Miners profits sank 72% over past year, lowest level in a decade

Miners profits sank 72% over past year, lowest level in a decade

The world's top 40 mining companies have seen profits plummet by a shocking 72% in the last 12 months, hitting the lowest level in ten years, reveals PwC's latest annual report on the global mining sector.

According to the study released Thursday, global net profits have dropped to $20 billion in the last year, with gold, coal and diversified miners being the worst affected.

Miners profits sank 72% over past year, lowest level in a decade

The combined market capitalization of world’s 40 largest companies, including giants BHP Billiton, Rio Tinto, Anglo American, Vale, Glencore Xstrata and Fortescue Metals, fell by 23% to $958 billion.

The commitment to reduce expenditure may drive merger and acquisition activity, with companies seeking to share capital expenditure and infrastructure, PwC said in the report titled “Mine 2014: Realigning Expectations.”

Miners profits sank 72% over past year, lowest level in a decade

Gold producers were the worst affected by writedowns, impairing $27 billion of assets, after the price of bullion fell 28 percent in 2013, the largest annual drop since 1981. Barrick Gold Corp., the world’s No.1 producer, last month failed to buy its largest competitor, Newmont Mining Corp., a merger that was partly driven by cost savings.

However, the bleak figures haven't stopped the world's big miners from rewarding shareholders. And dividends almost tripled from $15 billion to $42 billion over the last five years, as they have become an important tool for miners trying to retain investor support.

PwC global mining leader John Gravelle said in a statement the industry is adjusting to tough times in the short-term with strategies in place to regain confidence.

"Despite diminished profitability and shrinking cash, underlying performance in the industry as represented by adjusted EBITDA, withstood the tough conditions, only down 8% in 2013," Gravelle said.

Miners profits sank 72% over past year, lowest level in a decade

"Dividend yields also continued to increase, with gross dividends paid up 5% and dividend yields slightly up to 4%."

Gravelle also said that the industry is witnessing fundamental shifts in strategy, such as increasing focus on extracting value from higher-quality assets, realising greater efficiencies and spreading capital and risk, and a commitment to address diminishing productivity levels.

This is how the worst year in a decade looks like for the world's top 40 miners:

  • 72% decrease in aggregate net profit to $20bn.
  • 23% reduction in market value to $958bn.
  • Dividends tripled from $15bn to $42bn in the last 5 years
  • 42% increase in net debt due to rise in payouts

The report forecasts that the capital expenditure in the sector will be around $116bn, which is 11% lower than 2013 as capital velocity slows.

Only seven of the 40 companies analyzed by PwC increased their net profits, while just four ended last year with higher market capitalization than the previous 12 months.

For the first time miners from emerging markets made up more than half of the 40 companies in the annual study.