Mining & Resources

Results were mixed across the sector, with DWC extending 1.9 days on average driven primarily by an inventory build-up for producers experiencing strong market conditions.

Another strong year for gold and iron ore miners as prices rallied in H2 to drive average annual revenue growth of 11.5% across our sample of Mining & Resources companies in 2020. Within the average growth rate for the sector were some revenue contractions, as pressure on coal (particularly thermal) and oil prices impacted some companies in H2. Despite this, 73% of sampled companies reported higher earnings in 2020, attributable in part to the favourable USD/ AUD FX movements in the early stages of the pandemic.

The Mining & Resources sector did not feel the impact of COVID-19 disruptions to the same extent as other sectors in Australia and other resource dependent regions, particularly in South America and Africa. Disruptions elsewhere resulted in a global supply shortage of commodities such as iron ore and copper in H2, driving up prices.

Working capital cycles lengthened by 1.9 days to 34.1 days during 2020, locking up an additional $1.1 billion of cash. This was due to slower collections (DSO up 1.4 days to 25 days) and higher inventory loads (DIO up 6.8 days to 79.7 days).

Gold and iron ore miners contributed to the DIO increase as production was increased to take advantage of the favourable market conditions. Interestingly, seven of the ten largest companies in the sector (contributing 85% of combined revenue) actually decreased DIO in 2020. This highlights the differences in the production and distribution capabilities of these companies when compared to the smaller operators, and their ability to adapt to changing market conditions.

The increase in average DIO was partly offset by a 0.7 day increase in DPO (to 65.1 days). Of the sample, 41% paid their suppliers more slowly in 2020, including half of the ten largest companies. We note however that our sampled companies paid their suppliers (on average) nearly two weeks faster in H2 (compared to H1) suggesting that efforts were made to shore up supply and support suppliers during the COVID-19 period to reduce the risk of disruption.

From an international perspective, Australian Mining & Resources companies held significantly more inventory than their US and Asian counterparts in 2020.

Looking forward, the Mining & Resources sector is expected to remain resilient, however a potential slowdown in the growth of the Chinese economy will need to be closely monitored. A number of companies have been able to raise capital and strengthen balance sheets during 2020, which should position them well to manage challenges that arise.

Net working capital performance

*A positive cash impact is a “release” of cash from working capital (improvement). A negative cash impact is additional cash invested or “locked up” in working capital (deterioration).