mine 2011 the game has changed jason burkitt mine africa 26 september 2011
TRANSCRIPT
Mine 2011The game has changed
Jason Burkitt
Mine Africa26 September 2011
www.pwc.co.uk/mining
PwC
The new game
• The game has changed in the mining industry
• Demand continues to be stoked by growth in the emerging markets
• Supply challenging – declining grades and new mines in remote locations
• Cost base of the industry has changed to a new level, leading to sustained higher commodity prices
• Over $300 billion capex announced by the Top 40 – 1/3 in 2011
• Shift in the industry to the emerging markets
• Increased focus by governments and stakeholders
June 2011Mine 2011Slide 2
PwC
Spectacular results
•Market capitalisation up 26%
•Revenue up 32% - greater than $435 billion
•Profits $110 billion
•Cash reserves over $100 billion
•Net debt down to 8%
•Total assets approaching $1 trillion
•Margins improve, but not at record levels, as cost pressures continue
June 2011Mine 2011Slide 3
PwC
We are also seeing…
• The new era bringing a changing face to the industry
• Vertical integration upstream led by the steel industry
• Private Equity and Sovereign Wealth Funds
• State Owned Enterprises entering through funding and off-take agreements
• Stakeholder management is increasingly critical
• Political attention on the distribution of benefits
June 2011Mine 2011Slide 4
PwC
Top 10 miners’ market capitalisation
June 2011Mine 2011Slide 5
• A clear break in the industry with Top 3 stepping out
• 26% Growth in market capitalisation of the Top 40
• Market capitalisation of number 4o increased from $6.5 billion to $11.0 billion in 2010
Source : Capital IQ
PwC
TSR – a shift to Emerging Markets
June 2011Mine 2011Slide 6
• Continued growth in emerging markets
• Strong economic position compared to developed economies is driving demand
Source : Bloomberg, PwC analysis
PwC
2010 four year TSR – Top 10 by market cap*
June 2011Mine 2011Slide 7
* Showing Top 9 as Coal India listed in October 2010
Source : Bloomberg, PwC analysis
PwC
A view from the top
•Higher level of confidence than seen in several years
•Belief in the emerging markets story
•Drive for organic growth – building is better than buying
• A battle for talent to support growth plans
•Resource nationalism a greater challenge
•More complex industry with greater number of stakeholders
•Search for innovation and technological advantages
The game has changed
June 2011Mine 2011Slide 8
PwC
Market evolution - 9 year trends
• A record year by many measures
• ROE up to 22% but well below highs – expensive equity and cost pressures
June 2011Mine 2011Slide 9
Source : PwC analysis
PwC
Market evolution - 9 year trends
• Composition of Top 40 shifting to emerging markets
• Additional new players on the horizon (e.g. traders, IPOs)
June 2011Mine 2011Slide 10
Source : PwC analysis
PwC
Income statement for the Top 40
June 2011Mine 2011Slide 11
•Revenue - price increases and 5% rise in production driving growth
•The cost curve has moved higher
•Record net profit of $110 billion – up 156%
2010 2009
$ billion $ billion
Revenue 435 330
Operating expenses (246) (220)
Adjusted EBITDA* 189 110
Net profit 110 43
*EBITDA adjusted to exclude impairment charges
PwC
Commodity prices
June 2011Mine 2011Slide 12
• Significant price rises across most commodities
• Iron ore prices have risen dramatically
• Copper and gold reaching new highs
Source : AME, PwC analysis
PwC
Production
June 2011Mine 2011Slide 13
• 5% increases after a period of decline
• Reflection of positive impact of large capital projects
• 35 year mine life for the Top 40 based on current production
Source : PwC analysis
PwC
Revenue by commodity
June 2011Mine 2011Slide 14
• Four major commodities drive revenue
• Iron ore share up from 15% to 20% of total revenue
• China is the major customer of the industry
Source : PwC analysis
PwC
Returns from mining – risk vs reward
June 2011Mine 2011Slide 15
• Returns to miners carries the most risk, with it comes the most potential reward
• Employees payments rising steadily, despite fluctuations in the market
• Government share has experienced significant growth, primarily a fixed return
Source : PwC analysis
PwC
Capital projects are back
June 2011Mine 2011Slide 16
• Greater focus on organic growth
• Major capital projects come online pushing production up 5%
• $300 billion of future projects announced - $120 billion in 2011
Source : PwC analysis
PwC
Cash flow for the Top 40
June 2011Mine 2011Slide 17
•Operating cash flows back above$100 billion
•85% of net investing cash flow into organic growth – sustaining and development capex
•For every $1 revenue, 18 cents invested back into the business. In 2007 was 40 cents. Average over nine years is 26 cents
•Capital raisings replaced by distributions to shareholders
$ billion 2010 2009
Cash flows related to operating activities 137 86
Cash flows related to investing activities (79) (77)
Cash flows related to financing activities (35) 8
Cash and cash equivalents at end of period 105 81
PwC
Balance sheet for the Top 40
• Net debt down to $46 billion – 8% gearing
• Borrowings only 16% of total assets – industry funded by equity
• Cash increased 30% to $105 billion
• Almost $1 trillion of assets
• Net assets as a percentage of market capitalisation remains stable
June 2011Mine 2011Slide 18
$ billion 2010 2009
Cash 105 81
Total Assets 943 798
Borrowings 151 163
Total liabilities 387 357
Equity 556 441
PwC
Outlook
•Demand fuelled by emerging markets
•Supply challenges remain and will continue
•Mining high on the political agenda
…the game has changed
June 2011Mine 2011Slide 19
Mine 2011The game has changed
This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers LLP, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.
© 2011 PricewaterhouseCoopers LLP. All rights reserved. In this document, “PwC” refers to PricewaterhouseCoopers LLP (a limited liability partnership in the United Kingdom) which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity.