Falling shareholder returns in the mining sector have spooked investors and halved its market value since 2010, according to a report from the Boston Consulting Group (BCG).
In an analysis of 55 leading mining companies from 2005 to 2015, 10 of which are in Europe, the median total shareholder return was just five per cent. This lagged behind the wider S&P 500, which reported a median shareholder return of 7.3 per cent over the same period.
Despite miners cutting costs and boosting productivity, these efforts “haven’t been enough to put the sector back on a solid footing”, BCG said.
“Generalist investors are still converned, and have reallocated billions in capital from natural resources since 2012, particularly growth-oriented investors,” said Gustavo Nieponice, a partner and managing director at BCG and co-author of the report.
Recent price recoveries for zinc, silver, iron ore, manganese and a modest uptick in copper prices will still not be enough for miners to “declare victory”, BCG said.
Miners have been pummelled by falling commodities prices in recent years, leading many to streamline their operations and undertake vast cost-cutting schemes.
However, sharp cost-cutting efforts have not improved returns on gross investment to pre-commodity boom lows and mining companies remain heavily indebted, with the highest leverage ratios in a decade.
To reassure investors, BCG has urged mining companies to stop relying on commodity price lifts as a recovery lever and to instead address concerns about their balance sheets, showing investors they have re-earned the right to grow, and develop a “compelling path forward to new value creation”.