Hedge funds slash bullish wagers on gold before war jitters
Speculators have reduced net-long positions by 3.6%.
Some of the dismal metrics can be explained by low commodity prices, a weak operating environment and shareholders revolt, but the report also found that poor investment and capital management decisions squandered the benefits of the boom.
The significant drop-off in capital expenditure as miners focus on shedding assets, mothballing marginal projects or curtailing capacity signals an almost stagnant investment environment
Longer term perspective indicates lack of capital discipline: Andries Rossouw, Assurance Partner, PwC
With a further $53 billion of impairments in 2015, miners had wiped out the equivalent of just under 32% of their actual capex since 2010 offering “a stark reminder of the value that has already been lost,” says PwC.
These asset writedowns amount to a stomach-churning $199 billion in lost value of the collective $632 billion in capital spending from 2010 – 2015 and represents a hefty 77% of this year’s capital expenditure.
“While it is unfair to focus on the charges incurred this year as price assumptions were adjusted down, a longer-term perspective indicates a lack of capital discipline commented Andries Rossouw, assurance partner at PwC.
The significant drop-off in capital expenditure as miners focus on shedding assets, mothballing marginal projects or curtailing capacity, “signals an almost stagnant investment environment,” says PwC. The report raises concerns over the ‘spot mentality’ from shareholders focused on fluctuating commodities prices and short term returns rather than the long term investment horizon required in mining.
PwC says debt management has moved to the top of the business agenda for many of the top 40 miners as liquidity metrics has begun to trigger alarms: “For some, the driver was maintaining access to capital at reasonable rates. For others, it was simply crucial to survival.”
While the Top 40 trimmed a slither of their overall debt in 2015, liquidity metrics have begun to trigger alarms. Leverage is at an all-time high and cash used to repay debt was broadly equal to cash from borrowings according to the report.
“The response of the Top 4o miners has been twofold: an even greater focus on cutting expenditure, whether operational or expansionary, and an acceleration in asset sales. It will be interesting to see if these efforts can continue and the subsequent knock-on effects,” says Rossouw.
The report analysed 40 of the largest listed mining companies by market capitalization and four new entrants in this year’s top 40 were Chinese companies. AngloGold Ashanti has reemerged in the top 40 for the first time since 2013.
The number of emerging companies included in the Top 40 has increased by two and now totals 19. For the first time, a lithium company has made the top 40. While this must be viewed in the context of the much larger traditional energy sources, there is no doubt that the energy landscape is changing and new world disrupters will have a role to play, says the report.
7 Comments
Goldfinger
The leading mine companies were helped by stellar performance by all of the EPCMs and engineering houses out there. As long as prices were rising change notices were being signed and project performance was irrelevant. I fear the next round of projects are going to have a tough time getting over the line because collectively a lot of client organisations and EPCMs dont have the knowledge or experience of project shaping/formation to be able to really put together a tight project.
PaoloUSA
I agree completely, Roy Hill is boasting their “adoption” of the EPC Lump Sum formula as a breakthrough in the industry, essentially discovering hot water, nevertheless Samsung had a cost overrun of about a billion dollars; too much focus on keeping the smoke up into shareholders’ eyes to the detriment of the real important issues leading to sustainability.
PaoloUSA
Finally an article about the underlying truth about the “bigs” in the mining industry.
Chris
Article does a great job in highlighting lost opportunities, however in quite a few cases these losses have been somewhat planned indicative of the deflated market.
Several reasons behind this.
SnakePlissken
Like Trump says – stupidity – in Washington, in Boardrooms. You will fail – because you are stupid. You cannot function as before with China having brought its 1.4 billion people up to and beyond yours, (you Americans cannot even operate a McDonalds worth a crap anymore) especially whilst they manipulate their currency at will, and you hold your breath waiting for the next report on what they imported last week, and all the rest of that so called supply and demand nonsense in an entirely BS Fiat-Free-Market. Plan your population, plan your consumption, and plan your production – stop being imbeciles – it is the 21st century now, and 7.4 billion people is more than enough. In other words … EVOLVE.
Lambert Speelman
“lack of capital discipline” – For at least the last 4 centuries, bankers and ‘insurance’ companies have been very greedy and lay a heavy load on ‘salary slaves’
No wonder that top miners squandered $200 billion … Bankers have sqauandered a hundred fold including the lives of many! 1864, Boeren Leenbank … ‘Charity’ or Crowd Funding … compannions with murderers!
Thinking of Moses in the days of Pharao, the Pharao who had not know Joseph. By that time they where 400 years in Egypt and Pharao made labour more and more difficult, even impossible, for the labourors!
There happens nothing new under the sun!
Wally
In my opinion, R&D / Capex expenditure is an exercise in
transferring resources from ‘Above the line’ to the balance sheet, at
which point write offs seem to be all so easy. I am surprised that the
figure is not higher.
What better way to avoid taxes.
Surprised that this doesn’t figure in the report, but then it was prepared by a PwC.