[miningmx.com] – THE world’s 40 largest companies shed $156m in market value during 2014, equal to 16% of their combined value – a decline largely driven by the skidding iron ore price, said PwC in its latest annual survey on the mining sector.
“The good news is that’s only half of last year’s slide,” said the report’s authors John Gravelle, Stuart Absolom and James Terry.
The total combined market capitalisation of the top 40 was $791bn at the end of 2014 – a level last recorded 10 years ago when the metals supercycle caught the imagination of the world’s investors and saw non-specialist funds flocking to mining shares.
The report rates company size by market capitalisation and includes the financial performance of companies such as China Shenhua Energy Company and Potash Corporation of Saskatchewan as well as more recognisable industry names such as Glencore, BHP Billiton, Anglo American and Rio Tinto.
During 2014, there was a decline in total company assets owing to a cut in capital expenditure while profit adjusted for impairments was also lower in the year, down 9% to $72bn on a combined basis, PwC said.
However, free cash flow improved to $24bn in 2014 from a $3bn outflow in 2013 as a result of the lower capex bill. “This reversal allowed companies to return funds to shareholders without having to increase their debt,” the authors said.
“In fact, there was a 20% decrease in proceeds from borrowings and a 7% increase in debt repayments,” they said.
Nonetheless, PwC warned that the world’s major mining companies were “walking a fine line” in attempting to keep paying dividends using debt.
“Although not as drastic as in 2013, dividends paid in 2014 consumed all available cash, reducing the balance sheet flexibility of miners in the expected continuing lean times,” the authors said.
The report, which observed there had been an increase in so-called ‘resource nationalism’, or interventionist policies, said there were no companies from South Africa in the Top 40 list. This was “… the first time a company from this traditional mining heavyweight has not been part of our analysis,” said PwC.
Five South African companies were included in PwC’s first report on the sector in 2004.
Commenting on market conditions for 2015, PwC fell in with consensus saying the industry would continue to struggle with over-supply while demand would be subdued although on a unit basis, China was still a major driver of metals consumption.
“A slowdown in China’s economic growth, to around 7% from double-digit growth in recent years, is expected to weigh on the industry in the months to come.
“However, to put China in perspective, the lower projected 2015 GDP growth will still create about a $1 trillion increase in the base – more than the combined market capitalisation of the Top 40.
“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 authors said. China accounts for as much as 40% to 50% of global commodity demand.
