Mining & Resources

DSO 4.7 ⇓

DIO 6.1 ⇓

DPO 5.6 ⇓

DWC 5.1 ⇓

Decrease in average DWC driven by lower inventory levels (DIO) and shorter collection cycles (DSO).

In 2019, 91% of our sampled Mining & Resources companies delivered an increase in revenue, largely fuelled by stronger iron ore and gold prices. Notably, only 66% of the sample was able to translate this into EBITDA growth with a number of participants referencing softer prices for copper and liquefied natural gas, adverse weather events and production outages as key reasons for lower earnings.

The average DWC for the sample decreased by 5.1 days to 35.7 days in 2019. This was driven by a 4.7 day reduction in average DSO, with 53% of the sample shortening their collection cycles. Growing revenue and reducing DSO is a major “win” in terms of cash flow. However, the variability in DSO and the fact that nearly half of the sample collected more slowly in 2019 reinforces the importance of billing and debtors management as part of any plan to manage working capital. Of the sampled companies that were able to reduce DSO, 71% passed this on (at least in part) to their suppliers by paying more quickly. Across the sample, average DPO fell by 5.6 days.

Inventory holdings typically soak up the most working capital in the mining industry. However, the buoyant market conditions allowed 63% of the sample to reduce inventory holdings and increase the throughput of production to sales in 2019. As a result, average DIO fell by 6.1 days. Interestingly, the average DIO for the ten largest companies in the sector (contributing 90% of combined revenue) actually increased by 3.0 days. This highlights the differences in the production profile of these companies when compared to the smaller operators and their ability to stockpile some inventory whilst still delivering sales growth.

Oz Minerals, Grange Resources and Stanmore Coal achieved the biggest DWC improvements in 2019, unlocking a combined total of $214.6 million in cash from working capital.