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Miners lose shareholders' trust

Miners lose shareholders' trust

The mining industry is facing a crisis of confidence globally with shareholders no longer trusting to keep their promises, a new study has found.

The mining industry has gone from heroes to zeroes for shareholders that don't trust it anymore.

After outperforming other sectors on global share markets for years and delivering superior returns, the opposite was now occurring, according to a new report, Mine: A Confidence Crisis, by PwC.

For Australia the problem was acute because its economy and tax revenues were so dependent on the resources industry, PwC's Australia energy, utilities and mining leader Jock O'Callaghan said.

The big miners had to show they could deliver in tough as well as good times, he said.

Profits of the world's 40 biggest miners nearly halved last year from the previous year to $US68 billion ($A69.97 billion) on flat revenues of $US731 billion.

That is a 49 per cent fall to 2006 levels, a bigger plunge than occurred during the global financial crisis in 2008.

The top 40 miners' market values were steady last year at more than $US1.2 trillion but their share prices underperformed global markets.

They have turned sour in 2013.

"The first four months of 2013 have been rougher and tougher than at any time in the past decade, with market values plunging $US220 billion, or 18 per cent, for 37 of the world's top 40," Mr O'Callaghan said.

The news is worse for gold miners, which alone lost $US29 billion (15 per cent) in market capitalisation last year and another $US58 billion this year as the gold price fell.

"Because mining played such a pivotal role in Australia's miracle economy, staving off the full effects of the GFC, the response from industry and government will be critical," Mr O'Callaghan said.

It was up to the miners to win back the confidence of investors who did not trust it to control costs or improve capital returns and lacked confidence that commodity prices would not collapse, Mr O'Callaghan said.

One of the major complaints of shareholders has been a lack of capital discipline and poor dividends and returns generally, the report found.

One example was a jump in impairments - writedowns of a company's capital assets - to $US45 billion, 45 per cent more than the $US31 billion during the GFC in 2008.

The pressure is working: dividends hit a record $US38 billion, 60 per cent payout ratio in 2012, five out of the top 10 miners recently changed chief executives and capital expenditure has been cut.

On the positive side, PwC said it was also optimistic about China's outlook as the most important customer and the future emergence of Brazil, India and Indonesia.

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