World’s largest miners set to reward investors as never before as cash hits all-time record

THE world’s largest mining companies have never been more cash generative, but they are reticent to spend on new projects raising the risk of under-supplying the metals market, said PwC in a report published today, Mine 2021.

Andries Rossouw, mining leader for PwC’s Africa practice, said the largest mining companies felt at risk of becoming caught up “in the hype” created by significant price increases. They were also wary of greenfields expansion, preferring projects that were cash generative and sustainable. But he added: “There’s a real risk of under-supplying the market and damaging it.”

Data from Mine 2021 showed that capital expenditure, including stay-in-business capital, was likely to top $81bn for this year. This represents a one-third increase over 2020 and the highest since 2015, but it was well below the levels of spend incurred when the group’s combined market capitalisation was last at current levels.

In 2020, the top 40’s total capitalisation rose 64% to $1.46tn which by April had outperformed by 20 basis points the performance of other indices such as the S&P 500 and the FTSE 300 Index.

Rossouw said the preference for mining firms was to reward shareholders, especially following the last commodity price collapse in 2013 which left mining firms unable to service their balance sheets. “Shareholders are asking for long-term sustainable returns. But boards have to think in terms of long-term sustainability,” said Rossouw.

The Top 40 surveyed in PwC’s report includes the world’s diversified miners such as Glencore and BHP Billiton, but it also involves four South African companies, including AngloGold Ashanti which re-entered the index on the back of improved gold prices.

There was significant cash build in 2020 which was partly a response to the Covid-19 pandemic which saw companies take a conservative attitude towards expansion. Cash on hand totalled $123bn in 2020 which represented an increase of 40% over 2019.

PwC said shareholders would see record dividend payments this year.

“If historical payout ratios hold true, the Top 40 stands poised to tear up the record books for dividends in 2021,” said PwC in its report. “Miners have more free cash flow than at virtually any other time in their history, and shareholders are expected to be rewarded for their loyalty,” it said.

The financial optics for 2021 are shaping up to be record-breaking with group revenue excluding trading expected to rise to $700bn, an increase of 29% year-on-year, said PwC. Earnings before interest, tax, depreciation and amortisation is expected to increase 40% to $243bn whilst net profit will be $118bn for the top 40, a 68% increase year-on-year.