Global mining giants drive strong industry performance

The world’s 40 largest mining companies continued their steady growth last year despite low investor sentiment, according to PwC’s Mine 2019 report.

Five Australian companies made the top 40 list, including BHP, Rio Tinto, South32, Newcrest Mining and Fortescue Metals Group.

As a group, the top 40 increased revenue by eight per cent and lifted production by two per cent.

They also boosted cash flows, paid down debt and provided a record $43 billion dividend return to shareholders.

There was a notable jump in share buybacks to $15 billion, which is up from $4 billion in 2017.

Rio Tinto and BHP accounted for 70 per cent of the total activity returning proceeds of non-core disposals to shareholders.

The report predicts forecasts of steady growth throughout this year, with revenue remaining stable due to weaker prices for coal and copper offsetting marginally higher production and higher average prices for iron ore.

Despite these strong results, however, investors seemed unimpressed based on market valuations, which fell 18 per cent over 2018.

While total market capitalisation rose in the first term of this year, it still remains eight per cent lower compared to the end of 2017.

PwC Australia mining leader Chris Dodd said the results proved that “mining requires more than good financial performance to continue to create and realise value in a sustainable manner.”

“We believe that the market has reservations about the mining industry’s ability to respond to the risks and uncertainties of a changing world,” he said.

“With strong balance sheets and cash flows, now is the time for the top 40 to more actively address the issues weighing down market values: climate change, shifting consumer sentiment, and technology adoption.”

Copper and gold dominated the spending last year, attracting $30 billion of investment while expenditure of coal was consistent, year on year, with the report forecasting miners will maintain current production levels while the coal price remains high.

The gold sector in particular is consolidating, driven by a shrinking pipeline of projects, fewer new high-grade discoveries and a lack of funding for junior development.

Gold deals increased from eight per cent of total top 40 deals value in 2017 to 25 per cent in 2018, and this year are tracking at close to 95 per cent of deals as of the end of April.

“In the current market, gold mining companies need to be rigorous and disciplined with prospective deals,” Dodd said. “Investors are still reeling from the spate of overpriced deals between 2005 to 2012, the value of which has now been lost.”

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