Mining Day

www.pwc.com
Mining Day
Mine 2012
The g
growing
g disconnect
Ronaldo Valiño
A crescente desconexão
A indústria de mineração no
mundo
Mine 2012
Mi
The growing disconnect
A look at 2011’s Top 40…
SAT Mineração
PwC
Julho/12
1
Section 1 – A look at 2011’s Top 40…
Closing the year at $1.2
$1 2 trillion in market capitalisation,
capitalisation the
Top 40 lost $400 billion in value from year-end 2010
Change in 31 December market capitalisation ($
1,7
trillion)
16
1,6
1,5
1,4
• Market
capitalisation for
the Top 40 dropped
25% in 2011
1,3
1,2
1,1
Source: Capital IQ
SAT Mineração
PwC
• Only six of the Top
40 increased in
4
value:
•
•
•
•
•
•
Randgold (up 25%)
Industrias Penoles (up
p 20%)
Yamana Gold (up 16%)
China Shenhua (up 7%)
Ivanhoe Mines (up 7%)
Goldcorp (up 6%)
Julho/12
4
Section 1 – A look at 2011’s Top 40…
The Top 4 lost a total of almost $225 billion in market
capitalisation in both 2011 and 2012 (August)
• The Top 4 companies
constitute 38% of the
Top 40 by market
capitalisation at the
end of 2011 ((down
from 44%)
Top 4 market capitalisation - 30 August/2012 ($
billion)
250
200
150
100
• China Shenhua up
29% – regaining some
of its 2010 losses and
continuing to move in
the opposite direction
to the other three
SAT Mineração
PwC
50
BHP Billiton
2007
Vale
2008
2009
Rio Tinto
2010
2011
China Shenhua
2012
Source: Capital IQ
Julho/12
5
Section 1 – A look at 2011’s Top 40…
Emerging markets continue to have a larger presence in the
Top 40
• Composition of Top
40 continuing to
shift to emerging
markets
Mine - Composition of the Top 40
100%
90%
80%
70%
60%
• 19 of the Top 40 are
either from or
primarily
concentrated on
emerging markets
50%
40%
30%
%
20%
10%
0%
2003
2004
2005
2006
Traditional Markets
2007
2008
2009
2010
2011
Emerging Markets
Source: PwC Analysis
SAT Mineração
PwC
Julho/12
6
Section 1 – A look at 2011’s Top 40…
Among the Top 5 Diversified miners there is much more iron
ore and comparatively less diversity
Top 5 Diversifieds - 2007 and 2011
Segment Revenue ($ billion)
250
5%
Top 5 Diversifieds - 2007 and 2011
Segment EBIT($ billion)
Nickel
150
100
12%
15%
10%
17%
15%
5
16%
Aluminium
25%
42%
Oth
Others
Coal
-
40
30
20
10
22%
7%
11%
6%
Aluminium
Other
metals
Coal
66%
Copper
30%
Iron Ore
24%
2007
Source: PwC Analysis
Copper
15%
6
60
50
Iron Ore
20%
80
70
13%
50
Nickel
2%
%
1%
6%
10%
90
10%
200
100
2007
2011
2011
Source: PwC Analysis
Due to Glencore
Glencore’s
s significant marketing activity, they have been excluded from this particular analysis, although they are a large diversified company.
SAT Mineração
PwC
Julho/12
7
...and the growing disconnect…
SAT Mineração
PwC
Julho/12
7
Section 2 – ...and the growing disconnect…
The mining industry diverged from the broader markets…
markets
Global indices (January 2011 = 1)
1,2
11 March – Fukushima
nuclear disaster
1,1
5 August - S&P downgrades
US credit rating for the first
time in the history, from AAA
to AA+
Dow Jones
Industrial
A
Average
1,0
FTSE 100
09
0,9
0,8
0,7
26 September - US president,
Barack Obama, says the debt
crisis in Europe is "scaring the
world" and that leaders in the
Eurozone are not dealing with
issues quickly enough
HSBC Global
Mining
g Index
Ongoing –Concerns of a slowdown in China’s economic
growth
0,6
jan fev mar abr mai jun jul ago set out nov dez jan fev mar abr
2011
Source: Bloomberg
SAT Mineração
PwC
• Mining industry stocks
started strong in 2011,
• But, as the year
progressed,
significantly
underperformed the
broader markets
• HSBC Mining Index
fell by 29% over the
year
2012
• The Top 40 did
marginally
g
y better,
falling by 25%
Julho/12
8
Section 2 – ...and the growing disconnect…
…from
from historical earnings…
earnings
• In 2011 the Top 40 posted record
profits of over $130 billion, an
increase of 21% from 2010
Top 40 price-to-earning ratios
30
29
25
• Strong earnings, but a 25% drop
in market capitalisation, drove
Top 40’s PE ratio for 2011 down
to 9
• Lower than the dismal PE ratio
seen in 2008 during the global
financial crisis
20
19
14
15
10
10
9
5
2007
2008
2009
2010
2011
Source: Capital IQ
IQ, PwC Analysis
SAT Mineração
PwC
Julho/12
9
Section 2 – ...and the growing disconnect…
…and
and from the prices of its own commodities
• In December 2012
gold was up 260% on
January 2007 prices
Monthly average coal, copper, gold, iron ore
commodity prices, HSBC Global Mining Index
(2007 = 1)
3,5
3,0
Gold
2,5
Coal
(Australian
thermal)
2,0
Iron ore
((CFR
63.5%)
1,5
1,0
Copper
0,5
0,0
2007
2008
2009
2010
2011
2012
• Coal, iron ore, and
copper are all also up
• But, the HSBC Global
Mining
g Index was up
p
only 16% over the
same period
Source: Bloomberg
Bloomberg, The World Bank
SAT Mineração
PwC
Julho/12
10
Section 2 – ...and the growing disconnect…
Despite record commodity prices
prices, the industry has faced
challenges in bringing on new supply
Annual average AME gold prices, total global gold
production (2 005 = 1)
4.0
350% increase
Annual average AME copper prices, total global
copper production (2 005 = 1)
2.5
240% increase
20
2.0
3.0
1 .5
2.0
11% increase
1 .0
10% increase
1 .0
0.5
-
2005
2006
6
2007
Gold price
2008
8
2009
201 0
2005
201 1
2006
2007
Copper price
Global gold production
2008
2009
201 0
201 1
Global copper production
Source: The World Bank, International Copper Study Group
Source: The World Bank, World Gold Council
Annual average CFR China iron ore prices, total
global iron ore production
g
p
((2 005
5 = 1))
Annual average Australian thermal coal prices,
global thermal coal production
p
((2 005
5 = 1))
total g
245% increase
3.0
2.5
5.0
429% increase
4.0
2.0
3.0
1 .5
20% increase
1 .0
30% increase
2.0
1 .0
0
0.5
-
2005
2006
2007
Thermal coal price
2008
2009
201 0
Global thermal coal production
Source: The World Bank, BP Statistical Review of World Energy June 2011
SAT Mineração
PwC
201 1
2005
2006
2007
Iron ore price
2008
2009
201 0
201 1
Global iron ore production
Source: The World Bank, AME Outlook
Julho/12
12
...despite strong 2011 results...
SAT Mineração
PwC
Julho/12
13
Section 3 – ...despite strong 2011 results...
Net profit up in 2011
2011, but the Top 40
40’s
s net profit margin
down as expenses increased faster than revenue
Net profit and net profit margin ($
billion)
(Excluding 2011 Glencore marketing and nonmining)
i140
i )
(Excluding 2011 Glencore marketing and nonmining)
i i )
30%
70%
120
25%
100
00
60%
50%
20%
40%
80
15%
60
10%
40
%
$ billion
Revenue and Operating expenses Year-over-year increase/decrease
30%
20%
%
10%
5%
20
2002
0%
2004
2006
Net profit ($)
Source: PwC Analysis
SAT Mineração
PwC
2008
2010
0%
((10%)
%)
2002
Net profit margin (%)
2004
Revenue
2006
2008
2010
Operarting expenses
Source: PwC Analysis
Julho/12
14
Section 3 – ...despite strong 2011 results...
Iron ore lead the way,
way representing the bulk of 2011
2011’s
s EBIT
gains
Revenue by commodity ($ billion)
EBIT by commodity ($ billion)
120
70
100
60
50
80
40
60
30
40
20
20
10
-
-
2011
Source: PwC Analysis
SAT Mineração
PwC
2011
Source: PwC Analysis
Julho/12
15
Section 3 – ...despite strong 2011 results...
Production was up almost across the board,
board but given
record prices, many would have wanted to produce more…
Top 40
production
(million)
Change from
prior year (%)
Gold
(oz)
40
9
Iron ore
(tonnes)
755
6
Copper
(tonnes)
11
16
1,285
2
Met. Coal
(
(tonnes)
)
124
(5)
Zinc
(tonnes)
3
(10)
Commodity
(measure)
Therm. Coal
(tonnes)
Source: PwC Analysis
SAT Mineração
PwC
• Except for metallurgical coal
and zinc production was up
across the
h b
board
d
• Copper production up 16% – in
2010 copper production was
impacted by a number of labour
strikes in Chile and Peru, so
2011 benefited from quieter
year
production up
p9
9%,, but
• Gold p
given 2011’s record prices,
producers would have wanted
to produce more
Julho/12
18
Section 3 – ...despite strong 2011 results...
Using year-end 2011 spot prices and reserves,
reserves the Top 40
40’s
s
reserves are worth over $18 trillion
Gold
Iron
ore
Copper
(mill. oz)
Number
of cos.
Therm.
coal
Met.
coal
Zinc
(million tonnes)
24
9
24
12
10
9
2011
reserves
765
29,262
323
66,746
7,326
45
Change
8%
8%
4%
9%
-2%
-1%
2011 Rem.
life (years)
19
39
29
52
59
14
• Out of the ten
commodities
analysed, reserves
decreased for five
out of ten,, but
decreases were
minor and increases
were strong
• Huge value retained
in the ground for
the future
Source: PwC Analysis
SAT Mineração
PwC
Julho/12
19
...but is the industry giving
shareholder's
shareholder
s what they want?
SAT Mineração
PwC
Julho/12
20
Section 4 – ...but is the industry giving shareholder's what they want?
Total cash returns to shareholders increased to $59 billion
(up 156%) but capital development exceeded 50% of cash use
Uses of available cash ($ billion)
Uses of available cash (%)
2011
2011
2010
2010
2009
2009
2008
2007
2008
2006
2007
2005
2006
2004
2005
2003
100
-
(100)
(200)
Net increase in cash
Capital development
Source: PwC Analysis
SAT Mineração
PwC
(300)
2004
2003
0%
20%
40%
Debt repayments
Capital development
Distributions to shareholders
Distributions to shareholders
60%
80%
100%
Debt repayments
Source: PwC Analysis
Julho/12
22
Section 4 – ...but is the industry giving shareholder's what they want?
Capital expenditure up to $98 billion
billion, with big increases in
coal, copper and iron ore
Capital expenditures by commodity
($ billion)
Capital expenditures by location
($ billion)
35
25
30
20
25
15
5
20
10
15
5
10
5
-
-
201
1
2011
2010
Source: PwC Analysis
SAT Mineração
PwC
Source: PwC Analysis
Julho/12
23
Outlook
SAT Mineração
PwC
Julho/12
24
Section 5 – Outlook
Outlook
• Continued shareholder pressure for capital discipline
• Future will be about bringing on supply through the right projects
• Demand will be there – % increases may not be as high as before, but
will off a larger base
• Continued structural change to historically high commodity prices,
underwritten by higher production costs and lower grades. However,
thi d
this
does nott guarantee
t iincreasing
i gross margins
i
• The market doesn’t seem to be buying the industry’s long-term
growth story
story, sending share prices lower - 2011 has shown the
growing disconnect
SAT Mineração
PwC
Julho/12
25
Publicações PwC
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Empresariais
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thatneeds to be taken
advantage of
The growing disconnect
http://www.pwc.com/gx/en/energ
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pwc.com.br/pt/publicacoes/revistatemas-empresariais
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Brazil – Country Profile
Global Mining 2011 Deals
Review & 2012 Outlook
pwc.com/ca/en/mining
pwc.com.br/pt/setores-deb / /
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atividade/mineracao
SAT Mineração
PwC
pwc com/ca/en/mining
pwc.com/ca/en/mining
pwc.com.br/pt/setores-deatividade/mineracao
Julho/12
23
Ob i d !
Obrigado!