The financial performance of mining companies in 2015 was extremely downcast and challenging.
Andries Rossouw, PwC Assurance Partner, said “This year’s cash flow is the worst since the financial crisis in 2008 and reflects the margin pressure and liquidity concerns experienced by the industry.”
This state in the sector was owed to local cost pressures, labour action, and a continuing downswing in commodity prices resulting in shrinking margins and impairment provisions.
These were some of the deductive conclusions that were reached by a report compiled by PwC which led to the recently held Joburg Indaba: Investing in Resources and Mining in Africa conference.
According to the report, the declining market capitalisation left few companies unscathed. “Market capitalisation for the top 35 companies declined to R414 billion as at 30 June 2015 (compared to R675 billion as at 30 June 2014).”
The most impact was felt by iron ore and coal prices however platinum and gold mining companies still experienced the slippery slope downwards.
“Despite a continued reduction in prices, coal remains the highest earning commodity in South Africa. Coal had a solid performance over the last decade, with marginal increases in production in the last few years,” said the report.
Operating cost also increased by 14 per cent, which is higher than the 13 per cent of the last financial year. The report cited labour costs as the biggest cost component in the local mining industry.
The risk profile of mining companies has not changed dramatically however, what has changed is the priority of rankings allocated to the different risk exposures. Rossouw said, “Many mining companies are in the process of renegotiating the terms of their debt facilities with financial institutions, or will be doing so in the near future.”
According to safety statistics, there is a higher level of focus in place and this becomes particularly clear when one compares current statistics to historic ones, which show a significant decrease in fatalities over the long term.
Michal Kotze, PwC African Mining Industry Leader, says: “The message to miners is clear: ‘Continue to focus on costs, refocus on your core business and carefully evaluate growth opportunities.’ It certainly will make for some interesting planning and forecasting discussions in the coming year.”