In fact, virtually all the gains of the once-in-a-generation resources super cycle have been wiped out, PwC said.
With a further $US53 billion of impairments in 2015, miners have now collectively wiped out the equivalent of 32% of their actual capex since 2010.
This also represents a hefty 77% of this year’s capital expenditure.
PwC Assurance Partner Andries Rossouw said: “While it is unfair to focus on the charges incurred this year as price assumptions were adjusted down, a longer-term perspective indicates a lack of capital discipline. In fact, from 2010 to 2015, the Top 40 have impaired the equivalent of a staggering 32% of their capex incurred.”
You would have thought that all those pinstriped-clad directors should have learnt thing or two about better capital management by now.
But no.
2015 was a race to the bottom with many new records set by the world’s 40 largest mining companies, according to the PwC annual Mine report.
The report reveals a first ever collective net loss of $27 billion for the Top 40 miners.
Mining Industry Leader for PwC Africa Michael Kotze said: “Last year was undoubtedly challenging for the mining sector. The Top 40 experienced their first ever collective net loss, their lowest return on capital employed, a significant drop in market capitalisation, and an overall decline in liquidity with the result that the Top 40 were more vulnerable and carrying heavier debt loads than in prior years.
“We are also seeing shareholders persist with a short term focus, impacting the capital available for investment and, as a result, constraining options for growth.”
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 focused on fluctuating commodities prices and short term returns rather than the long term investment horizon required in mining.
Mining companies now 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 signaling 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. This is an impressive achievement given the production increases seen during 2015 but Hogsback thinks this has mainly achieved by downsizing the workforce.
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.
While 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, Rossouw said.
“The response of the Top 40 miners has been twofold: an even greater focus on cutting expenditure, whether operational or expansionary, and an acceleration in asset sales. It will be interesting to see if these efforts can continue and the subsequent knock-on effects,” he said.
Hogsback thinks that - at some point - mining companies will have to stop the retrenchments and asset sales and get on with the business of mining more efficiently by the reward of innovation at the coal face and harnessing the investment in its people.
