The world’s top 40 miners saw returns hitting decade-low in 2014 — report

The world’s top 40 miners saw returns hitting decade-low in 2014 — report

(Image: Screenshot from “The Un-credible Shrinking Man")

The world’s 40 largest mining companies shed $156 billion in market value last year, or about 16% of their combined worth, the lowest since at least 2003 as a result of a sustained fall in commodity prices, according to PricewaterhouseCoopers (PwC).

In its latest report, published Thursday, PwC said the unexpected, but major drop in iron ore prices was what largely drove the steep decline in investment returns, but coal and copper also contributed to it.

In fact, the only commodities that generated higher revenues for miners compared with their 2013 results were nickel, zinc and platinum, adds the report.

The drop in investment returns was the second straight year of decline and left the combined market value about half what it was four years ago, according to PwC.

The average return on capital employed fell to 9% last year from 9.5% in 2013, notes the report, adding that only six companies — including Coal India, Norilsk Nickel and Randgold Resources — beat the hurdle investment rate of 15% to 20%.

China’s comeback, S. Africa’s exit

For the first time since 2004, there were no companies from South Africa in this yearly report, which analyses 40 of the largest listed mining companies by market capitalization.

In contrast, 2014 was the second year the majority of the companies that made it to PwC's Top 40 list came from emerging markets, including Brazil‚ Central & Eastern Europe‚ China‚ India‚ and Saudi Arabia‚ rather than from members of the Organization for Economic Cooperation and Development (OECD).

The ranking saw two new entrants from China and a lower overall decline of only 7% — compared to an OECD drop of 21% — in market capitalization.

The study ends on an upbeat note, saying that despite China’s current slowdown, its demand for copper and other metals is likely to pick up over the longer-term.

"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," the report said.

Andries Rossouw, PwC Assurance Partner, notes that how the mining industry will grow in the years ahead will be impacted by a number of factors, including the ability of tier 1 assets to produce substantial quantities at costs significantly below average and the demand for commodities from China and other emerging markets.

Rossouw also mentions the impact of changing tax, environmental and beneficiation regimes and the players’ willingness to enter into greenfield projects, instead of only developing smaller brownfield ones, as playing a key role in the industry's future.