Insight
In line with expectations, capital expenditures started to rise again,
albeit from historically low levels. The 13% increase over the
previous year to USD57-billion suggests that miners are continuing
to proceed cautiously; approximately half of the capital expenditure
in 2018 was for ongoing projects.
Copper and gold dominated spending in 2018, attracting
USD30-billion of investment. Capital expenditure on coal was
consistent, year on year, and PwC expect miners will maintain
current production levels while the coal price remains high.
Copper and gold dominated
spending in 2018, attracting
USD30-billion of investment.
Rewards for major stakeholders
A 11% lift in operating cash flows has allowed the Top 40 to increase
shareholder distributions in 2018 to a record USD43-billion.
Dividend yield for the year was 5.5%. There was a notable jump in
share buybacks to USD15-billion, up from USD4-billion in 2017.
Rio Tinto and BHP accounted for 70% of the total activity returning
proceeds of non-core disposals to shareholders.
In 2018 the share of value distributed to governments in the
form of direct taxes and royalties increased from 19% to 21%.
Employees received 22% of the total value distribution from the Top
40. “Mining along with oil and gas, distributes a greater share of its
value to governments than almost any other sector,” says Andries
Rossouw, PwC assurance partner. “A number of countries have also
implemented carbon taxes and/or emissions trading schemes.” Of
25 countries in which the Top 40 operate, 13 countries have already
implemented these taxes/schemes and nine countries are actively
considering implementation.
Uptick in M&A
After several years of sluggish activity, M&A picked up significantly
in 2018. The value of announced transactions rose 137% to USD30-
billion, driven by a flurry of activity in the gold sector, the on-going
push by miners to optimise their portfolios, and momentum to
acquire energy metals projects.
According to Rossouw this renewed appetite for large transactions
looks as though it will continue throughout 2019, with the deal
value announced to 30 April 2019 already surpassing the value of all
the announced deals in 2017.
Gold sector consolidates
The gold sector is experiencing a renewed round of consolidation,
driven by a shrinking pipeline of projects, fewer new high-grade
discoveries and a lack of funding for junior developments. Gold
deals increased from 8% of total Top 40 deal value in 2017 to 25%
in 2018, and this year are tracking at close to 95% of deals as at the
end of April.
“Gold mining companies need to be rigorous and disciplined
with prospective deals. With substantially all the value generated by
mergers and acquisitions between 2005 and 2012 now lost, investors
are still reeling from past transactions where purchasers overpaid for
assets,” says Kotzé.
[40] MINING MIRROR AUGUST 2019
[40] MINING MIRROR AUGUST 2019
www.miningmirror.co.za