Top 40 down but not out

Im­pair­ments by global min­ing in­dus­try’s big­gest firms hit $53bn last year, while net loss was $27bn

CityPress - - Business - DEWALD VAN RENS­BURG dewald.vrens­burg@city­press.co.za

The global min­ing in­dus­try is not only los­ing money and drown­ing in debt, it spent the past decade wast­ing bil­lions on projects that are now worth noth­ing. Im­pair­ments by the 40 big­gest min­ing com­pa­nies in the world hit $53 bil­lion (R787 bil­lion) last year – al­most as much as they spent on build­ing and ex­pand­ing mines.

Put to­gether, th­ese be­he­moth cor­po­ra­tions, which do roughly 80% of the world’s min­ing, made a net loss of $27 bil­lion in the year.

The enor­mous im­pair­ments are not, strictly speak­ing, all re­lated to min­ing. About $17 bil­lion of it re­lates to oil and gas as­sets owned by com­pa­nies that are nev­er­the­less mostly min­ing com­pa­nies.

Com­pa­nies in the Top 40 have clocked up al­most $200 bil­lion in im­pair­ments since 2010.

Th­ese fig­ures prob­a­bly put too pos­i­tive a spin on the ac­tual per­for­mance of min­ing cor­po­ra­tions.

The source, PwC’s an­nual Mine pub­li­ca­tion, cuts com­pa­nies that re­ally crash and burn out of the anal­y­sis.

An­dries Ros­souw, en­ergy and min­ing as­sur­ance part­ner at PwC, said this week: “It goes without say­ing that there was bad dis­ci­pline with projects.”

Far too much profit was ploughed back into ill-ad­vised new min­ing projects, notes the re­port it­self.

Fall­ing de­mand and an over­abun­dance of sup­plies have pushed prices lower.

“Ex­cess iron ore ca­pac­ity will take time to work out of the sys­tem,” said Ros­souw.

Like­wise, South Africa’s plat­inum in­dus­try has cut its pro­duc­tion al­most as low as it can go in a bid to elim­i­nate the above-ground stock­piles that are keep­ing prices low.

“The mine sup­ply is al­ready be­low an­nual pri­mary de­mand, so I don’t think there will be much more of a pro­duc­tion drop in South Africa,” said Ros­souw.

The re­port ag­gre­gates the fi­nan­cial state­ments of the 40 most valu­able min­ing com­pa­nies as of De­cem­ber 31 in the pre­ced­ing year, based on their mar­ket val­ues on stock ex­changes.

The list keeps chang­ing as com­pa­nies rise and fall or re­struc­ture.

A lot of the changes to the list this past decade were caused by large min­ing com­pa­nies in In­dia and China that had been pri­vately owned, but then listed on stock ex­changes.

The 40 com­pa­nies now on the list cov­ered about 80% of the min­ing in­dus­try by sales, said Ros­souw.

The com­bined mar­ket value of th­ese com­pa­nies fell by 37% to $494 bil­lion.

The no­table thing about this rapid dis­ap­pear­ance of value was how fickle it was, said Ros­souw.

Min­ing share prices fol­lowed the move­ments of com­mod­ity prices to a “ridicu­lous” de­gree, he said.

If any­thing, the min­ing shares were more volatile than the daily shift­ing com­mod­ity prices, said Luyanda Mn­gadi, PwC au­dit as­so­ciate di­rec­tor and co-au­thor of the re­port.

In the first quar­ter of this year, the same set of com­pa­nies’ value jumped back up by 29%.

Since the Mine re­port first started, min­ing Capex vs im­pair­ment

Mar­ket cap of Top 40 vs Amjxstem Price In­mex

com­pa­nies’ shares have been far more volatile than other kinds of cor­po­ra­tions.

The run­away debt lev­els of the top 40 min­ers this year put their gear­ing level at 46%. That’s the value of their out­stand­ing debt di­vided by their eq­uity – their as­sets mi­nus their debt.

The same group of com­pa­nies had a gear­ing ra­tio of 38% the pre­vi­ous year.

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