PwC: Top commodity producers must adapt to wider risks

According to PwC’s Mine 2020 report, the global Top 40 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,.

Forecasting for 2020, PwC suggests the big miners will take a modest hit to EBITDA (earnings before interest, tax, depreciation, amortisation & impairment) 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 (though since reduced to US$752bn on 30 April 2020).

Based on this, PwC believes the Top 40 are in a strong and robust position to survive the economic uncertainty created by the Corona pandemic.

The report cautions, despite this positive outlook, 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.

There’s a need for 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.  

 “Although mining has been able to keep operating to some extent throughout the COVID-19 pandemic, companies all over the world, including those in South Africa, have had to adapt and evolve. The Top 40 have shown that they can innovate, adapt and respond to this crisis along with the best. Some of these changes include remote workforce planning and a greater use of automation. It is expected that many of these adaptations will become permanent in the long-term,” says Andries Rossouw, PwC Africa Energy Utilities & Resources Leader.

“The pandemic has highlighted the sector’s resilience and the role that miners can play in supporting communities and the broader economy. Although the crisis is far from over, miners are already applying the valuable lessons they have learnt.” 

Outlook for investment and deals in commodity sectors

According to Mine 2020, capital expenditure was up 11% to US$61bn in FY2019. 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. 

Not many mega-deals are expected to take place in 2020 due to increased economic uncertainty and practical constraints of site visits and inspections. Nevertheless, the current conditions provide opportunities for the Top 40 to capitalise on smaller acquisitions in their local markets. 

Mega gold deals totalled US$19.2bn in FY2019 in terms of the enterprise value. Gold deals are not likely to recur to the same size or quantum as in recent years. 

Cyberattacks are real threat

Presently just 12% of mining and metals companies’ CEOs are particularly concerned about cyber-attacks (down from 21% in FY18 and 14% in FY19). Yet Mine 2020 notes that over a similar period the number of reported cyber breaches among mining companies increased fourfold.

“As mining companies place more reliance on digital technology, so too does the cybersecurity risk increase. Cybersecurity should be an integral part of the Top 40’s safety and business strategies,” adds Rossouw.

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