Mining profits reach $230 billion a year, topped only by oil & gas, pharma

Mining companies adopted a more conservative approach after the 2015-16 market downturn to adjust to more volatile commodity prices, focusing on cost cutting, productivity and expanding liquidity says a new report by Moody’s Investor Service, a ratings agency. 

Moody’s says earnings for the 130 rated issuers in the industry have improved since the mid-decade downturn, with EBITDA for 12 months through September 2020 totaling $230 billion, the third-largest among the global sectors, after oil & gas and pharmaceuticals.

Debts for the industry total $670 billion but the debt-to-earnings ratio has been cut substantially since 2015, going from 3.8 at the end of the downcycle to 2.7 for the twelve months to end September 2020.

The better overall position for major miners is a result of a strategy of de-risking operations following the downturn by forming joint ventures on large projects, having a disciplined approach to dividends, liability management and projects requiring significant capital outlays.

Decarbonisation is benefiting the industry, says Moody’s, adding that mining intensity is unlikely to decrease, with no clear substitutes for mining, either for inputs or end products. New markets will also strain supply in the near term.

Some of the issues affecting the industry over the next decade include countries increasingly demanding a bigger share of the economics of their natural resources through taxes, royalties and ownership of mines.

Countries – most notably Indonesia, which has followed a policy of banning raw ore exports – are also increasingly crafting regulations to compel mining companies to construct smelters and refineries domestically.