Mining and metals firms across the world suffered some serious challenges in 2013, according to an industry report recently released by global professional services firm PricewaterhouseCoopers.
Profits of global miners plunge
According to PwC's annual Mine report, the net profitability of the world's largest 40 miners plunged 72 percent to $20 billion during the year. As a result, this key measure of corporate results reached its lowest level in 10 years.
Several factors contributed to this sharp drop in profits, including volatile prices for commodities. In 2013, gold values plunged 30 percent, which put a serious damper on the revenue streams of many companies that help mine this precious metal.
These organizations also suffered a record $57 billion in impairments. Gold mining firms wrote off nearly half of this total, or $27 billion worth of these assets, according to Bloomberg. Amid this situation, the mining and metals firms participating in the poll saw their combined market value plunge 23 percent.
Costs challenges
These industry participants have also faced rising cost pressures, even at a time when many of these companies have been making an effort to navigate the current challenges that exist in the market, according to The Sydney Morning Herald.
Figures contained in the PwC report showed that last year, operating costs rose 4 percent. Many companies deferred their expenditure on capital projects, especially given the current return on investment that some of these ventures are generating. Capital velocity has been slowing down. As a result, 2014 CAPEX is expected to be 14 percent less than that of 2013.
Market expert speaks to cost reduction attempts
Jock O'Callaghan, PwC Australia's Energy, Utilities and Mining leader, commented on the various actions that mining firms have taken to reduce costs, the media outlet reported.
"There is no doubt the industry has moved fast to counter its sudden change in fortune: fleets were parked, jobs slashed, development projects deferred," he told the news source.
Strength of emerging-market players
It is worth noting that mining and metals firms from emerging-market economies did far better during the year than those from developed ones. While those from fledgling nations generated $24 billion in net profits in 2013, companies from developed countries suffered a net loss of $4 billion.
The report predicted that miners from these fledgling nations could easily continue to show strong performance, considering how well they are doing now and their appetite to purchase capital resources. The document noted that upcoming elections in several nations like India and Brazil could impact mining activities in these areas.
Dividend payments might suffer
O'Callaghan noted that some mining and metals firms may have to reduce these regular payments to shareholders, according to the news source.
The report noted that last year, gross dividends rose 5 percent. In addition, dividend yields experienced a 4 percent rise during the period.
These figures are part of a broader trend, as these payments have risen by almost 200 percent - from $15 billion to $42 billion - in the last five years, the media outlet reported.
"At some point, if conditions remain poor, the market will need to be tested and the dividend tap turned off," O'Callaghan told the news source.
All this could change, as the PwC report noted that companies are switching up their top management and harnessing new strategies.
"The industry is adjusting to tough times in the short-term with strategies in place to regain confidence," John Gravelle, Global Mining Leader, PwC, said in a statement released along with the report. "For example, we've seen new faces at the helm of almost half of the largest 40 mining companies in the last two years."
