Slower, lower, weaker... but not defeated - PwC Mine 2016 report

Published at 00:01 AM on 07 June 2016

  • The first collective net loss in the Top 40’s history (US $27billion)
  • Market capitalization down 37 per cent (%), in some cases below Net Book Value
  • High debt sees some miners fighting for survival , committing to asset sales
  • Focus on costs continues, but so do economic headwinds

2015 was a race to the bottom with many new records set by the world’s 40 largest mining companies according to the PwC’s annual Mine report, launched on the eve of the London School of Mines conference. 

The 13th in PwC’s industry series analysing financial performance and global trends, the report reveals a first ever collective net loss (US$27bn) for the Top 40 miners with market capitalisation falling by 37%, effectively wiping out all the gains made during the commodity super cycle. 

Jason Burkitt, UK mining leader, PwC, commented:

“Last year was undoubtedly challenging for the mining sector. A 25% year-on-year decline in commodity prices meant mining companies had to ratchet up their productivity efforts, while some found themselves in a fight for survival, with asset disposals and closures to follow. 

“We’re also seeing shareholders persist with a short term focus, impacting the capital available for investment and, as a result, constraining options for growth. But this is a hardy industry, and while miners may be down now they are certainly not out.”

Mine 2016 also found:

  • Investors punished the Top 40 for poor investment and capital management decisions and, in some quarters, for squandering the benefits of the boom.
  • Concerns over the 'spot mentality' from shareholders focussed on fluctuating commodities prices and short term returns rather than the long term investment horizon required in mining. 
  • A focus on maximising value from shedding assets as well as mothballing marginal projects or curtailing capacity by Top 40 miners. This is further evidenced by a significant drop off in capex signalling an almost stagnant investment environment.
  • A positive focus on cost reduction resulting in a 17% drop in operating costs against a backdrop of higher production volumes and lower input costs – an impressive achievement given the production increases seen during 2015.

 Capital discipline and impairment levels

With a further $53 billion of impairments in 2015, miners have now collectively wiped out the equivalent of 32% of their actual capex since 2010, a stark reminder of the value that has already been lost. This also represents a hefty 77% of this year’s capital expenditure. 

Jason Burkitt, PwC’s UK mining leader, added: 

“The level of impairments since 2010 points to a lack of capital discipline in the boom years. The focus was on production at the expense of more rigorous investment assessment. In addition, the return of capital employed (ROCE) halved from 8% to 4% year-on-year, pointing to the ongoing pressure of driving good returns from current investments.”

China no longer the industry hero

Whilst China is still critical to the success of the industry, accounting for approximately 40% of overall commodity demand, it can no longer be relied on to supercharge returns. As the country moves from a manufacturing based economy to a services-based economy the previously rampant demand for commodities will not resume with the same intensity. Despite this shift, the number of Chinese mining companies in the Top 40 continued to increase from nine to twelve. 

Debt burdens will mean some heavy lifting ahead

Debt management has moved to the top of the business agenda for many of the Top 40 miners. For some, the driver was maintaining access to capital at reasonable rates. For others, it was simply crucial to survival.  Whilst the Top 40 trimmed a slither of their overall debt in 2015, liquidity metrics have begun to trigger alarms.  Leverage is at an all-time high and cash used to repay debt was broadly equal to cash from borrowings.  It’s no surprise that the ratings agencies responded with widespread ratings downgrades.  

Jason Burkitt, UK mining leader, PwC, commented: 

“The response of the Top 40 miners has been two fold. Firstly to continue their cost cutting measures which has already delivered substantial savings and secondly, to offload non-core assets. We expect 2016 to be very busy on the deal front.”

Down…but not defeated

While the industry continues to face significant market challenges and constraints, Jason Burkitt, PwC’s UK Mining Leader, maintains there is still a long term positive outlook:

“In the first five months of the year, we’ve been encouraged by some recoveries in market capitalizations and commodity prices – but with high volatility still in play, hopes of a sustained rebound are tempered.

“Many of the Top 40 appreciate what is required for the marathon of mining and have their eyes firmly fixed on the long term rewards.”


Note to Editors

  • A copy of ‘Mine 2016’ can be downloaded at: and through PwC’s 365 App in the Apple Store. For info on London School of Mines, click here.
  • Slower, lower, weaker... but not defeated - Mine 2016’ is an analysis of the 40 largest mining companies by market capitalisation, with all figures reported in US dollars
  • The aggregated results were sourced from the latest publicly available information, primarily annual reports


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