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Xstrata retains leadership in Dow Jones Sustainability Index
“The main sustainability issue facing the mining industry is that of declining ore grades, which implies that over time, more mineral ore needs to be extracted and processed in order to produce the same amount of metal. This is likely to exacerbate many of the environmental and social issues facing the mining & metals industry going forward. Some of the prominent environmental issues include mineral waste management, as well as the management of key inputs such as energy and water. Social issues are mainly centered around the health & safety of workers and general labor conditions. Issues such as land rights, population relocations, the use of private security forces to protect mining assets, and mine closure also remain very controversial. As with other extractive industries, the mining space is particularly susceptible to corruption, bribery and other breaches of the Codes of Conduct”
Source: Dow Jones Sustainability Index Review 2011, September 2011
Observations:
- Xstrata tops the Dow Jones Sustainability Index for the basic resources sector for the second year in a row.
- Most important changes of the index for the mining industry are the inclusion of Newcrest and Kinross, and the removal from the index of ArcelorMittal and Goldcorp.
- Assessment criteria include economic, environmental, and social topics. Full list of criteria can be found here.
Implications:
- Inclusion in the DJSI is mainly a marketing issue; it does not have direct operational or financial consequences. Many countries do require foreign investors to adhere to global reporting initiatives to ensure a certain level of sustainability, but DSJI requires a much broader set of policies.
- Xstrata especially scores higher than industry average in terms of climate strategy, mineral waste management, human capital development, and standards for suppliers. The benchmark report will certainly be used by some companies to prioritize areas for improvement.
©2011 | Wilfred Visser | thebusinessofmining.com
Newcrest Profit Soars 63%
“Newcrest Mining Ltd., the world’s third-largest gold miner by market value, said Monday its fiscal full-year net profit rose 63% to 908 million Australian dollars ($940.1 million), as production jumped on its acquisition of Lihir Gold Ltd. and the price of gold soared.
‘The world economic and political issues are supporting a very strong gold price going forward,’ Chief Executive Greg Robinson said in a conference call. He didn’t provide a specific price forecast. The surging gold price, which averaged A$1,409 per troy ounce over the company’s fourth quarter ended June 30 and has since hit successive records up to $1,814.89 per ounce, helped lift earnings at the Melbourne-based company from A$556.9 million the previous year.
On the underlying basis preferred by equity analysts, which excludes one-off and accounting items, net profit came to A$1.06 billion in the financial year, the company said in preliminary annual results. Analysts had suggested an average figure of A$1.05 billion.”
Source: Wall Street Journal, August 15 2011
Observations:
- Newcrest is the world’s 6th-largest producer of gold, producing approx. 2.5bln ounces in 2010. About a quarter of the production comes from Western Australia’s Telfer mine.
- A 43% increase in production volume results in 76% higher employee salaries and 87% higher maintenance and contract labour, showing the cost pressures that have led to the current $513/oz production costs.
Implications:
- Newcrest is working on the integration of Lihir, bought a year ago for $8bln. The lower grade deposits the company is developing change the cost structure of the company and reduce its historically high profit margin. As a result the company will become more similar to large rivals Barrick and Newmont.
- High gold prices drive gold miners to pay out large dividends, trying to convince investors of the benefits of holding gold miner shares rather than gold ETFs.
©2011 | Wilfred Visser | thebusinessofmining.com
Top Miner’s M&A History
Gold Miner’s M&A History
