Mining Profits Buried In A £166 Billion Hole

The global mining industry fell into a £166 billion hole last year as the market values of companies collapsed.

Profits were also rocked – falling by nearly three-quarters to £12 billion.

The figures were also skewed by emerging market mining companies making around 314 billion in profits, while those in developed nations were £2.38 billion in the red.

The numbers made 2013 one of the most challenging years for mining businesses worldwide, and a review of the top 40 international firms showed none were immune from market movements, says research from international accountancy firm PwC.

Stocks dropped by around 23% as gold in particular led the decline by falling to the lowest price in three decades, said the report.

PwC reckons the figures show that the global mining sector has hit the lowest level for at least 10 years.

Tough times for mining companies

“The industry is going through tough times,” said Jason Burkitt of PwC.

“The market is changing and so are the people and companies leading the way. During the past two years, new faces have appeared on the boards and several firms have been merged or taken over.

“Despite the problems, for a shareholder viewpoint, gross dividends payments have increased by 5% and yields nudged up to 4%.”

Another big shift in the mining landscape saw emerging marker companies take more than 50% of the leading performer places for the first time.

PwC believes this shift is likely to continue as emerging markets have more cash to put into their businesses that developed country companies.

Another issue that may have a major impact on the future of mining is the result of emerging market elections.

Cost saving efficiencies

Brazil, India, Indonesia and South Africa have all recently changed governments and this may change how they view royalties, taxes and licences for mining rights in their territories.

“We are looking at an exciting time in this marketplace as important strategy shifts are emerging,” said Burkitt. “Companies are examining how to simplify their operations and extract more value from what they do.

“This results in more efficient use of assets, less risk and shows a commitment to increasing productivity.”

For investors, the key is to see how companies manage cost-saving in 2014 to reduce operating costs and increase profits.

For some companies, observes Burkitt, this will be hard as they have already deferred capital; expenditure they really need to make to cut costs.

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