Market cap of world’s top mining firms plunged in ’08 – report
miningweekly.com
By: Esmarie Swanepoel
2nd June 2009
JOHANNESBURG (miningweekly.com) – The market capitalisation of the world’s top 40 mining companies had dropped by 62% in 2008, as commodity prices slumped and the global economic crisis impacted on shareholder confidence, PricewaterhouseCoopers (PwC) reported on Tuesday.
In its sixth edition of ‘Mine’ - an annual report reviewing the global trends in the mining industry - PwC stated the market capitalisation of top diversified mining companies’ had dropped to below the 2006 levels, after experiencing steep share price increases in 2007.
“Rio Tinto has fallen from second to fourth place following a challenging year for the group, allowing Vale and China Shenhua to both move up one place each,” the report stated.
Overall, there was significant movement in the top 40, following the volatility experienced over the year, with 15 companies changing. The companies that were replaced were largely in the bottom quartile in 2007, and experienced market captalisation declines in excess of the top-40 average.
PwC noted that gold companies had been the least impacted on, with their market capitalisation decreasing by 20%, based on the perception that the commodity was a protector of wealth and a safe-haven in a time of economic turmoil.
About 14 gold companies were included in the top 40 for the 2008 report, up from the ten in 2007. Gold companies now also comprised 26% of the total market capitalisation, more than double the level in 2007, having taken the place of base metals, platinum, and coal companies.
Although market capitalisation has decreased by 62%, the overall level was still above that recorded in 2005. The report stated that the full effect of the downturn was not evident in the 2008 financial information, however, the first quarter releases of a number of companies reported significantly reduced profits, and in some cases, operating losses.
PWC mining leader in South Africa Hugh Cameron stated that while the long-term fundamentals were still favourable for the mining industry, companies with high debt levels had been particularly hard hit by investors who were increasingly focussed on short-term cash generation.
The rapid fall in market capitalisation and increased debt levels for some of the top 40 companies, has created two distinct groups - the ‘haves’ and ‘have nots’.
The report stated that opportunities for growth existed for cash-rich companies, as asset values had dropped.
“For those without cash, opportunities are limited and the focus is on managing through the downturn,” said PWC mine director Hein Boegman at a media briefing, in Johannesburg.
The report said that a motivated and experienced team to support the CEO, was one of the key elements for survival in the current economic environment.
“How to reward and retain the best in the industry in this environment will be high on the agenda of most public company remuneration committees.”
Flexibility would also be important The report noted that the boom encouraged the industry to invest heavily in capital projects, and to grow the top line. “In these more cautious times, the ability to turn the cost tap on and off quickly may be the difference between success and failure.”
Boegman reported that when compared with the results of the first ‘Mine’ report, in 2002, revenue for the top 40 companies had grown by 3,7 times. Adjusted earnings before interest, tax, depreciation and amortisation had increased to a $141-billion, seven times the results received in 2002.
Net profit of $57-billion were at the same levels recorded in 2005/6, and remained well above the average of $42-billion between 2002 and 2007.
Looking ahead, Boegman said that there were still significant challenges facing the industry, including cost control, which would likely be key to future success. He noted that for now, at least, the mining boom was over, and companies had to consider the future, despite the shape of the downturn. |
