No industry is immune to business cycles, and mining has by its very nature traditionally been a volatile sector. By counting on rising commodity prices to carry them over the past ten years, many companies were susceptible to poor performance when prices began to weaken.
Looking ahead, the prospects for the mining industry are even less predictable. More than ever, performance should not remain so dependent on fluctuating commodity prices.
Based on an analysis of the high and low performers of the past decade, four critical lessons have emerged that drive value creation for mining companies:
Output, revenues, market capitalization, and other size-based measures often miss the point. Without a focus on value creation—captured by metrics such as TSR, net present value, and return on capital employed—it’s impossible to know whether value is being created or destroyed.
Companies must take a disciplined approach to portfolio management, have a deep understanding of the value creation potential of each growth opportunity, and avoid focusing only on production growth.
When the opportunities for profitable growth are scarce, dividend distribution may be a wiser alternative.
A steadfast focus on productivity is critical for achieving healthy returns and enabling long-term success. Focus on operational levers with the largest impact on value creation.