Mining industry facing crises -PwC

The mining industry is  facing crises due to  rising costs and volatile commodity prices making the industry unattractive for further investment,  a Global Mining Leader at PwC has said.

“The mining industry is facing a crisis. But regaining investor confidence depends on how the industry responds to its rising costs, increasingly volatile commodity prices, and other challenges such as resource nationalism,” he said.

A  partner at PwC Mr George Kwatia has consequently  called for the strict enforcement of the regulations governing the mining industry.

This he said would  stem the constant influx of Chinese immigrants in illegal small scale mining in the country.   

Mr Kwatia who is also the West Africa Mining leader of PwC said the issues affecting the mining industry in Ghana are not different from those facing the industry globally, adding that revenues of mining companies are plummeting due falling commodity prices; increasing operating costs of mining businesses; and high tax cost as government seeks to introduce additional taxes such as the national stabilisation levy and windfall profit tax in the face of declining gold prices.

“In addition to the rising cost of mining are high electricity and fuel costs, as well as the adverse impact of load shedding and power rationing on mining operations,”  Mr Kwatia said at the Ghana launch of the Mine 2013 publication.

The publication, titled “A Confidence Crisis,” is an annual review of global trends in the mining industry that provides analysis on the financial performance and position of the global mining industry as represented by the top 40 mining companies by market capitalisation.

He said mining companies needed to focus on operational efficiency in order to reduce costs and expenditure and an indicator of efficiency.

Mr Kwatia also charged the government to control expenditure widen tax net to cover the informal sectors of the economy as opposed to introducing higher and newer taxes in the industry.

He emphasised that the country needed to ensure that businesses thrive by ensuring that regulations are enforced to create an enabling environment.

“In this way, they would be able to generate the needed profit and then government can have its share and not to turn the scale round and then rather tax. We have relied on gold which is good but if we look at how other countries develop we may have to look at some of our natural resources and reconsider some of the qualities that have to be put in place to ensure that we can maximise these resources for our good,” he said. 

The PwC Global Mining Leader, Mr Tim Goldsmith said over the past decade the mining industry has outperformed the broader equity markets, but the trend had recently changed.

He said while stocks fell slightly in 2012, during the first four months of 2013 mining stocks were hammered, falling nearly 20 per cent.

The publications stated that in 2012 the top 40’s production volumes increased by six per cent, but softer commodity prices meant that 2012 revenue of US$731 billion was only the second year in a decade that mining revenue did not increase.

Net profit was down 49 per cent to US$68 billion. Decreased commodity prices, an escalating cost base, and US$ 45 billion in impairment charges hit the bottom line. At only eight per cent, return on capital employed was the lowest it has been for a decade.

Also operating cash flows fell with reduced profits, down 23 per cent to US$137 billion, while investing cash outflows increased 22 per cent to US$169 billion, salvaged by the issuing of US$108 billion in new debt.
In spite of the above, the top 40 increased dividends by nine per cent to US$38 billion , an average yield of 3.7 per cent based on April 30, 2013 share prices. GB