Investors are demanding the world’s biggest mining companies produce sustainable cost reductions and not just defer spending after the industry’s profit fell to the lowest in a decade, PricewaterhouseCoopers LLP said.
The 40 largest miners “have acted on short-term cost reduction strategies but stakeholders are watching to ensure that results were not simply achieved from deferring spending,” the firm said in a report. “Mining companies have historically found sustained productivity improvement to be difficult.”
Mining companies including BHP Billiton Ltd., the world’s biggest, Anglo American Plc and Rio Tinto Group are looking to cut costs by reducing jobs, exploration and capital expenditure after a decade-long commodities boom waned, crimping revenue. The world’s 40 biggest miners made $20 billion of profit in 2013, the lowest since at least 2004, after booking writedowns of $57 billion, PwC said in a report titled “Mine 2014: Realigning Expectations” published today.
The fervor to reduce expenditure may drive merger and acquisition activity, with companies seeking to share capital expenditure and infrastructure, PwC said.
“We can expect to see some moves towards consolidation, friendly or otherwise, if only to seek out synergies to reduce costs in this low-price environment, consistent with the new mantra of lower costs and higher productivity,” it said.
Gold producers were the worst affected by writedowns, impairing $27 billion of assets, after the price of bullion fell 28 percent in 2013, the largest annual drop since 1981. Barrick Gold Corp., the world’s biggest producer, last month failed to buy its largest competitor, Newmont Mining Corp., a merger that was partly driven by cost savings.