Diversified mining: will capital allocation strategies continue to provide predictable investor returns?

Wood Mackenzie's report, Beyond Resilience: Stress Testing Capital Allocation, provides an in-depth analysis of the latest balance sheet metrics for diversified mining companies, utilising insights from our Corporate Strategy & Analytics Service.

Fill in the form to watch an interview on this report, where we discuss the challenges and opportunities across the mining sector. Alternatively, read on for an introduction and an excerpt from this interview.

What if commodity prices fall? 

The diversified miners are in a much more resilient position now than they were in 2014. To assess just how resilient, we used our Corporate Strategy & Analytics Service to look at what would happen if revenue in 2025 and 2026 fell by 10%, 20%, and 30% compared to our base case assumptions.  

The 30% lower scenario implies copper prices of approximately US$6,500/t, and iron ore prices of US$70/t (Sinter Fines 62% Fe CFR China) in 2025. To add context to these price drops, between 2014 and 2015, average copper prices fell by 20% to US$7,238/t (real 2024$), and iron ore prices fell by 43% to US$71/t (real 2024$). 

Overall, the diversifieds are well equipped to weather a downturn in prices. Only in the case of revenue coming in 30% lower than our base case does average net gearing exceed 2019 levels.  

Opportunities to attract shareholder attention  

Most diversified miners are well-positioned to withstand a severe drop in commodity prices. Even in the event of a crash similar to 2015 with prices falling 30% across the board, net gearing would remain below 40% for all but Glencore. 

Companies have multiple options to attract broader shareholder attention, including raising distributions, boosting sustainability credentials, delivering growth organically, and through mergers and acquisitions (M&A).