A new report by PWC shows that in 2014, the world’s top 40 mining companies lost $156 billion, or about 16 per cent of their combined market value.
In its 12th annual review of the top trends in the global mining industry, PWC said the prolonged downturn in commodity prices has forced companies to fight hard to implement measures aimed at improving cashflow.
While the report shows these efficiency efforts have started to pay off, with companies reducing capital spending and improving free cash flow, PWC said the outlook for commodity prices remains dim.
“As the old saying goes, survival will be of the fittest, and for miners also the leanest,” PWC said.
“Miners across all metals and minerals continue to focus on core operations, cost cutting, and capital discipline in their quest to improve their relative position on the cost curve and remain profitable during this prolonged period of low prices.”
The analysis shows that China economic slowdown to around 7 per cent from recent years of double-digit growth will continue to weigh on the industry in coming months.
With China accounting for 40 – 50 per cent of global commodity demand, the slower growth has already had a major impact on iron ore, and metallurgical coal, PWC said.
The report said demand could weaken even further with the potential for more weakness to come into China’s real estate market, as well as an overall slower pace of urbanisation.
However, PWC said it was important to keep the China story in perspective.
“The lower projected GDP growth will still create about a $1-trillion increase in the base – more than combined market capitalisation of the big 40,” PWC said.
Despite this, iron ore and metallurgical coal will still remain under pressure, as both commodities struggle with oversupply caused by marginal operators being slow to close, PWC said.
However the outlook for base metals may not be so bleak, in particular for nickel, copper, zinc, and aluminium.
PWC said tighter supply for these commodities has led to either a stabilisation or an increase in prices.
The report showed that nickel supply especially, could see constraints as stockpiles decrease following a ban on exports of unprocessed ore in Indonesia.
Meanwhile the shutdown of older mines is expected to favourably impact the price of certain commodities, such as zinc.
Unsurprisingly, the top 40 made no new significant investments in 2014, but some moved to increase production.
But at the same time, some chose to curtail production and are considering disposals of non-core assets.
PWC said miners will need to stay on the defensive and in lean fighting form as they “bob and weave through a number of o going challenges ranging from slumping commodity prices and volatile markets, to growing pressures from government and stakeholders.”
“It’ll be a tough match,” PWC said.