It was mining’s annus horribilis.
In 2013, the largest 40 global mining companies booked record impairments of $57-billion (U.S.), driving down aggregate net profits a whopping 72 per cent to $20-billion, a descent not seen in a decade, according to PricewaterhouseCoopers LLP’s annual “Mine”report.
The Top 40’s market capitalization fell by $280-billion, or 23 per cent, to $958-billion at the end of last year.
Only four of the Top 40 companies managed an increase in market cap: Freeport-McMoRan Copper & Gold Inc. (copper), Fortescue Metals Group Ltd. (iron ore), First Quantum Minerals Ltd. (copper, gold) and Polyus Gold International Ltd.
Gold producers were the hardest hit. Gold prices experienced their biggest annual decline – 27 per cent – in more than 30 years, says the report, released Thursday. And gold companies accounted for the lion’s share of impairments: $27-billion.
HSBC’s global mining index fell 23 per cent, a decline due to the negative commodity price outlook but “also in part due to the continued lack of confidence from investors based on historical performance,” the report said.
In stark contrast, the Dow Jones and FTSE-100 were up by 27 per cent and 15 per cent, respectively, in 2013.
The good news is that, despite volatility, “the industry is still supported by overall long-term demand fundamentals, specifically from emerging markets, particularly China.”
And shareholders continued to be rewarded with attractive dividend streams.
“Based on the December 2013 market capitalisation [sic] and 2013 dividends paid, the Top 40’s dividend yield is now over 4 per cent providing a relatively attractive investment proposition as compared to record low interest rates, with the potential for upside from improvements in commodity prices and productivity in the future.”
Total dividends of $41-billion last year were double the total net profit of $20-billion.
The report warns that this kind of largesse might not be sustainable much longer given that the ratio of dividends to net profit, as well as negative free cash flow so far this year, indicate some dipping into retained earnings and “potentially an increase in debt to fund dividend payments across the Top 40.”
Also noteworthy is that, for the first time, 2013 saw the majority of the Top 40 hail from emerging markets.
And net profits from emerging market companies reached $24-billion last year, compared with a net loss of $4-billion for developed-market entities.
The Top 40 CEOs are also not in the mood these days for making a splash by promoting production increases, the report says.
Instead they are “vying for the title of the lowest-cost producer among their peers.”
But the next step is regaining investor confidence by increasing profitability – and thus shareholder value – and proving that the cost-cutting and efficiency gains are sustainable, according to the report.
Canadian companies in the Top 40 include Barrick Gold Corp., Cameco Corp., First Quantum Minerals Ltd., Potash Corp. of Saskatchewan Inc., Silver Wheaton Corp., Teck Resources Ltd. and Yamana Gold Inc.