Mine 2016

Slower, lower, weaker...but not defeated

June 2016

Review of global trends in the mining industry

What is Mine?

80%

Includes
traditional and
emerging
companies

As listed by market
capitalisation

Mine 2016
PwC

May 2016
2

Olympic expectations
Not so long ago

The ever increasing

Chinese demand meant
stronger for longer

Markets climbed
higher, the industry
was awash with cash

The industry was

faster in the pursuit
of production
Mine 2016
PwC

May 2016
3

Race to the bottom

Market cap of Top 40 vs Adjusted Price Index
$ billion
1,800
1,600
1,400
1,200
1,000
800
600
400
200
0

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Q1
Market cap

(adjusted for scale of market cap by 450) Price Index

Source: PwC analysis

Mine 2016
PwC

May 2016
4

2015 Records tumble

The first collective net loss
in the top 40s history
(US $27billion)

Market capitalization down

37%, in some cases below
Net book value

Highest leverage

Lowest Return on
Capital Employed

Mine 2016
PwC

May 2016
5

Capital discipline forgotten in boom

Slower

Capex vs impairment
$ billion
160

138

140
120

132

107

104

100
80

73

60

45
27

40
20

69
53

57

15
2
2010

2011

2012

Capex (PP&E + Exploration)

2013

2014

2015

Impairment

Source: PwC analysis

Mine 2016
PwC

May 2016
6

Top 40 impairments as a percentage

of capital expenditure
Top 40 impairments as a percentage of capital expenditure
%
90%
80%
70%
60%
50%

40%
30%
20%
10%
0%

2010

2011

2012

2013

2014

2015

Impairment - % of Capex
Source: PwC analysis
Mine 2016
PwC

May 2016
7

Significant drop off in capex will slow future grow

Top 40 capital expenditure compared to capital velocity
$ billion

200

20
14.0%

150

15.6%

15.9%
15
12.1%

10.5%

10.6%

100

10

50

2010

2011

2012

2013

2014

2015

2010

2011

2012

2013

2014

2015

Capital Expenditure

Capital Velocity

Source: PwC analysis

Mine 2016
PwC

May 2016
8

Commodities prices vs production

Production change from prior year

11% Gold (in Miln oz)

Potash (in Miln T) -2%

6% Metallurgical Coal (in Miln T)

Thermal Coal (in Miln T) -4%

9%

Iron (in Miln T)

1% Copper (in Miln T)

Price indices, selected commodities (January 2015 = 1)

1.1
1.0
0.9
0.8
0.7
0.6
0.5

Jan-15

Mar-15
Coal

May-15
Iron ore

Jul-15

Sep-15
Copper

Nov-15

Jan-16

Nickel

Mar-16
Gold

Source: PwC analysis

Mine 2016
PwC

May 2016
9

Return on Capital Employed hits all time low

%
25
20
15
10
5
0

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Adjusted ROCE (excluding impairments)

Source: PwC analysis

Mine 2016
PwC

May 2016
10

Investment returns miss the mark

Dividend coverage and yield
%
6

5
4
3
2
1
0

2006

2007

2008

2009

2010
Cover

2011

2012

2013

2014

2015

Yield

Source: PwC analysis

Mine 2016
PwC

May 2016
11

Gap between market caps and net

book values disappears

Lower

$ billion
1,200
1,000
800

600
400
200
0

2010

2011

2012

2013

2014

2015

Gap
Source: PwC analysis
Mine 2016
PwC

May 2016
12

Healthcheck results in:

Weaker...

3%
$306 billion

but only

Total
debt

2014
Top 40
2014

38%

Top 40
2015

Net borrowings stay at

$224 billion
2015

2.46

1.52

46%
Net debt: EBITDA
12 companies above 4

Gearing ratio up
from 38% to 46%

Mine 2016
PwC

12>4

BAA2

2014

BAA3

2015

Ratings downgraded

May 2016
13

But not defeated

2014 OPEX

2015 OPEX

$502bn

$419bn

Key contributors
External
benefits*

Controlled by
management

Production
increases

Mine 2016
PwC

May 2016
14

Tightening the belt on working capital

Working capital changes
$billion

%
16

400

300

15%

15

200

97

14

100
0

80

88
13%
65

75

61

2014

2015
Accounts payable

Accounts receivable

Inventory

Net working capital (%)

13
12

Source: PwC analysis

Mine 2016
PwC

May 2016
15

Miners still making significant contributions

to governments
Tax expense vs tax paid
$ billion
35
30
25
20
15
10
5
0

2013

2014
Cash tax paid

2015
Income tax expense

Source: PwC analysis

Mine 2016
PwC

May 2016
16

Volatility
Three month rolling volatility - 24 months
%
70
60
50
40
30
20

Coal

Gold

Copper

Nickel

Silver

May-16

Mar-16

Jan-16

Nov-15

Sep-15

Jul-15

May-15

Mar-15

Jan-15

Nov-14

Sep-14

Jul-14

May-14

10

Iron Ore

Source: PwC analysis

Mine 2016
PwC

May 2016
17

Coal faces headwinds in 2015, and the forecast

shows no change
Coal demand /supply balance impacted in many markets
Production actually declined as marginal supply mothballed or closed
Impact of Paris carbon agreements
Investor divestment no longer niche
Financing constrained
Yet coal remains an abundant, cheap source of energy for the developing world

Mine 2016
PwC

May 2016
18

The battery revolution leads to lithiums rise

Lithium Carbonate Mid Price Index (Jan 2014 = 1)
Lithium Carbonate
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
Jan-14

Apr-14

Jul-14

Oct-14

Jan-15

Apr-15

Jul-15

Oct-15

Jan-16

Apr-16

Source: PwC analysis

Mine 2016
PwC

May 2016
19

Q&A

pwc.com/mining

2016 PricewaterhouseCoopers. All rights reserved.

PwC refers to the Australian member firm, and may sometimes refer to the PwC network.
Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details.
Liability limited by a scheme approved under Professional Standards Legislation