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PWC: Mine 2011 – The game has changed

June 13, 2011 Comments off

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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The Rise of China in Mining

October 4, 2010 4 comments

China is rising as a global superpower in the mining industry. Ore from mining companies all around the world is shipped to Chinese ports to fuel the growth of the economy. Building relationships with Chinese government and customers is a top priority for many business leaders. However, few people in the industry know that China itself is a major producer of many minerals. This article explores the Chinese rise of production, the rise of demand, the rise of Chinese mining firms and the rise of investment and sketches the implications for the mining industry of the changing role of the country.

 

1. The Rise of Production

China’s mining industry is the world’s largest in many aspects: the country has 200,000 collectively owned mines1, employing over 10 million miners; it is the world’s major producer of coal, lead, zinc, tin and rare earth minerals and also ranks high in output of iron ore, gold, bauxite and other minerals.

The country has been a major producer for decades, but the enormous demand, the opening of the market to private investors and the introduction of modern mining techniques has boosted the productivity and production of the industry. Significant reserves of most minerals allowed China to grow the market share of mining output for all major minerals in the past 15 years (Figure 1). The growth of the iron metal content output share is even more remarkable when considering that Chinese iron ore typically has a very low metal content: while share of iron content grew from 14% to 15% since 1995, the share of gross weight grew from 24% to 37%2.

Figure 1 - Chinese share of world mining output

The largest part of worldwide reserves of rare earths, titanium, tungsten & molybdenum are in China. These minerals are crucial in the production of many high tech products, giving China a powerful position in international trade. Recently the country has demonstrated this power by implementing export quota for rare earth minerals, favoring the domestic high tech industry.


2. The Rise of Demand

China hardly exports any minerals; all domestic mine production is absorbed by the domestic. Value of total mineral exports in 2009 was a mere $0.2bln, 60% of which was molybdenum3. Until a few years ago the country was a net coal exporter, but the growing demand from the utility and steel industry has turned it into an importer. Though the country does not export ores, it has been building a large iron and steel industry, exporting at a total value of $53bln in 2008. In the same year the production of 500Mt of crude steel accounted for 38% of the world production2. In 2009 the imports exceeded exports, as steel companies responded to the crisis by cutting production. Stepping up production will turn the country into a net exporter of steel again.

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