Insight
Mines strengthen balance sheets
According to PwC ’ s Mine 2018 report , the world ’ s 40 largest mining companies have delivered an impressive financial performance in 2017 , increasing revenue by 23 % to USD600-billion .
Expectations are that the improved financial performance of the Top 40 will continue as companies continue to benefit from this upward momentum in the mining cycle . According to Michal Kotzé , energy , utilities and mining industry leader for PwC Africa , 2017 was a remarkable year for the world ’ s Top 40 miners .
“ One of the risks currently facing the world ’ s top miners is the temptation to acquire mineral-producing assets at any price to meet rising demand . While we expect capital expenditure to increase next year as companies implement their long-term growth strategies , miners must be careful to maintain discipline and transparency in the allocation of capital ,” says Kotzé .
Miners continued to focus on strengthening their balance sheets in 2017 , with USD25-billion being allocated to the repayment of debt , and capital expenditure at a record low of USD48-billion . As a result , gearing has fallen from 41 % to 31 %, which is back in line with the Top 40 ’ s 15-year average . With the liquidity concerns that were still lingering in 2016 now largely resolved , balance sheets are strong , and companies have the flexibility to act .
“ In 2018 , we expect that favourable market conditions , higher commodity prices , and strong internal discipline will produce increased liquidity and balance sheet strength . While we expect to see an increase in value and growth opportunities in 2018 , we anticipate that this will be tempered by a continued focus on maintaining a robust and flexible balance sheet ,” says Andries Rossouw , assurance partner at PwC .
Tax expenses increased 81 % in 2017 , with cash taxes paid to governments rising by 67 %, despite the fact that corporate tax rates remained relatively stable across most key markets .
The jump in tax expenses was driven mostly by increased profit and the impact of US tax reforms , which saw a one-off 4 %
( or USD2.8-billion ) rise in the effective tax rate due to a revaluation of deferred tax . It is expected that US tax reforms will ease the tax burden on US operations going forward .
Last year saw a range of new entrants active in the mining sector . Private equity ( PE ) investors took a keen interest in mining investment opportunities , for example , and were active participants in almost every quality coal deal brought to market in Australia during the year .
There are also examples of non-mining companies partnering or merging with miners to secure access to commodities . For example , Agrium , a Canadian fertiliser and chemical wholesale and retail company , merged with the world ’ s largest potash producer , PotashCorp , while Tesla continued to invest in lithium supplies , including their recent transaction with Kidman Resources in Australia .
There was a 36 % reduction in the number of fatalities among the 28 companies ( of the Top 40 ) that disclosed safety statistics in 2017 . Of the 22 companies that disclose injury statistics , 15 reported that the number of injuries had either fallen or remained consistent compared to the previous year . While an improvement in the safety record of the Top 40 is welcome news , there is clearly more work to do to ensure a safe working environment for all employees .
Bulk commodities such as coal , copper , iron ore , zinc , manganese , and chrome also showed remarkable price increases over the past two years . Miners of these commodities in Africa will reflect similar trends to those explained for the global mining industry .
Unfortunately , precious metals haven ’ t done as well . The US-dollar gold price has remained relatively flat and platinum prices are at extreme lows . With higher input costs driven by input cost inflation , miners of these commodities are not experiencing the same growth as other commodities . They are still faced with the challenges of the bottom of the commodity cycle and job losses and mine closures are real risks . b
[ 40 ] MINING MIRROR AUGUST 2018