Mon, 26 Jul 2021

  • An industry report by PwC says miners have performed well despite the pandemic, and many have cash to invest.
  • Copper, which has been boosted by the demand from the auto sector, was a top performer.
  • There are signs of optimism for 2021, with Top 40 companies expected to report record-high revenue and earnings.

While other sectors of the economy were severely hit by the Covid-19 pandemic in 2020, mining companies managed to lift profits and market capitalisation, putting them on a path towards long-term growth, according to a report by PwC.

The 2021 annual review of the Top 40 mining companies, which examined global trends in the sector, found that net profits soared 15%, cash on hand increased 40%, while market capitalisation rose by nearly two-thirds to $1.46 trillion.

The report highlighted that the strong financial performance put companies on a better trajectory towards a sustainable future.

"There are further signs of optimism for 2021, with forecasts indicating that the Top 40 will report record-high revenue and EBITDA [earnings before interest, taxes, depreciation, and amortisation] levels and the second highest net profit."

The sector has been boosted by higher commodity prices, with major miners reporting marked growth in earnings, raising prospects for further investment into operations and diversification into base metal that support cleaner technologies, whose demand, according to the report, is expected to increase sixfold in the next 20 years.

"Miners have performed well despite the pandemic, and many have cash to invest," reads the report.

But the question that remains is whether governments can attract some of this capital through tax policy incentives, as mining executives have raised concerns about tax regulations that have skyrocketed in the past 12 months.

Copper shines

"While there's a potential synergy between the mining investments and government incentives, miners are sensitive to tax policy changes. Their concern is valid, given the limited ability to shift capital out of countries that impose sudden and adverse tax rules," the report notes.

In 2020, Top 40 revenue was $545 billion, excluding trading, up 4% from 2019. Higher prices for gold and iron ore and modest production increases in gold and copper were the main drivers of revenue growth.

Copper was a star performer, contributing $122 billion to group revenue, and the metal, which has received a boost from a rising demand from the auto sector, is likely to fetch premium prices for some time.

"The price of copper reached an all-time high in May 2021. Based on consensus data, the average price of copper is predicted to increase by 40% in 2021."

China and India, the two largest consumers of iron ore, are forecast, according to IMF and PwC analysis, to have GDP growth of above 8% in 2021, indicating that the outlook for the commodity remains positive.

Source: News24

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