Tempting times Review of global trends in the mining industry June 2018
What is Mine? Top 40 Listed by market capitalisation Represents 50% of global production and much more of seaborne trade Traditional and emerging companies June 2018 2
VIDEO June 2018 3
Top 40 reach + global commodity concentration June 2018 4
Cyclical industry impacted by global growth GDP growth (%) The mining industry is cyclical, thanks to the lag between investment decisions and new supply. Demand tends to grow in a relatively stable fashion on the back of global economic growth. By contrast, supply is added in bulk when a new development is completed. Percentage of global GDP Source: IMF, Analysis Source: World Bank, analysis It s not all about China June 18 5
We have been here before Market cap of Top 40 vs adjusted price index ($ billions) Source: SMI Capital Corp, World Bank, analysis 6
We have been here before Top 40 performance trends ($ billions) Source: analysis 7
Focus to be responsible Human capital Employee cost increase by5% Of 22 that reported injury statistics, 15 had improved Fatalities down 36% Social and relations Of new board appointments 27% female Partnering with communities Female board representation increased to 19% Challenging relations with regulators 8
2017 Stellar financial performance Financial performance ( $bn) 2018 Forecast 2017 2016 Change % Revenue $600bn up23% Revenue 642 600 489 23% Operating expenses (470) (444) (371) 20% Other operating expenses (10) (10) (12) -17% EBITDA 161 146 106 38% Impairment charges - (4) (11) -64% Depreciation and amortisation (43) (41) (42) -2% EBITDA $146bn up38% Net finance cost (12) (12) (10) 20% PBT 107 90 43 109% Income tax expense (31) (29) (16) 81% Net profit 76 61 27 126% 9
Companies continue to drive down unit costs Basket of input costs based on driver inflation shows pressure on 2017 input cost. Input cost basket inflation (%) Source: World Bank, analysis One third reporting lower unit costs Operating cost breakdown 33% 32% 14% 10% Raw material and consumables Employee Expenses + external services Government Royalties Paid / payable Frieght and Transport Other operating expenses Exploration and evaluation expenditure 9% 2% 10
Improved value for stakeholders Profitability on all measures improved Although these margins are still too low to incentivise significant new developments, the 25% forecast EBITDA margin for 2018 gets closer to the higher EBITDA margin required to sustain a capital-intensive industry like mining. Key ratios 2018 Forecast FY2017 FY2016 Adjusted EBITDA margin 25% 24% 22% Net profit margin 12% 10% 6% Return on capital employed 10.3% 8% 4% Return on equity - 11% 5% Return on capital employed excluding impairment 10.3% 8% 5% Above inflation salary increases $ billions 2018 Outlook 2017 2016 Change % Cash flow relating to operating activities Cash generated from operations 160 145 114 27% Income taxes paid (32) (20) (12) 67% Other (6) (6) (8) (25%) Net operating cash flows 122 119 94 27% Profitability drives higher taxes paid 11
Shareholders (eventually) rewarded Free cash flow and shareholder returns ($ billions) Market cap up by 30% from $714bn to $926bn Dividends paid increased by 125% from $16bn to $36bn Source: analysis 12
A strong financial position provides sustainability and flexibility Net debt to EBITDA down to 1.5 from 2.2 (Only 5 above 4) Gearing ratio Current ratio 1.5 Quick ratio 1.1 Repayment profile under control with upside 75% of debt at fixed interest rates Gearing 31% down from 41% Net debt to EBITDA improved by 38% Debt repayment profile Source: analysis 13
Low capital investment Capital velocity compared to capital expenditure ($ billions) Source: analysis Likely to turn in 2018 but will it be disciplined Backlog of sustaining capex should be addressed Large new projects announced limited to Copper Exploration investment low, but encouraging signs of increases in the industry 14
Portfolio optimisation drives long-term value 3 trends for the Top 40: Divestment of non-core assets continued (Different commodity strategies) Increase percentage of investment in controlled projects Partnering for diversification and synergies New entrants Private equity taking part as they see value Vertical integration as consumers buy into supply 15
Tempting times ahead Will the Top 40 be guided by their vision to Responsibly create value for all stakeholders on a sustainable basis? Will stakeholders bear long term viability in mind or will they succumb to short term greed? 16
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