BCG SA partner Urs Reinhard says while many global players have curbed unit costs in the wake of falling commodity prices and dwindling demand, SA has not.
Odd one out
“Many companies have managed to bring the annual increase in unit costs down, from 10% to around 3 to 5%. SA is an outlier in this regard, because unit cost inflation has remained thereabout,” says Reinhard.
Defining value as a measure of total shareholder returns (TSR) – comprising changes in profits, the valuation multiple (EV/EBITDA) and free cash flow contributions, which only include monies paid to shareholders in dividends or share buy-backs, the report looked at the performance of 101 mining companies over the last five years, finding an average loss in TSR of 18%.
Only 11 companies created value from 2010 to 2014. The study includes local companies African Rainbow Minerals, AngloGold Ashanti, Exxaro Resources, Gold Fields, Harmony Gold Mining and Impala Platinum and attributes the loss in value to productivity efforts not being enough to reverse investors’ loss of appetite for stocks.
Alexander Koch, a BCG partner, says: “Mining companies need to start now to replace depleting resources and drive long-term profitable growth.” That is where SA has fallen behind. Cadiz Corporate Solutions mining analyst Peter Major says of the $1 trillion dollars of global mining investments funded over the last 12 years, less than 2% has gone into SA.
Unions, state to blame
“If you look only at how many new mines have been established from new entrants in that time, I’d be willing to bet it’s less than 1%,” says Major, who believes government, unions and the companies themselves are to blame.
“No investor in the world today sees SA’s mining industry as an attractive prospect because it has been such a black hole for mining investments for over 10 years now.”