According to PwC’s Mine 2017 report, the world’s Top 40 miners recovered from a race to the bottom, with bolstered balance sheets and a return to profitability in 2016, giving them much-needed space to pause and draw breath.

Miners taking a deep breath“The narrative of the Top 40 in 2016 tends to read like a mine site safety mantra: Stop. Think ... Act. The industry has moved out of danger but 2016 was not a year of significant action, and we now wait to see who will be bold and step out beyond the fluctuating market confidence,” says Michal Kotzé, Energy, Utilities and Mining Industry Leader for PwC Africa.

The report analysed 40 of the largest listed mining companies by market capitalisation, and found an aggregate net profit of $20 billion in 2016, following the aggregate loss of $28 billion in 2015. The improved fortunes of the industry were then directed to strengthening balance sheets, PwC analysts said.

Overall, the market capitalisation of the Top 40 increased by 45% to $714 billion in 2016, mainly as a result of rising commodity prices. Revenue, however, 40 remained relatively flat – up just 1% from the previous year’s sum of $491 billion – despite a rebound in commodity prices, particularly coal and iron ore in the second half of the year. Capex fell dramatically again, by a further 41%, to a new record low of just $50 billion.

“Balance sheet clean-ups require discipline, and this has resulted in a tailing-off of impairments, the avoidance of any new bankruptcies, the absence of any significant streaming transactions and a general passing of distress. The market rightly applauded this, reinstating a positive gap between market caps and net book values that was absent in 2015,” the report states.

“All of this provides a platform for decisive action in the future. While many will be willing to ride the waves of industry sentiment, others will see the conditions as ripe for value accretive moves, with market differentiation their immediate goal. Action might also come in the form of commitments to greenfield projects, M&A or technology – or a combination of these – while others may realign their strategy in response to external forces such as recycling and substation, shareholder activism and government intervention.”

Mine 2017 found that China remains the exception to the dominant investment behaviour within the Top 40. During the downturn, Chinese companies demonstrated one enormous advantage over other miners from both traditional and emerging countries: access to capital.

Chinese players were therefore able to fund more acquisitions than their counterparts, either confidently buying assets at bullish prices or moving quickly on assets made available at the bottom of the price cycle. There was also an increase in acquisitions by Chinese private equity firms, and PwC expects China to continue to be active in acquiring global mining assets as a way to reduce its longer term dependency on imports.

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