The Top 40 mining companies are so far weathering the COVID-19 storm mostly unscathed, and certainly better than many other sectors.
This is according to PwC’s Mine 2020 report. It states:
This is a remarkable feat, given that global growth is expected to decline in 2020, something that has only happened twice in modern times: in 1944, during World War II, and in 2009, during the global financial crisis.
The ability of the Top 40 to ‘resource the future’ continues to be relevant in the current environment as many governments will appreciate mining for being a bedrock of economic recovery out of this crisis.
Our forecast for 2020 suggests the Top 40 miners will take a modest hit to EBITDA of approximately 6%. Capital expenditure will also slow, freeing up cash flows, and giving miners the capacity to pay dividends should they choose to do so.
We do not expect many mega-deals to take place in 2020 due to increased economic uncertainty and practical constraints of site visits and inspections. However, the current conditions provide opportunities for the Top 40 to capitalise on smaller acquisitions in their local markets.
Gold deals are not likely to recur to the same size or quantum as in recent years.
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Although mining has been able to keep operating through the COVID-19 crisis, companies have also had to adapt and evolve. Some changes have been for the better, such as remote workforce planning and greater use of automation.
Many of these adaptations may become permanent. In an uncertain environment, miners have focussed intensely on controlling the things they can control, and it is serving them well.
But the Top 40 are not immune from the social and economic shocks ahead, and they cannot afford to let their guard down. COVID-19 is challenging long-held assumptions about the unassailable wisdom of ultra-lean principles and global supply chains.
Miners may need to think about de-risking critical supply chains and investing more in local communities. A shift towards localisation in supply chains and in deals, as well as different forms of community engagement, may turn out to be enduring consequences of the pandemic.
The Top 40 also need to keep on top of the mega-trends that existed pre-COVID-19, particularly ESG (environmental, social and governance) reporting and cybersecurity.
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We analysed how the Top 40 are performing on ESG disclosure and found that a few companies are doing most of the heavy lifting, while the rest lag behind. But ‘brand mining’ is a collective brand, and every miner needs to play its part.
On the cyber front, the Top 40 have some work to do. At a time when mining companies are becoming more vulnerable to cyberattack as they use more automation and digital technologies, CEOs are expressing less concern about such issues.
In some respects, the mining sector is well-situated in the wake of COVID-19.
For example, despite recent uncertainty regarding Brazil’s ability to continue mining, iron ore prices have risen, potentially limiting the total impact on the sector. Mining companies have strong finances and are mostly still operational, albeit with increased levels of precautionary controls.
But the longer-term impacts remain uncertain, and ongoing disruption is likely. Top 40 miners should take advantage of their current position of financial stability to revisit their strategies.
Doing so will ensure their businesses can enhance their resilience over the long term and meet the demands of the global economy to maximise the opportunities to resource the post COVID-19 future.
Financial stability in turbulent times:
- Revenue up 4% to US$692 billion
- EBITDA flat at US$168 billion
- Profit before tax (PBT) down 11% to US$89 billion
- Dividends paid up 25% to US$55 billion
- Share buybacks down 51% to US$7 billion
- Market capitalisation up 19% (US$898billion) (reduced to US$752 billion on 30 April 2020)
- Capex up 11% to US$61 billion
Enterprise value of mega gold deals totalling US$19.2 billion in FY19
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Currently just 12% of mining and metals companies’ CEOs are extremely concerned about cyber threats (down from 21% in FY18 and 14% in FY19)
The post–COVID-19 environment will require everyone to operate differently:
- De-risk critical supply chains
- Reconsider the benefits of diversification
- Build resilient communities
- Automation can help in a crisis
- What the pandemic can teach us
COVID-19 impact FY2020:
- EBITDA forecast to reduce 6% in FY20, largely driven by commodity prices
- Expected capital spend reduction of at least 20% for FY20
Although the majority of the Top 40 have benefited from uninterrupted production allowed by major mining economies, they have also played their part in demonstrating their resilience to such a global shock event.
Strong balance sheets, in conjunction with appropriate risk management to reduce infection risk, has allowed them to remain operational, with pressures in FY20 results more likely to come from price pressures via demand variability.
Although the focus in 2020 is likely to be on optimising operational outcomes and remaining financially fit, we are encouraging the Top 40 to consider a collective step up in ESG behaviours, metrics and reporting disciplines, as well as a review of cyber risk within the broader remit of safety first.
Survival during turbulent times
- Maintain appropriate safeguards to limit risks to production. Transfer learnings from mine sites directly impacted by infections
- Continue the significant support and collaboration with governments and communities to supercharge recovery
Strong balance sheets put the miners in an enviable position
- Continue fiscal restraint, with capex and returns to shareholders moderated, thereby ensuring sufficient liquidity exists to survive any prolonged COVID-19 impacts
Focus on risk management remains key
- Focus on risk management procedures to minimise likelihood of future disruptions. This should include derisking key supply chains through localisation
Workforce management to ‘new normal’
- Reimagine the new normal for workforce planning, including taking a fresh look at FIFO and contracting / outsourcing arrangements
- Continue automation push through and post–COVID-19
Cyber safety needs attention
- Treat operational cybersecurity as a health and safety issue and invest accordingly
ESG accountability to improve
- Set detailed and defined goals and be accountable and transparent
- Work towards a sector-led global standard for ESG
Download the full report here