The Strategist

PWC: Large mining companies didn't notice COVID-19 pandemic

06/19/2020 - 09:07

The coronavirus pandemic did not have a significant impact on the world's largest mining companies. According to PwC estimates, the total revenue and EBITDA of the 40 the sector’s largest players by the end of the year will decrease by only 6%. Even lower oil prices are playing into the hands of companies, as energy costs account for a quarter of direct costs. At the same time, a reduction in capital investments leaves the companies an opportunity to maintain dividends at about the level of 2019.

The COVID-19 pandemic has had little impact on global mining companies, according to a study by PWC. In 2019, the total EBITDA of the 40 largest companies in the industry amounted to $ 168 billion, and a slight decrease of 6% is expected in 2020. EBITDA margin will remain at 24%, which is the level of 2019. According to PwC, total revenue will decrease by 6.3%, to $ 649 billion, and total net profit - by 16.4%, to $ 51 billion. Given all this, PwC believes that the largest mining companies have quite strong and stable positions to deal with the economic uncertainty caused by COVID-19.

One of the consequences of the pandemic will be a slowdown in capital investment - according to PwC estimates, by 11%, to $ 60.9 billion from $ 69 billion in 2019. Lower capex allows mining companies to free up cash flow for dividends if they deem it appropriate, the study notes. Mining companies also benefit from the drop in oil prices due to the decline in consumption caused by the pandemic. A new Deloitte study on mining trends indicates that energy accounts for 20–25% of direct costs in the sector.

During the pandemic, the capitalization of 40 global mining companies decreased by $ 146 billion, to $ 752 billion. Despite this, the sector is not expected to make large transactions due to high economic uncertainty and practical restrictions on visiting sites. In 2019, the total amount of the largest (over $ 1 billion) mergers and acquisitions in the industry amounted to $ 19.2 billion, and these were mainly gold mining transactions. This year, the volume of transactions is unlikely to reach the same level, but in the current environment, mining companies are opening up opportunities to benefit from small acquisitions in local markets, the report adds.