Top 40 down but not out
Impairments by global mining industry’s biggest firms hit $53bn last year, while net loss was $27bn
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.