The challenges of persistent market uncertainties, increasingly complex industry economics, and growing social and policy risks are being overcome by several global mining companies, says a new report.
RENO (MINEWEB) – Excellent capital stewardship, robust organic growth and a strong credible outlook for value creation helped the global mining industry average total shareholder returns (TSR) of 18% between 2001 and 2011, while the S&P 500 eked out an average 3% during the same period.
“Even more remarkable was the decade-long annual average TSR of the industry’s top ten: a stunning 39%,” says a new report by the Boston Consulting Group issued Monday. “Furthermore, unlike their industry peers, the top ten mining companies continued to earn high TSRs during the second half of the decade, the period encompassing the global financial crisis.”
The Boston Consulting Group calculates TSR as a product of multiple factors including the combination of revenue growth and change in margins as an indicator of a company’s improvement in fundamental value. It then uses the change in the company’s valuation multiple to determine the impact of investors’ expectations on TSR. Finally, the model also tracks the distribution of free cash flow to investors and debt holdings in the form of dividends, share buy backs, or repayments of debt in order to determine the contribution of free-cash-flow payouts to a company’s TSR.
In the report, “Value Creation in Mining 2012, Taking the Long-Term View in Turbulent Times,” the Boston Consulting Group noted revenue increases attributable to rising commodity prices accounted for nearly 14 of the total 18% TSR that the industry averaged. The remaining 4% came from a combination of production increases, margin expansion, and contributions from cash flow.
In their study, Boston Consulting Group also determined, “The mining industry clearly benefitted from the continued economic expansion in emerging markets, which led to steadily rising commodity prices. Value creation also was fueled by production growth, margin expansion, and cash returned to equity holders.”
The report also names the mining industry’s top ten value creators for the period of 2001-2011. Ranked number one on the list is Mexican miner Industrias Peñoles, which generated an average TSR of 58.2%, followed by Grupo Mexico at 49.5%; the United Kingdom’s Randgold Resources at 45%; Canada’s First Quantum Minerals at 42.7%, and China’s Inner Mongolia Yitai Coal at 40.2% TSR.
Rounding out the top ten were sixth-ranked U.S. miner, Cliffs Natural Resources at 40.1% TSR; South Africa’s Exxaro Resources at 39.2%; Sociedad Químaca y Minera de Chile (SQM) at 36.9%; The United Kingdom’s Antofagasta at 32.4%; and China’s Yanzhou Coal Mining at 30.1% TSR.
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