iii congresso de mineração da amazônia · iii congresso de mineração da amazônia november...

III Congresso de Mineração da Amazônia

Mine 2012 - The growing disconnect Felipe Gomes

www.pwc.com

A crescente desconexão A indústria de mineração no mundo

Mine 2012 The growing disconnect

PwC November 2012

A look at 2011’s Top 40…

1


PwC November 2012 III Congresso de Mineração da Amazônia

Closing the year at $1.2 trillion in market capitalisation, the Top 40 lost $400 billion in value from year-end 2010

• Market capitalisation for the Top 40 dropped 25% in 2011

• Only six of the Top 40 increased in value:

• Randgold (up 25%)

• Industrias Penoles (up 20%)

• Yamana Gold (up 16%)

• China Shenhua (up 7%)

• Ivanhoe Mines (up 7%)

• Goldcorp (up 6%)

Section 1 – A look at 2011’s Top 40…

1,1

1,2

1,3

1,4

1,5

1,6

1,7 Change in 31 December market capitalisation ($ trillion)

Source: Capital IQ

4


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%)

• China Shenhua up 29% – regaining some of its 2010 losses and continuing to move in the opposite direction to the other three


Source: Capital IQ

5

-

50

100

150

200

250

BHP Billiton Vale Rio Tinto China Shenhua

Top 4 market capitalisation - 30 August/2012 ($ billion)

2007 2008 2009 2010 2011 2012


Emerging markets continue to have a larger presence in the Top 40

• Composition of Top 40 continuing to shift to emerging markets

• 19 of the Top 40 are either from or primarily concentrated on emerging markets

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2003 2004 2005 2006 2007 2008 2009 2010 2011

Mine - Composition of the Top 40

Traditional Markets Emerging Markets

Source: PwC Analysis

6


PwC

Among the Top 5 Diversified miners there is much more iron ore and comparatively less diversity

20%

42%

25%

16%

13%

15%

17%

12%

10%

10%

15%

5%

-

50

100

150

200

250

2007 2011

Top 5 Diversifieds - 2007 and 2011 Segment Revenue ($ billion)

Nickel

Aluminium

Others

Coal

Copper

Iron Ore 24%

66%

30%

15%

6%

10%

11%

6%

7%

1%

22%

2%

-

10

20

30

40

50

60

70

80

90

100

2007 2011

Top 5 Diversifieds - 2007 and 2011 Segment EBIT($ billion)

Nickel

Aluminium

Other metals

Coal

Copper

Iron Ore

Source: PwC Analysis Source: PwC Analysis

Due to Glencore’s significant marketing activity, they have been excluded from this particular analysis, although they are a large diversified company.

III Congresso de Mineração da Amazônia 7

November 2012


PwC November 2012

...and the growing disconnect…

7



HSBC Global Mining Index

FTSE 100

Dow Jones Industrial Average

0,6

0,7

0,8

0,9

1,0

1,1

1,2

jan fev mar abr mai jun jul ago set out nov dez jan fev mar abr

Global indices (January 2011 = 1)

The mining industry diverged from the broader markets…

• 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

• The Top 40 did marginally better, falling by 25%

8

Section 2 – ...and the growing disconnect…

11 March – Fukushima nuclear disaster

5 August - S&P downgrades US credit rating for the first time in the history, from AAA to AA+

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

2011 2012

Source: Bloomberg

Ongoing –Concerns of a slow-down in China’s economic growth

PwC

…from historical earnings…

• In 2011 the Top 40 posted record profits of over $130 billion, an increase of 21% from 2010

• 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

9

Source: Capital IQ, PwC Analysis

19

10

29

14

9

-

5

10

15

20

25

30

2007 2008 2009 2010 2011

Top 40 price-to-earning ratios

III Congresso de Mineração da Amazônia November 2012



…and from the prices of its own commodities

• In December 2012 gold was up 260% on January 2007 prices

• Coal, iron ore, and copper are all also up

• But, the HSBC Global Mining Index was up only 16% over the same period

10

Source: Bloomberg, The World Bank

0,0

0,5

1,0

1,5

2,0

2,5

3,0

3,5

2007 2008 2009 2010 2011 2012

Monthly average coal, copper, gold, iron ore commodity prices, HSBC Global Mining Index (2007 = 1)

Gold

Coal (Australian thermal)

Iron ore (CFR 63.5%)

Copper


PwC November 2012

Despite record commodity prices, the industry has faced challenges in bringing on new supply

12


Source: The World Bank, AME Outlook

Source: The World Bank, International Copper Study Group Source: The World Bank, World Gold Council

Source: The World Bank, BP Statistical Review of World Energy June 2011

429% increase

30% increase

-

1 .0

2.0

3.0

4.0

5.0

2005 2006 2007 2008 2009 2010 2011

Annual average CFR China iron ore prices, total global iron ore production (2005 = 1)

Iron ore price Global iron ore production

240% increase

10% increase

-

0.5

1 .0

1.5

2.0

2.5

2005 2006 2007 2008 2009 2010 2011

Annual average AME copper prices, total global copper production (2005 = 1)

Copper price Global copper production

350% increase

11% increase

-

1 .0

2.0

3.0

4.0

2005 2006 2007 2008 2009 2010 2011

Annual average AME gold prices, total global gold production (2005 = 1)

Gold price Global gold production

245% increase

20% increase

-

0.5

1 .0

1.5

2.0

2.5

3.0

2005 2006 2007 2008 2009 2010 2011

Annual average Australian thermal coal prices, total global thermal coal production (2005 = 1)

Thermal coal price Global thermal coal production


PwC November 2012

...despite strong 2011 results...

13


PwC

Net profit up in 2011, but the Top 40’s net profit margin down as expenses increased faster than revenue

14 III Congresso de Mineração da Amazônia

Section 3 – ...despite strong 2011 results...

0%

5%

10%

15%

20%

25%

30%

-

20

40

60

80

100

120

140

2002 2004 2006 2008 2010

%

$ b

illi

on

Net profit and net profit margin ($ billion) (Excluding 2011 Glencore marketing and non-mining)

Net profit ($) Net profit margin (%)

(10%)

0%

10%

20%

30%

40%

50%

60%

70%

2002 2004 2006 2008 2010

Revenue and Operating expenses - Year-over-year increase/decrease (Excluding 2011 Glencore marketing and non-mining)

Revenue Operarting expenses


November 2012

PwC

Iron ore lead the way, representing the bulk of 2011’s EBIT gains



-

20

40

60

80

100

120

Revenue by commodity ($ billion)

2011

2010

-

10

20

30

40

50

60

70

EBIT by commodity ($ billion)

2011

2010

November 2012


PwC

Production was up almost across the board, but given record prices, many would have wanted to produce more…

Commodity

(measure)

Top 40

production

(million)

Change from

prior year (%)

Gold

(oz) 40 9

Iron ore

(tonnes) 755 6

Copper

(tonnes) 11 16

Therm. Coal

(tonnes) 1,285 2

Met. Coal

(tonnes) 124 (5)

Zinc

(tonnes) 3 (10)

• Except for metallurgical coal and zinc production was up across the board

• 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

• Gold production up 9%, but given 2011’s record prices, producers would have wanted to produce more



November 2012



Using year-end 2011 spot prices and reserves, the Top 40’s reserves are worth over $18 trillion

Gold Iron ore

Copper Therm.

coal Met. coal

Zinc

(mill. oz) (million tonnes)

Number of cos.

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

19



PwC November 2012

...but is the industry giving shareholder's what they want?

20


PwC

Total cash returns to shareholders increased to $59 billion (up 156%) but capital development exceeded 50% of cash use


(300) (200) (100) - 100

2003

2004

2005

2006

2007

2008

2009

2010

2011

Uses of available cash ($ billion)

Net increase in cash

Capital development

Debt repayments

Distributions to shareholders

0% 20% 40% 60% 80% 100%

2003

2004

2005

2006

2007

2008

2009

2010

2011

Uses of available cash (%)

Capital development Debt repayments

Distributions to shareholders


November 2012

Section 4 – ...but is the industry giving shareholder's what they want?

PwC

Capital expenditure up to $98 billion, with big increases in coal, copper and iron ore


-

5

10

15

20

25

Capital expenditures by commodity ($ billion)

2011

2010

-

5

10

15

20

25

30

35

Capital expenditures by location ($ billion)

2011


November 2012

Section 4 – ...but is the industry giving shareholder's what they want?

PwC November 2012

Outlook

24


PwC

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, this does not guarantee increasing gross margins

• The market doesn’t seem to be buying the industry’s long-term growth story, sending share prices lower - 2011 has shown the growing disconnect


Section 5 – Outlook

November 2012

PwC

Publicações PwC pwc.com.br/mineração


23

November 2012

Mining in the Americas

Brazil – Country Profile

On the road again?

Global Mining 2011 Deals Review & 2012 Outlook

Temas Empresariais

Mining – a virtuous cycle thatneeds to be taken advantage of

Mine 2012

The growing disconnect

Obrigado!

© 2012 PricewaterhouseCoopers. Todos os direitos reservados. Neste documento, “PwC”

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