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  • 2016 BDO Global Mining Middle Market Monitor

Publications: 2016 BDO Global Mining Middle Market Monitor

13 October 2016

Shoots of optimism emerge for a battered global industry

It’s no surprise that the global mining sector has endured a difficult few years and, for many mining companies, optimism has been in short supply. Persistently low commodity prices, waning demand, and tightening capital and credit markets have been squeezing the industry, and no one has been immune to the pain. Mining companies of all sizes—from the giants to the juniors—have seen the strong profits of 2011 and 2012 give way to painful losses, and exploration has slowed to a trickle as the industry waits to see if and when the markets begin to cycle upward.

But according to BDO’s inaugural Global Mining Middle Market Monitor,  the end of the latest downturn may be in sight. The study found that although companies continue to struggle, there is reason for optimism: Among global middle market mining companies from 2014 to 2015, median exploration expenditures grew 17 percent, median price-earnings (PE) ratios grew 15 percent, and median cash balances increased a modest—but still promising—2 percent.

“The global mining industry has had to navigate intensely murky waters over the past half decade, first digging out of the fallout of the 2008-2009 financial crisis and rebuilding, only to falter again amid volatile commodity prices and softening Chinese demand. Creativity in this industry, then, may be the ultimate kingmaker: Mining companies that are able to find effective ways to streamline their businesses, maximise their resources, collaborate with the right partners, and develop a nimble core business will be the first able to take advantage of any market rebound.” Charles Dewhurst, Leader of the Global Natural Resources Practice at BDO USA

 

What lies ahead for the global mining industry?

The primary takeaway the mining industry should glean from the 2016 Global Mining Middle Market Monitor is that, although we’re beginning to see positive momentum in the sector, we have a long way to go before the industry regains full strength. Even as commodity prices slowly inch upward, capital remains tight, and global demand is unlikely to soon reach the levels the industry once enjoyed.

But middle market mining companies tend to exhibit a high degree of flexibility and manoeuvrability when compared to their larger counterparts, and they are looking for opportunities to streamline their businesses across the board. But the key to maintaining this nimbleness and securing a sustainable recovery is making cuts without handicapping the ability to grow operations and make smart investments as the markets improve. While companies should always evaluate their operations and assets to determine where to trim the fat, here are three key areas where miners would be well-advised to eschew austerity and embrace innovation.

 


For more information on BDO's international service offerings to the mining industry, please contact one of the following practice leaders:

Charles Dewhurst
Houston

 

Bert Lopes
Johannesburg


 
Sherif Andrawes
Perth
  Scott McNaughton
London

 
Bryndon Kydd
Vancouver
   

 

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INFOGRAPHIC