The Hindu Business Line : Mining sector will continue to see high margins, consolidation: PwC

Chennai, July 9 The year 2007 is likely to see the global mining industry clock record financial results and witness further consolidation as industry leaders continue to spread out from their geographical homes to operate assets globally, according to Mine (‘Riding the Wave 2007’), a PricewaterhouseCoopers review of global trends in the mining industry in the year 2006.

“The prospect of takeovers of companies of all sizes means that CEOs must remain focused, both on moving their companies forward and managing their position, in the current environment of mega-mergers: hunt or be hunted,” said Mr Hugh Cameron, Global Mining Leader, and Mr Tim Goldsmith, Mining Leader – Asia Pacific and Mine Project Leader, in the report.

The report provides an aggregated view of the global mining industry in 2006, represented by 40 of the world’s largest mining companies based in 14 countries. Only two Indian companies, National Mineral Development Company Ltd and Vedanta Resources, figure in the list. These 40 mining companies account for over 80 per cent of the global industry by market capitalisation.

Key markets

According to the report, China and India are key markets as far as total revenue by customer location is concerned, with both accounting for eight per cent each. However, Europe and North America continue to dominate, totally accounting for 37 per cent.

For 2006, total industry revenue rose 37 per cent to $249 billion, year-on-year, while net profit rose 64 per cent to $67 billion.

During 2006, takeover activity picked up as a number of mega deals were sealed, with CVRD leading the way by purchasing Inco and becoming one of the world’s leading nickel producers.

Despite operating expenses continuing to rise, profit margins are expected to remain high for the near future, driven by exceptional demand sustaining the current commodity price levels, the report said.

“Unprecedented demand, primarily driven by Asia, continues. There remains confidence that demand will exceed supply, leading to the continuation of high commodity prices for the time being.”

It pointed out that hedge funds continue to be active in the industry and have impacted transactions and commodity prices due to the positions they take.

“This transaction activity is often hostile and no one is immune to their attentions. High cash flows and easily accessible funds mean that this trend will continue.”

It added that there are growing indications of potential for private equity funds to share in the returns from the industry.

“The potential arrival of private equity as holders of major mining projects will also be of interest as they come to grips with the cyclical nature of the industry.”

According to the report, the mining boom experienced over the last few years has some way to go.

“Urban migration and Asia’s appetite for commodities point to strong demand; in general terms, supply has not yet caught up to demand and is struggling to do so.”

Many issues such as lack of skilled workers and equipment shortages are impacting input costs. “Mine developments take a long time and the cost of development has risen rapidly; besides, health and safety remain key issues to manage.”

More Stories on : Mining & Quarrying | Consulting

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page