PwC Canadian Mine 2020 Report: another successful year

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In its Canadian Mine 2020 report, PwC noted that Canadian mining companies played a key role in delivering another successful year for the world’s largest miners in 2019, helping the industry enter a challenging 2020 from a position of strength.

For the period ended December 31, 2019, revenues for the world’s 40 largest mining companies by market capitalization rose 4%, to US$692 billion. Earnings before interest, taxes, depreciation and amortization (EBITDA) were flat at US$168 billion, while dividends paid rose 25% and market capitalization was up 19% to US$898 billion. Global mining companies entered the COVID-19 crisis with strong balance sheets and improved liquidity.

Similar to last year, six Canadian companies made the top 40 list. The six companies reported a net profit margin of 19%, versus 9% for the global top 40. With a relatively healthy gearing ratio of 21%—versus 31% for the global top 40—the Canadian companies demonstrated their solid financial foundation.

Gold miners dominated Canada’s presence on the list, with four of the Canadian companies focused on that sector. Among the notable moves was Kinross Gold Corp. (No. 40), which returned to the top 40 for the first time in several years after reporting increased revenues, earnings and margins in its 2019 results. Topping the list of Canadian companies was Barrick Gold Corp., which ranked ninth (up from 11th in 2018), while Agnico Eagle Mines Ltd. saw the largest jump, rising to 17th from 24th in 2018. Agnico Eagle benefited from higher gold sales volumes as two new deposits in Nunavut came into commercial production in 2019.

The positive results in 2019 put the mining industry in a good position to be resilient in the face of the COVID-19 pandemic. As a whole, the six Canadian companies reported a significant rise in their market capitalization, showing their success in rebuilding investor interest. Global mining companies raised capital expenditures by 11%, reflecting efforts to position themselves for long-term growth.

Our 2020 CEO Survey showed the mining industry has a potential blind spot around cybersecurity. Just 57% of global mining and metals CEOs expressed concern about cyber threats, with 12% extremely concerned.

As we explored in our report on British Columbia’s mining industry, strong Environmental, Social, and Governance (ESG) practices aren’t just good for people and the planet, but they can also help miners’ bottom lines and increase resilience. On the social side, for example, Canadian miners’ strong track records on community engagement have been critical to securing the social licence to continue operating during the COVID-19 pandemic.

Global mining and metals CEOs increasingly recognize the advantages of a strong ESG performance, with 72% of those participating in our CEO Survey agreeing their response to climate change initiatives will give their organization a reputational advantage with key stakeholders. This includes investors, for whom ESG performance is becoming a leading guidepost for investment decisions.

Canadian companies have taken action. Teck Resources Ltd., for example, has committed to being carbon neutral across all of its activities and operations by 2050. But while miners have been embracing one standard or another, announcing projects and reporting their progress, our global report found only 11 of the top 40 companies are doing enough to truly prioritize ESG matters by setting public commitments and targets, reporting consistently against them and linking executive and management performance to achieving them. Two of those 11 companies are Canadian miners.

Canadian miners have excellent track records around holding management accountable for health and safety performance, but it’s time to apply this across the ESG spectrum.

If 2018 marked the return of the mega deal for gold miners, 2019 only deepened the resurgence. Of five mega deals noted in our global report, four involved Canadian companies, the largest being Newmont Corp.’s acquisition of Goldcorp Inc. and Kirkland Lake Gold Ltd.’s purchase of Detour Gold Corp. Even as mega-deal activity slowed recently, the largest transaction so far in 2020 also involved two Canadian-listed companies: SSR Mining Inc.’s proposed US$2.4-billion merger with Alacer Gold Corp.

We don’t expect as much activity in 2020, since many companies will likely look to conserve cash and the economic environment makes valuations more challenging. We still see a place for deals to help miners build resilience, particularly through smaller transactions that help companies increase their capital markets profile and attract investor interest. We’ve seen some gold companies entering into these types of deals this year, often through zero-premium transactions.

These deals can also help companies reduce their reliance on a single asset or a particular geography, as is the case in the proposed SSR/Alacer combination, which will merge two companies with mines in four jurisdictions to create a diversified portfolio. Besides this larger transaction, several of the deals reached this year have involved junior mining companies.

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