Mines in for tough ride as profits tank

Johannesburg - The global mining industry is facing a market confidence crisis, a PricewaterhouseCoopers (PwC) report has found.

"While 2012 saw mining stocks fall slightly, they fell nearly 20% in the first four months of 2013," PwC said in a statement on Wednesday.

According to the report, the industry faces a confidence crisis. "Confidence over whether costs can be controlled, return on capital will improve and commodity prices will not collapse, among others."

The report analysed 40 of the largest listed mining companies in major economies, including the United Kingdom, the United States, Canada, Australia, China, Russia, India, Brazil, Poland, Mexico and South Africa.

It found that global mining revenues levelled at $731bn, and net profits were down by 49%, to $68bn.

With regards to "total market capitalisation" gold miners in the top 40 lost $29bn in 2012, while in the first four months of 2013, they lost a further $58bn in value.

It found that since April 2012, half of the CEOs had been replaced at the largest 10 mining companies.

PwC Africa mining leader Hein Boegman said in the statement that on the demand side of the industry, "fundamentals are still there".

Bounce back

"But regaining investor confidence depends on how the mining industry responds to its rising costs and in particular labour, increasing volatile commodity prices and other challenges, such as resource nationalism and that new CEOs can deliver on promises," Boegman said.

"Our analysis of the new leaders and their predecessors suggests there is a demand for a different type of leader as the industry undergoes change."

Boegman said, however, it was important to recognise that the industry's emphasis continued to shift.

"For the first time ever, half of the top 40 miners are from non-traditional markets. China continues to be the industry’s most important customer," he said.

"While Chinese growth rates are slowing down, they are coming from a bigger base, so future demand for commodities still looks healthy."

He said mining companies were trying to rebuild the market's confidence.

"Across the board there is a shift from the days of maximising value by solely increasing production volumes, to a renewed focus on maximising returns from existing operations," he said.