Mining profits plunged 72 percent in the past 12 months to $20 billion, according to PwC’s annual report on the global mining sector.
The combined market value of mining companies dropped 23 percent to $958 billion. The report cites lower gold prices and the struggles with the coal sector as the leading causes of the lower values.
Gold miners endured another particularly bad year, losing $110 billion off market capitalization, accounting for almost 40 percent of the overall reduction in market capitalization last year. “Five gold companies fell out of the Top 40 in 2013, exacerbating this drop in value,” PwC noted.
The report summed up the year saying, “2013 was a year that forced the global mining industry to realign expectations in one of the most difficult operating environments for years.”
Despite the global decline, the report found that the world's big miners continued to reward shareholders as dividends almost tripled from $15 billion to $42 billion over the last five years.
But this rise in payouts was accompanied by a 42 percent increase in net debt.
PwC Australia's Energy, Utilities and Mining leader Jock O'Callaghan has warned that mining companies may need to cut dividends if they are to gear up for the investment required to underpin the next growth spurt.
“At some point, if conditions remain poor, the market will need to be tested and the dividend tap turned off,” O'Callaghan told The Sydney Morning Herald. “[Companies] need to start investing in their future – whether through innovation, increased exploration activity or mergers and acquisitions – and pare back expectations around dividends and capital returns.”
The report found that collective profits from emerging markets has outpaced developed markets. Last year’s net profits from emerging market mining companies totaled $24 billion, compared to an aggregate net loss of $4 billion for developed market companies, which were substantially impacted by impairments.
Emerging markets also account for 60-80 percent of the new reserves added globally during the past decade to 2013, the report observed. “These markets bring enormous opportunity for the industry, but such opportunity is tempered by complexity and risks due to the relative differences in political, legal and business practices.”
Only four of the Top 40 mining companies showed an increase in market capitalization last year, according to the report. This group included Freeport-McMoRan Copper & Gold, iron ore miner Fortescue, copper and gold producer First Quantum Minerals and Polyus Gold. Emerging market companies, Saudi Arabian Mining and Russian diamond miner Alrosa, joined the Top 40 for the first time last year.
Exploration spending was down more than 30 percent in 2013 and capital expenditures are expected to decline by more than 10 percent this year. Net debt increased 42 percent during 2013 as miners extended their repayment periods, according to the report.
In its analysis, PwC observed that the world’s top 40 mining companies were comprised “of more companies from emerging markets than traditional mining centers, and this trend looks set to continue.”
New CEOs have also been installed in nearly half of the top 40 mining companies over the last two years.