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Why investors aren’t impressed with record returns

KPMG

Despite increased production, boosted cash flows, paid-down debts and near-record-high returns to shareholders, investors remain unimpressed on market returns, according to KPMG’s latest Mine 2019 report.

Total revenue amongst the largest 40 mining companies worldwide reached $683 billion, while investors received a record breaking $43 billion in dividends, with EBITDA of $165 billion.

Why aren’t investors impressed?

Despite the industry’s impressive financial performance over the last two years, the mining index has barely held its own against global market indices.

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Combined with multi-year high profitability levels supported by strong financial positions, investors seem not willing to invest at historic prices and dividend yields; hence, existing investors have not been rewarded with an equivalent market price performance.

Changing world

KPMG believes the underperformance of the mining sector has strong links with the risk and uncertainties with a changing world.

Trade wars, geopolitical crises and climate change continue to create volatility for investors.

KPMG believes the future of the success of the mining industry will not depend on its ability to adapt but also its ability and willingness to sell its brand as a primary provider of raw materials to many essentials for everyday modern life.

Key challenges

KPMG believes we are what may be in the “post-boom” era. The prolonged period of strong demand and very high commodities price has ended. Against this backdrop, growth continues to be a function of outbound expansion and inbound investment.

Thus, resulting in a range of challenges for the mining industry: 

  1. Improve productivity - This is by increasing volumes and reducing costs.
  2. Developing and implementing strategy - Through growth mergers, acquisitions and innovative operating.
  3. Understanding complex regulatory and policy changes - These include potential impacts of tax reform and carbon pricing.
  4. Expanding into Asia and Africa - Ambitious miners will expand operations in foreign countries while managing the risk of these regions.
  5. Reacting to changing prices - Through a greater understanding of the underlying cost drivers to enable closer alignment of cost to output.
  6. Managing regulatory approvals and permits - With a changing landscape, companies will need to closely manage with new projects to fund and develop.
  7. Prepare and planning for operations - To ensure a smooth transition from design and construction.
  8. Finding risk capital - To invest into a high-cost environment for new projects, particularly as the exchange rate starts to move around.  
  9. Preparing for increased automation - Automation will continue to be a major shift for Australian mining companies as they increase the ease freighting.

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Why investors aren’t impressed with record returns
KPMG
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