A Case Study In Value Destruction

Morgan Stanley on the UK mining sector. Presented without comment:

“The benefits of the volume growth over the last 10 years from AAL, BHP and RIO have been undone by price declines over just the last 3 years. From 2005- 2014, the cumulative EBIT benefit from volume growth for AAL, BHP and RIO has been $1.3bn, $12bn, and $6bn, respectively, with a combined $246bn in gross capex ($139bn net) required to generate that return. These investments in additional capacity have not only generated only modest returns, but they have actually led to an oversupplied market. Price declines have followed, with cumulative EBIT impact of $8bn, $29bn and $11bn over the last 3 years. So this investment in additional supply has ultimately reduced earnings by a far greater amount than the capacity added.”

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