Mining companies are so far weathering the COVID-19 crisis but should take advantage of relative stability to adopt strategies to mitigate against further economic and social risks, according to PwC’s Mine 2020 report.
PwC’s forecast for 2020 suggests the big miners will take a modest hit to EBITDA of approximately 6%. This follows a strong financial performance in 2019 – with revenue up 4% to US$692bn and market capitalisation up 19% to US$898bn.
On this basis PwC believes the Top 40 are in a strong and resilient position to weather the economic uncertainty created by COVID-19.
Despite this positive outlook, the report cautions that mining companies will need to adapt to long-term impacts caused by COVID-19. 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 for smaller deals in local markets, as well as different forms of community engagement, may turn out to be enduring consequences of the pandemic.
A changing outlook for investments
Capital expenditure was up 11% to US$61bn in FY19, according to Mine 2020. PwC expects capital expenditure will slow in 2020, freeing up cash flows, and giving miners the capacity to pay dividends should they choose to do so.
PwC doesn’t 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.
The enterprise value of mega gold deals totalled US$19.2bn in FY19. Gold deals are not likely to recur to the same size or quantum as in recent years.
Cybersecurity requires attention
Currently just 12% of mining companies’ Chief Executives are extremely concerned about cyber. Yet Mine 2020 notes that over a similar period the number of reported cyber breaches among mining companies increase fourfold.
Growing expectations around ESG
Although Mine 2020 has found that most large miners are moving in the right direction on ESG disclosure, some are performing better than others.
Only 11 of the Top 40 companies are setting public ESG commitments and targets, reporting consistently against them, and linking executive and management performance to achieving them.