[miningmx.com] – ON a flying visit to South Africa, newly installed Anglo American CEO, Mark Cutifani, expressed his belief “the world was still short of commodities’.
“The world is short of commodities, but not of resources; the challenge is to find ways of extracting those resources by successfully navigating the social, political, environmental and logistical complexities,” he said.
That’s miners’ optimism. It can be contagious but often lead to the kind of excesses that have wound up with the world’s mining firms over-committed on capital projects in a market that has suddenly pulled down the shutters on short-term demand.
It has led to self-imposed austerity by the miners, but investors had already left the building many months before.
Consultancy, PwC, recapped this condition in its recently published annual survey “Mine’ which said the mining industry had lost the confidence of the investment community.
“Since January 2012, the HSBC Global Mining Index fell by 30% but the broader markets rallied,’ PwC said in its report. The HSBC Global Mining Index also underperformed the Dow Jones and the FTSE 100 by 46% and 43% respectively, it said.
This is not new news for followers of the mining sector. They will have noticed that of the world’s top 40 mining companies, net profits were down 49% to $68bn in the period April 2011 to December 2012.
The rush to capitalise on the super-cycle also delivered some hasty decisions with tonnes or ounces of minerals coming into the market with less than robust economics, hence the $45bn worth of impairements in the period.
The big crash came in the first five months of this year, according to PwC. Share prices of the top 40 miners fell a consolidated 20%. The outcome is that half of the top 10 mining companies have seen the introduction of new leaders.
Apart from the wide-ranging austerity measures introduced by almost all miners across the board, there has been a push to improve yield; in other words, give back shareholders cash instead of digging new holes. While it’s always folly to guess the bottom of the market, it’s not silly to expect certain mining stocks to put more in your pocket.
According to PwC, eight of the top 10 mining companies have promised that current dividend levels will either be maintained or improved. “The top 40’s dividend yield is nearly 4% – higher than historical levels and closing the gap with other capital intensive industries such as oil and gas,’ PwC says.
Even in the depressed state of the period that falls under PwC’s review, dividends of the top 40 mining companies had increased 7% to a total of $39bn.
And for followers of the emerging market story, the news is promising for miners.
Emerging market players now represent 50% of the top 40 whereas they comprised just about 15% of the total market in 2003, according to PwC.
While the rest of 2013 is expected to be headlined by slower growth, higher growth prospects are back on the radar in 2014, the consultancy says.
And who says consultancy firms can’t find religion in these difficult times. Reflecting the optimism of Cutifani that China growth, and the urbanisation of its vast population, will continue to underpin the mining market, PwC says: “While currently there may be a confidence crisis, we have faith’.
