PwC Mine 2020: Global Top 40 mining companies resilient in face of COVID-19 but must adapt to wider risks

London, 12 June - 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, according to PwC’s Mine 2020 report. 

PwC’s forecast for 2020 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). On this basis PwC believes the Top 40 are in a strong and resilient position to weather the economic uncertainty created by COVID-19.

Despite this positive outlook, the report cautions 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. 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.

Jock O’Callaghan, PwC Global Leader Mining and Metals, says ‘In some respects, the mining sector is well-situated in the wake of COVID-19. Mining companies have strong finances and are mostly still operational, albeit with some level of increased precautionary and preventive control.

‘But the longer-term impacts remain uncertain, and ongoing disruption is likely. Top 40 miners should take advantage of their current position of financial stability to revisit their strategies. Doing so will ensure their businesses can enhance their resilience over the long term and meet the demands of the global economy - meeting their aspiration to resource the future.’

Sacha Winzenried, PwC Indonesia Energy, Utilities, and Resources Advisor, adds ‘The global economy is entering uncertain times following the COVID-19 outbreak, with the International Monetary Fund predicting a 3% contraction in the global economy for 2020. In an uncertain environment, miners have focussed intensely on controlling the things they can control, and it is serving them well. But miners are not immune from the social and economic shocks ahead, and they cannot afford to let their guard down.’

‘The Top 40 has shown they can innovate, adapt, and respond to this crisis along with the best. Now is a good time to assess which of those tactics were effective and should be codified to help miners prepare for future disruptive events, to enhance their businesses resilience over the long term and meet the demands of the global economy and to maximise the opportunities to resource the post COVID-19 future,’ Winzenried said.

A changing outlook for investment and deals

Capital expenditure was up 11% to US$61bn in FY19, according to Mine 2020. 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.

PwC doesn’t expect many mega-deals to take place in 2020 due to increased economic uncertainty and practical constraints of site visits and inspections. However, the current conditions provide opportunities for the Top 40 to capitalise on smaller acquisitions in their local markets.

The enterprise value of mega gold deals totaled US$19.2bn in FY19. Gold deals are not likely to recur to the same size or quantum as in recent years.

Cybersecurity requires attention 

Currently just 12% of mining and metals companies’ CEOs are extremely concerned about cyber (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 increase fourfold.

Jock O’Callaghan says, ‘Cybersecurity should be an integral part of the Top 40’s safety and business strategies. Miners should take the opportunity, given their relative resilience, to leverage their strong safety cultures to embed the concept of ‘cyber safety’, which like other forms of safety, is non-negotiable.’

Growing expectations around ESG 

Although Mine 2020 has found that most large miners are moving in the right direction on ESG disclosure, some are performing better than others. Only 11 of the Top 40 companies (28%) are setting public ESG commitments and targets, reporting consistently against them, and linking executive and management performance to achieving them.

No one commodity group is outperforming any other. But given rising stakeholder expectations, all Top 40 miners should have moved past the stage of general or variable commitments about ESG.

Jock O’Callaghan says, ‘How should mining come together to take collective ownership of ESG and accept the necessary accountability and transparency that will ensure they are taken seriously? It is time for miners to sit down and work towards a common global standard about what constitutes responsible mining and how companies will report their performance against it.

‘The job of improving ‘brand mining’ is every miner’s responsibility. The more companies that can demonstrate they are meeting their stakeholders’ expectations, the more the sector benefits through a stronger social licence and the ability to attract higher-quality, more patient capital.’