The mining industry continued to face cash shortages to cover their current operating, investing and financing costs this year. In the first quarter of 2016 the total amount of large and medium-sized mining enterprises’ cash flows were KZT25bn less than their cash outflows.
At the same time, negative net cash flows were still lower in January-March 2016 than they were in the first quarter of 2015 when the figure stood at KZT210bn. Noteworthy, net cash flows have been negative in the sector since the 2009 crisis.
Large and medium-sized mining companies managed to improve cash flows on the back of growth in cash flows from operating activities which stood at KZT380bn in January-March 2016, 200% up year on year.
This growth was to an extent offset by investing activities of the enterprises as cash outflows exceeded cash inflows by KZT503bn in January-March. A year earlier net investing cash flows were negative and stood at KZT449bn.
As a result, the net profits of major and medium-sized mining companies are falling. Net profits stood at KZT507bn in the sector in January-March 2016. This is 15% higher than in the first quarter of 2015 but much lower than the profit levels in the corresponding periods in 2011-2014.
The decrease in profits in the sector is taking place against the background of the growing value of production. In the first quarter of this year the value of production at major and medium-sized extractive enterprises reached KZT1.4tn or 10% up year on year. The same level of the value of production was recorded in January-March 2013 when commodity prices were higher than they are now.
The bulk of cash inflows in the mining sector comes from core activities, that is sales of products and services – 87% of total cash inflows. Despite a 13% growth year on year in January-March 2015, sales are still below the 2011-2014 levels. On average, cash inflows from operating activities are still 20% below the levels seen during the economic boom and high commodity prices.
Mining enterprises obtained less loans this year compared to the previous year. Cash flows from financing activities were 37% down year on year in the first quarter.
Cash flows from investing activities fell by 31% year on year to KZT61.7bn in January-March 2016.
As mining companies’ revenue is falling this year (compared to more favourable 2011-2014) their costs are on the growth. This is especially obvious in operating activities of enterprises. Payments to suppliers, payments on interests on loans and other expenditure from operating activities stood at KZT1.8tn. This level of costs large and medium-sized mining companies incurred in the previous four years.
Tellingly, in the past two years not only have large mining enterprises cut loans but they have also reduced payments on their loans, including through refinancing the outstanding loans. In January-March 2016 cash outflows on financing activities stood at KZT161bn, 45% down year on year.