www.pwc.co.uk/mining
Mine 2011
The game has changed
Jason Burkitt
Mine Africa
26 September 2011
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
Mine 2011
PwC
June 2011
Slide 2
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
Mine 2011
PwC
June 2011
Slide 3
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
Mine 2011
PwC
June 2011
Slide 4
Top 10 miners’ market capitalisation
• 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
300
250
200
150
100
50
2009
2010
-
Source : Capital IQ
Mine 2011
PwC
June 2011
Slide 5
TSR – a shift to Emerging Markets
• Continued growth in emerging markets
• Strong economic position compared to developed economies is driving demand
2010 Four year Top 40 TSR
250%
200%
150%
100%
50%
0%
Emerging Markets
Traditional Markets
Source : Bloomberg, PwC analysis
Mine 2011
PwC
June 2011
Slide 6
2010 four year TSR – Top 10 by market cap*
* Showing Top 9 as Coal India listed in October 2010
2010 Four year TSR
230%
180%
130%
80%
30%
-20%
Source : Bloomberg, PwC analysis
Mine 2011
PwC
June 2011
Slide 7
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
Mine 2011
PwC
June 2011
Slide 8
Market evolution - 9 year trends
• A record year by many measures
• ROE up to 22% but well below highs – expensive equity and cost pressures
Source : PwC analysis
Mine 2011
PwC
June 2011
Slide 9
Market evolution - 9 year trends
• Composition of Top 40 shifting to emerging markets
• Additional new players on the horizon (e.g. traders, IPOs)
Composition of Top 40
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
2004
2005
2006
2007
Traditional Markets
2008
2009
2010
2011
Emerging Markets
Source : PwC analysis
Mine 2011
PwC
June 2011
Slide 10
Income statement for the Top 40
• 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
435
330
(246)
(220)
Adjusted EBITDA*
189
110
Net profit
110
43
Revenue
Operating expenses
*EBITDA adjusted to exclude impairment charges
Mine 2011
PwC
June 2011
Slide 11
Commodity prices
• Significant price rises across most commodities
• Iron ore prices have risen dramatically
• Copper and gold reaching new highs
Commodity Prices (2003 = 1)
8
7
6
Copper $/tonne
5
Gold $/ounce
4
Thermal coal $/tonne
3
Aluminium $/tonne
2
Iron ore US¢/dmtu
1
0
2003
avg
2004
avg
2005
avg
2006
avg
2007
avg
2008
avg
2009
avg
2010
avg
2010
close
Source : AME, PwC analysis
Mine 2011
PwC
June 2011
Slide 12
Production
• 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
Total production
(Using millions of Copper equivalent tonnes - 2010 closing spot)
60
59
0.5
(0.3)
1.0
58
10% ↑
57
1.8
16% ↑
56
55
2009
Iron ore
Bauxite
Other
Copper
2010
Source : PwC analysis
Mine 2011
PwC
June 2011
Slide 13
Revenue by commodity
• Four major commodities drive revenue
• Iron ore share up from 15% to 20% of total revenue
• China is the major customer of the industry
Share of revenue
30%
25%
20%
2009
15%
2010
10%
5%
Other metals
Diamonds
Zinc
Platinum
Nickel
Fertilizer
Bauxite
Gold
Iron ore
Copper
Coal
0%
Source : PwC analysis
Mine 2011
PwC
June 2011
Slide 14
Returns from mining – risk vs reward
• 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
Mine 2011
PwC
June 2011
Slide 15
Capital projects are back
• Greater focus on organic growth
• Major capital projects come online pushing production up 5%
• $300 billion of future projects announced - $120 billion in 2011
Capex by commodity ($ billion)
12
10
8
2009
6
2010
4
2
-
Source : PwC analysis
Mine 2011
PwC
June 2011
Slide 16
Cash flow for the Top 40
• 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
Mine 2011
PwC
2010
2009
Cash flows related to operating activities
137
86
Cash flows related to investing activities
Cash flows related to financing activities
(79)
(35)
(77)
8
Cash and cash equivalents at end of period
105
81
June 2011
Slide 17
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
$ billion
Mine 2011
PwC
2010
2009
Cash
105
81
Total Assets
943
798
Borrowings
151
163
Total liabilities
387
357
Equity
556
441
June 2011
Slide 18
Outlook
Demand fuelled by emerging markets
Supply challenges remain and will continue
Mining high on the political agenda
…the game has changed
Mine 2011
PwC
June 2011
Slide 19
Mine 2011
The game has changed
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