THE global mining industry has endured a difficult few years and for many mining companies, optimism has been in short supply. Persistently low commodity prices, waning demand and tightening capital and credit markets have been squeezing the industry.
Companies of all sizes have seen the strong profits of 2011 and 2012 give way to painful losses, and exploration has slowed to a trickle as the industry waits to see if and when markets begin to cycle upward.
However, according to BDO’s inaugural Global Mining Middle Market Monitor the end of the downturn may be in sight. The study found that although companies continue to struggle, there is reason for optimism - among global middle market mining companies, from 2014 to 2015, median exploration expenditures grew 17% and median cash balances increased a modest, but still promising, 2%.
“The global mining industry has had to navigate intensely murky waters over the past half-decade, first digging out of the fallout of the 2008-2009 financial crisis and rebuilding, only to falter again amid volatile commodity prices and softening Chinese demand,” said BDO’s Global Natural Resources Practice leader Charles Dewhurst.
“Creativity in this industry may be the ultimate kingmaker: mining companies who can find effective ways to streamline their businesses, maximise their resources, collaborate with the right partners and develop a nimble core business will be the first able to take advantage of any market rebound.”
The monitor reviews and analyses financial data reported by 528 publicly traded middle market mining and diversified metals companies from 61 country and international stock exchanges from 2010 to 2015. These companies reported revenues up to US$1 billion, with median revenue of US$127 million.
- Revenue is on the road to recovery: Though median revenue among the companies declined 10% from 2014 to 2015, it grew 23% from 2010 levels. By way of comparison, among the world’s 28 largest mining companies, median revenue decreased 16% between 2014 and 2015, and grew 4% from 2010 to 2015.
- Investors remain skittish: It comes as little surprise that investor confidence has suffered, with median global market capitalisation declining from nearly US$280 million in 2010 to US$76.7 million in 2015. However, there may be reason to believe this could turn around in the next couple of years - the global median price-earnings ratio decreased 31% between 2010 and 2015, but increased 15% in the last year alone.
- Tax rates bottom out: Despite operating in countries and regions with historically high corporate tax rates, middle mining companies have seen their median effective income tax rate steadily decline as profits gave way to losses. Median effective tax reached a five-year high in 2011 at 17.8% but by 2013 was to 9.8% and by 2015 middle mining companies were paying virtually no tax.