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PwC’s ‘Mine 2018’ report, which was released on the sidelines of the Junior Mining Indaba conference held in Johannesburg, indicates that the world’s 40 largest mining companies delivered an impressive financial performance in 2017, increasing revenue by 23% to $600-billion. “For the world’s Top 40 Miners, 2017 was a remarkable year. We’re expecting the improved performance to continue into 2018 as companies continue to reap the benefits of the upswing in the mining cycle,” Michal Kotzé, Energy, Utilities and Mining Industry Leader for PwC Africa, said at the report’s launch.

Mining becomes profitable again“One of the risks currently facing the world’s top miners is the temptation to acquire mineral-producing assets at any price in order to meet rising demand. While we expect capital expenditure to increase next year as companies implement their long-term growth strategies, miners must be careful to maintain discipline and transparency in the allocation of capital.”

Miners continued to focus on strengthening their balance sheets in 2017, the report found, with $25-billion being allocated to the repayment of debt, and capital expenditure at a record low of $48-billion. As a result, gearing has fallen from 41% to 31%, which is back in line with the Top 40’s 15-year average. “With the liquidity concerns that were still lingering in 2016 now largely resolved, balance sheets are strong, and companies have the flexibility to act,” the report states.

PWC expects that favourable market conditions, higher commodity prices and strong internal discipline will produce increased liquidity and balance sheet strength this year. Similarly, shareholder returns have almost doubled year-on-year, from $16-billion in 2016 to $36-billion, and based on current levels of performance, dividends are likely to reach record highs in 2018.

“Shareholders who endured the boom cycles of 2008 and 2012 will be keen to reap the rewards of their patience now that optimism and profits are back. But the immediate temptation for larger returns – for shareholders or other stakeholders – must also be balanced against the on-going need to invest for sustainable long-term value,” Kotze warns.

Mine 2018 indicates that 2017 saw a range of new entrants active in the mining sector. Private Equity (PE) investors took a keen interest in mining investment opportunities, for example, and were active participants in almost every quality coal deal brought to market in Australia during the year.

There are also examples of non-mining companies partnering or merging with miners to secure access to commodities. For example, Agrium, a Canadian fertiliser and chemical wholesale and retail company merged with the world’s largest potash producer, PotashCorp, while Tesla continued to invest in lithium supplies, including its recent transaction with Kidman Resources in Australia.

Bulk commodities such as coal, copper, iron ore, zinc, manganese and chrome also showed remarkable price increases over the last two years. Miners of these commodities in Africa therefore reflected similar trends to those across the global mining industry. Unfortunately, precious metals haven’t done as well, PwC says.

The US-dollar gold price has remained relatively flat and platinum prices are at extreme lows. With higher input costs driven by input cost inflation, miners of these commodities are not experiencing the same growth as other commodities. They are still faced with the challenges of the bottom of the commodity cycle and job losses and mine closures are real risks.

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