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Mining stocks “hammered” in first four months of 2013; challenge to fully rebound – PwC
Mining stocks were “hammered” in the first four months of 2013, falling 20 per cent, according to PriceWaterhouseCooper’s tenth annual review of global trends in the mining industry.
In the report, called “A Confidence Crisis”, Global Mining Leader Tim Goldsmith notes that the past decade has seen the mining industry outperform the broader equity market, but that this trend has altered recently, with mining stocks falling slightly in 2012, and markedly in the first part of 2013.
The first four months of the year, notes the report — an analysis of the financial performance and position of the global mining industry as represented by the Top 40 mining companies by market capitalization — were “rough across the board,” noting that market capitalization fell for 37 of the top 40 companies, for a loss of more than $200 billion, corresponding to 17 per cent of the market cap at end of year 2012.
Gold miners in the Top 40 were hit especially hard, losing an additional $58 billion, “particularly due to a significant sell-off in April following the largest one day drop of gold prices ever,” with the report highlighting that gold prices fell 12 per cent in April, leading to the gold miners in the Top 40 losing 28 per cent in stock prices.
The Top 40 lost almost 18 per cent in value in the first four months of 2013, while the broader markets hit all time highs. Since the start of 2012, the HSBC Global Mining Index experienced a 30 per cent drop, underperforming the Dow Jones Industrial Average by 46 per cent and the FTSE 100 by 43 per cent, respectively.
“Given how far the mining industry has fallen in the first four months of this year,” Goldsmith writes, “it will be challenging for the industry to fully rebound in the remainder of 2013.”
The calendar year just past was good for diversified companies, with the top 5 increases in 2012 from a market capitalization perspective – which included BHP Billiton (NYSE:BHP), Rio Tinto (NYSE:RIO) Xstrata (LON:XTA) – gaining a combined total of $61 billion. But the year proved terrible for gold miners, with gold producers — Barrick Gold (TSE:ABX) (NYSE:ABX), Anglo Gold Ashanti (NYSE:AU), Goldcorp (TSE:G) (NYSE:GG), and Newmont (NYSE: NEM) — accounting for four of the five companies experiencing the greatest level of shrinking market capitalization.
The year marked a loss of $29 billion, or 15 per cent of market capitalization for gold miners in the Top 40.
The report notes that the last decade has overall been a time of unprecedented growth of both production volumes and commodity prices, and that for the period between January 2003 and April 2013, mining stocks were up by 235 per cent, outstripping the Dow Jones at 82 per cent and the FTSE 100 at 78 per cent.
The report traces the loss of industry confidence as stemming from the record-setting capital expenditures that followed on the heels of a rapid increase in commodities prices three year ago. The industry’s eagerness to bring capacity online led to a decline in productivity and spiraling operating costs that have outstripped the increases in other industries as grades fell, mines deepened and riskier countries were explored and mined.
Capex for the calendar year is estimated to come in at $110 billion, 21 per cent down on the year before, as mining companies across the board work to cut costs.
The Top 40 miners are focusing on increasing shareholder returns as a means of growing their appeal, with 8 of the Top 10 telling shareholders that the current level of dividends will be either maintained or raised.
Story by ProactiveInvestors
Source: http://www.proactiveinvestors.com/companies/news/44675/mining-stocks-hammered-in-first-four-months-of-2013-challenge-to-fully-rebound-pwc-44675.html
