Market cap of top 40 #Mining Co's is at the same level it was ten years ago. @Mineweb

World’s top 40 mines drop $156bn in value

It’s well documented that mining companies the world over are struggling to adapt to a climate of depressed commodity prices and sluggish output. But some of the findings in PwC’s latest global mining industry report, Mine 2015, really hit home.

Looking collectively at the top 40 mining companies, according to market capitalisation, the report found that market value plummeted 16% by $156 billion in 2014. As a result, the top 40 market capitalisation, now at $791 billion, was at the same level as it was ten years ago.

Changes in top 40 market capitalisation ($ billion) in 2014



Source: Mine2015

“Everyone expected that 2014 would be very tough year when we did the analysis, because of what happened to commodity prices last year,” said Michal Kotze, PwC’s head of mining for Africa.

Confidence was also low, with HSBC Global Mining Index hitting a five-year low in April 2015, at “levels not seen since the last global financial crisis”.

“What is clear is that investors are ringing the changes. They are moving out of investments in the mining indices, (which are being consistently outperformed by other indices),” said Kotze.

Dividend yield was at an all-time high at 5%, but only because companies were trying to maintain paying dividends at a time when their earnings were shrinking.

Net profit excluding impairments fell by 9%, while the return on capital employed (ROCE) fell to 8.4%, the lowest level in the report’s 12-year history. Having been at 9.5% in 2013, this sees the average ROCE continue below the minimum hurdle investment rate of 15-20%.

Only six of the top 40 – Coal India (coal), Norilsk Nickel (nickel), NMDC (iron ore), Randgold (gold), Shandong Gold (gold), and Newcrest (gold) – exceeded this benchmark.

It was also the first time in the report’s history that a South African company was not included in the world’s top 40.

“Anglo American is included, even though it has many South Africa-based subsidiaries. Last year Impala Platinum was there, but it is the first time there are no specifically South African companies in there,” said Kotze.

Five South African companies were included when the first edition of the report was published in 2004.

Miners doing their utmost

Despite difficult circumstances, miners have done their utmost to adapt, with free cash flows turning positive to $24 billion from a $3 billion deficit the previous year. The blow was also softened by an increase in production, currency devaluations, and lower input costs, which boosted margins. The miners also managed to reduce costs, with operating expenses down 5% at $509 billion.

Many companies implemented aggressive cost cutting measures, ranging from staff layoffs, to delaying capital projects, divestiture of non-core assets, and operational improvements.

Impairment charges were down 53% at $27 billion, and this saw the net profit increase 114% to $45 billion in 2014, when impairments were included.

Governments have also intervened in many countries to soften the blow. For example, Indonesia introduced a ban on export of unprocessed mineral ore in an effort to increase domestic processing capacity, while Zambia made some major reductions to taxes applicable to miners.

Cutting capex 

Top 40 companies reduced capital expenditure across all commodities, with the biggest cuts coming from OECD companies, which slashed capital expenditure by 23%. This was 9% higher than their BRICS counterparts.

The only concern is that this will hamper the ability of the mining sector to be able to produce enough output when the commodity cycle eventually turns around, said PwC assurance partner, Andries Rossouw.

The total asset base of the Top 40 declined by 1% in 2014 compared to an increase of 7% in 2013. Capital expenditures, including non-mining activities, were $103 billion in 2014, versus $129 billion in 2013

Said Rossouw: “It’s a vicious cycle. This is the period when companies should be investing in capacity, but what will eventually happen when the cycle turns, is that companies won’t be able to supply and commodity prices will sky-rocket again. It is just that capital expenditure is one of those discretionary choices that companies elect to cut in difficult times.

Historical and projected annual capital spend by commodity ($billion)



Source: Mine 2015

See the article online here: World’s top 40 mines drop $156bn in value - Mineweb

GERMAN #GOLD BUYING: A Chart You Have To See : SRSrocco Report

The Germans are buying more gold than anyone else in the west.

GERMAN GOLD BUYING: A Chart You Have To See

While EASTERN demand for physical gold investment remains strong, most of the folks in the WEST are bored with the barbarous relic as they continue to funnel their funds into highly inflated paper assets. However, the Germans seem to look at gold a bit differently… actually a lot differently.

Even though the Swiss continue to buy more gold on a per capita basis, German physical gold investment demand is the highest of all Western countries. How much higher? Let’s look at the chart below:



According to the World Gold Council, total German physical gold bar and coin demand during Q1 2015 was 32.2 metric tons (mt), Switzerland ranked second with 13.8 mt and the U.S. came in third at 9.9 mt. Interestingly, German physical gold investment increased 20% compared to the same period last year while U.S. gold coin and bar demand fell 12%.

Matter-a-fact, German gold bar and coin purchases (32.2 mt) during the quarter account for more than half of total European demand (61 mt). On the other hand, the British, French and Canadians ranked the lowest in the chart taking the 5th, 6th and 7th spots respectively. What’s even more amusing, total physical gold investment from these three countries is about a tenth of German purchases.

Furthermore, Germans purchased more than three times the physical bar and coin investment than did Americans during the quarter. Now, as I mentioned above, the Swiss still buy the most gold per capita due to their long-term fundamental belief in gold ownership. However, if we compare German buying versus American… this is the result:

Germany population = 80 million (32.2 metric tons)
United States population = 320 million (9.9 metric tons)

Germany is actually buying 12 times more physical gold per capita than the United States.

Again, if we exclude the savvy gold buying Swiss, the Germans continue to be the strongest physical gold buyers in the West. Lastly, if we add up all the other Western countries total gold bar and coin demand including Switzerland, here is the result for Q1 2015:

Germany = 32.2 metric tons (45%)
Rest of West = 39.5 metric tons (55%)

Is there something the Germans know about gold that most of the folks in the West don’t?

NOTE:  It was brought to my attention by a new reader that I state gold in metric tons and troy ounces.  The reader thought this was a bit confusing for new folks learning about the industry.  I agreed.  Unfortunately, the industry publishes gold statistics in these two metrics.  I could convert everything to one value or the other, but anyone reading the published reports would see these two different metrics and still be confused.

Here is the conversion:  32,151 oz = 1 metric ton

Please check back for new articles and updates at the SRSrocco Report.

GERMAN GOLD BUYING: A Chart You Have To See : SRSrocco Report

Private equity's big African #potash play @Mineweb

http://www.mineweb.com/regions/africa/private-equitys-big-african-potash-play/

Private equity’s big African potash play

Mining finance and investment 

First phase of Circum project to ‘generate $1bn per annum in revenue’. Partners optimistic about business in Ethiopia. 

Warren Dick | 25 May 2015 17:45 

Circum Minerals Potash Project, which is being advanced in the Danakil Basin of eastern Ethiopia, will be fully funded by private equity investors from development all the way through to production. “We don’t think in the current environment the public markets would entertain something like this, as they are struggling to finance big projects. So we would prefer to deal with strategic investors,” says Brad Mills, founder and managing director of Plinian Capital, which has an interest in the project.

To date, the partners have funded the project to the tune of $50 million. Besides Plinian, Circum shareholders include founders Stephen Dattels and Mike Beck, as well as private equity fund African Minerals and Development. The partners are looking to introduce new investors as they aim to raise a further $30 million for post-Definitive Feasibility Study (DFS) value adding studies and to buy out early high net worth investors. “With the completion of the DFS in July we will apply for our mining license and start work on phase 2 studies targeting doubling of the project size to 5 million tonnes per annum. Most of this work will be targeted at water resources and infrastructure,” says Mills.

Metrics

The first phase of the project, which is targeting start of production in the second half of 2018, will look to produce 2.75 million tonnes per annum of potash (Mtpa); consisting of 2mtpa muriate of potash (MOP) and 750,000 tonnes per annum of sulphate of potash (SOP).

The current NI 43-101 compliant Mineral Resource Estimate, which has tested about 35% of the license area to a depth of 400 meters, consists of 2.6 billion tonnes of Measured and Indicated material grading, on average, 19.2% potassium chloride (the average of the Sylvinite layer, Upper and Lower Carnallite layers and the lower Kainitite layer) and 1.6 billion tonnes of Inferred material grading on average 17.1% potassium chloride. The geologic estimate of the endowment of the remaining 65% of the project area is an additional 7-9 billion tonnes to a depth of approximately 800 metres.

Economics 

Mills says the partners started out with a clear idea of where a competitive project needed to be located. “We were looking for a project on the East African coast, to feed into the 18 million tonnes per annum Asian market, which accounts for one-third of the total seaborne trade,” says Mills.

“Phase 1 capital will require $2 billion, which we think will generate $1 billion per annum in revenue. This is predicated on obtaining between $320-$350/tonne for MOP and $600-$650/tonne for SOP,” says Mills. The price for potash is determined by annual negotiations between suppliers and consumers.

In terms of costs of production, Mills is confident Circum will be one of the lowest cost producers around. “These projects will all be within the first quartile of the cost curve, with the cost to mine between $75 – $100/tonne. It will cost a further $20 – $30/tonne to truck and put it on the water,” says Mills. The majority of potash will be mined at a depth of 100-450m and 6-10m seams of potash will be extracted through solution mining. “We have tremendous evaporation potential due to temperatures on the site that average 40 degrees Celsius year round,” says Mills.

From the port in Djibouti, Mills estimates it will cost $10/tonne to ship to India, and $20/tonne to get it to China. “So we think most of the product we produce will find a home in India,” says Mills.

Mills says Ethiopia is open for business. “Currently there are some active gold mines in the country. We will pay a 4% royalty on potash mineralization, together with income tax, and the government gets a 5% carried interest.”

Private equity's big African potash play - Mineweb