commodity prices has forced companies to fight hard to implement various measures to improve free cash flow. A major focus was on reducing costs.
This is according to Mine: PwC’s 12th annual review of the top trends in the global mining industry.

This year saw no companies in South Africa from the Top 40 list – “the first time a company from this traditional mining heavyweight has not been part of our analysis‚ and a far cry from the five companies included in our 2004 first edition of Mine‚” PwC said.

The report analysed 40 of the largest listed mining companies by market capitalisation. Two of the three new entrants in this year’s Top 40 were Chinese companies and one was North American.
The Mine report noted that commodity prices remained under pressure‚ as iron ore‚ coal‚ and copper took another tumble in 2014.

Gold prices were volatile‚ but remained relatively steady compared to prior years‚ it noted. Iron ore was hardest hit in 2014‚ with prices falling by half as a result of oversupply and a negative short-term demand outlook.

“The general outlook for the global metals and mining market remains subdued due to the combination of a slower rate of global economic growth‚ particularly in emerging markets‚ and signs of an oversupply of several commodities‚ most notably iron ore and coal.”

On the positive side‚ “Lower crude oil prices and a stronger US dollar are proving beneficial for miners by helping to lower operating costs”.
However‚ PwC said‚ “The uneven global economic recovery and divergent monetary policies continue to create uncertainty around medium-term supply and demand across the mining industry”.
A slowdown in China’s economic growth‚ to around 7 percent from double-digit growth in recent years‚ is expected to weigh on the industry in the months to come. China accounts for as much as 40% to 50% of global commodity demand. This slower growth has already had a major impact on demand for key steelmaking commodities‚ namely iron ore and metallurgical coal.

“With potentially more weaknesses to come in the real estate market‚ as well as an overall lower pace of urbanisation‚ demand could weaken further.

“However‚ to put China in perspective‚ the lower projected 2015 GDP growth will still create about a $1-trillion increase in the base – more than the combined market capitalisation of the Top 40. We believe that the reforms being undertaken will place China in a good position to continue to grow over the long term‚ albeit at a slower pace.”

PwC noted the commodity price downturn has also sparked what it calls “a wave of resource nationalism”‚ as governments seek to maintain their mining revenues‚ despite shrinking overall returns across the industry. It said initiatives implemented to date have been mainly negative for the industry‚ including tax and/or royalty rate changes and the introduction of mandated beneficiation in-country‚ as was done in Indonesia. Also‚ China moved to protect its domestic coal industry by changing import tariffs and quotas‚ placing additional pressure on seaborne demand‚ the report states.

“With few exceptions‚ the commodity price outlook remains dim‚ forcing miners to keep up their guard. As the old saying goes‚ survival will be of the fittest‚ and for miners also the leanest. Miners across all metals and minerals continue to focus on core operations‚ cost cutting‚ and capital discipline in their quest to improve their relative position on the cost curve and remain profitable during this prolonged period of low prices.”

Michal Kotze‚ Head of PwC’s Africa Mining Centre of Excellence‚ said in a statement: “The success of cost-saving initiatives became more apparent in 2014 as operating costs decreased 5 percent.
While the mining industry had been indicating for the last two years their intention to reduce capital spending‚ such reductions were actually realised in 2014 as expenditures on significant projects declined 20 percent”.

Meanwhile‚ Mine also found‚ for the second year‚ that the majority of the largest mining companies came from emerging markets Brazil‚ Central & Eastern Europe‚ China‚ India‚ and Saudi Arabia‚ rather than OECD markets‚ with another two top entrants from China and a lower overall decline of only 7 percent – compared to an OECD drop of 21 percent – in market capitalisation.
This decrease was despite a lower adjusted profit contribution from companies in the emerging markets. – Timeslive