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PWC: Mine 2011 – The game has changed

June 13, 2011

Accountant and consultancy PWC launched its annual review of the mining industry: Mine 2011. The report analyzes the financial performance of the 40 largest listed mining companies and describes the underlying trends in the industry:

“Last year we highlighted the growing optimism in the mining industry and demand fundamentals that were driving the industry back to boom times. The 2010 results have delivered on this expectation, but it is clear that the game has changed.

  • Combined net profits hit $100 billion
  • Operating cash flows up 59%, leaving more than $100 billion cash on hand
  • Emerging market miners outperform traditional players
  • Capital expenditure of $300 billion announced
  • Supply and cost management key challenges

Revenues for the world’s 40 largest miners leapt 32% to a record $435 billion, driven by surging commodity prices and a 5% increase in production output in 2010.The strong top-line result catapulted the miners’ net profits to an impressive $110 billion – a 156% increase over the previous year.”

Source: PWC, June 2011

Key takeaways:

  • PWC argues that the cost base for many commodities has shifted, resulting in a fundamental change in the supply structure that justifies the commodity price increase. This shift of the cost structure is partly caused by downstream players entering the mining market with a focus more on supply security than on cost effectiveness.
  • The report further shows that the capital expenditure in the industry is still very much lagging the increase in profits, further creating a situation of supply shortage: “In 2010 for every dollar earned in revenue only 18 cents were invested, significantly lower than the 40 cents invested per dollar of revenue in 2007 and the 2003-2009 average of 26 cents per dollar. In 2010 Investing cash flows were only 58% of operating cash flows, compared to an average of 94% for 2003-2009.”
  • New players in the global top 40 are: Agnico-Eagle Mines, Coal India, Industrias Penoles, KGHM Polska Miedz, Shandong Gold Mining, and Silver Wheaton.

More consultant’s reports? See the Business of Mining special ‘Free consulting: Mining industry reports’

©2011 | Wilfred Visser | thebusinessofmining.com

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