Investor (Stockholm: INVE-A.ST – news) returns in mining have been under pressure since the beginning of the decade warns consultant
Mining companies entered their current slump in 2010 when the boom in commodities prices was still in full swing, far earlier than previously thought, according to research from Boston Consulting Group,
From the beginning of the decade through to 2014, the world’s top 101 mining companies delivered 18pc annual declines in total shareholder returns. The consultancy firm blames this decline on three key factors: falling commodity prices, rising costs, and investors’ loss of appetite for mining.
According to the report: “Coal companies were particularly hard hit; a rising abundance of natural gas and oil supplies depressed energy prices, including the price of coal. Slowing economic growth in China dampened demand for both metallurgical and thermal coal.”
Resources have been hard hit by a slowdown in demand growth from China , which had served as the main driver for price in a range of commodities from coal through to iron ore, copper and platinum.
The Bloomberg Commodity Index, which tracks the price of 22 key raw materials, recently hit its lowest level since 1999.
The Boston Consulting report said: “Such disappointing results stand in stark contrast to those in 2000 through 2009. During that period, the China-driven price boom fuelled growth in profits, unleashing a wave of new, often capital-intensive, projects designed to take advantage of surging demand.
This robust growth boosted investor expectations, causing valuation multiples to expand.”
Leading mining companies listed in London such as BHP Billiton , Rio Tinto (LSE: RIO.L – news) and Anglo American (LSE: AAL.L – news) have all reported sharp declines in earnings over the past year in line with the drop in demand. These companies, which dominate the sector, have also cut billions of dollars off capital investment in order to protect their margins. Despite the findings of the Boston Consulting Group report, these companies
continue to pay healthy dividends to investors and invest heavily to increase production in order to compensate for falling prices.
Though BHP Billiton, the largest mining company traded in London, unveiled a 61.7pc slump in pre-tax profits to $ 8.7 billion last week, it also announced that its annual dividend was to increase 2pc to $ 1.24 per share.
