The investment bank found that major miners had impaired assets worth $US85 billion ($A109.8 billion) over the past seven years, representing around 18% of their average asset base.
The worst offender was Rio Tinto, which has impaired 34% of its asset base.
Rio recorded around $23 billion of write-downs in just two years, relating to the ill-timed Alcan and Riversdale Mining acquisitions.
The impairments claimed then-CEO Tom Albanese’s job.
Anglo American had impaired around 23% of its asset base, with the most recent being write-downs of $3.9 billion in February this year.
Vale was the least affected, with just 8.5% of its average asset base impaired since 2007.
Citi said the figures raised questions about the majors’ capital allocation strategy.
In terms of commodities, aluminium accounted for the bulk, or $25 billion, of the impairments as a result of the Alcan acquisition, followed by iron ore ($10.3 billion) and nickel ($7.8 billion).
“We believe there are potentially more impairments to come thermal coal and met coal businesses where we have seen a structural down-shift in prices,” Citi said.
The report echoes similar figures from EY released in February, which looked at capital allocation trends of 30 global majors between 2003 and 2013.
While EY found that companies which chose to build mines performed worse than acquirers, it acknowledged the spate of value-destructing deals in the sector.
“Acquisition options have often been taken off the table because of the significant impairments that have followed deals in recent years, and the stigma attached as a result,” EY Australia and Asia Pacific mining and metals transactions leader Paul Murphy said at the time.
“This overlooks the huge returns that some acquisitions created earlier in the cycle, and the short payback that a deal, if executed well, may generate overall compared to investing in a portfolio asset.”
The figures might explain why BHP CEO Andrew Mackenzie and Rio boss Sam Walsh are apprehensive when it comes to M&A.
Last month in Perth, Walsh said while Rio had an active M&A team, it wasn’t something that was taking up much of his time, while Mackenzie said it would be hard to find an acquisition that beat its own internal growth options.
“We’re not blind, we’re open to any opportunity and we certainly have the capability to do that within our balance sheet, and should an opportunity arise, we are prepared to move, but it has a tough competition to beat further investment in our own portfolio,” he told reporters in Perth last month.
“We’re all ears and all eyes, but it has to be one hell of a deal.”
Glencore CEO Ivan Glasenberg, who has criticised the capital allocation strategies of his peers, has made no secret of the fact the company is looking for opportunities.
