The Hindu Business Line : Mining revenues up, but costs continue to be high: PwC report

Hyderabad, July 19 Revenues of top 40 mining companies grew 32 per cent in 2007 but costs continue to go up by 38 per cent, according to a report by PricewaterhouseCoopers (PwC) released here.

‘Mine – As good as it gets?’ a report released here on Friday at a meeting hosted by the company, highlighted representative trends in the global mining industry.

According to the findings, during 2007, the global mining industry did not see the effects of economic slowdown that hit other regions or sectors of the economy.

PwC’s India Energy, Utilities and Mining leader, Mr Kameswara Rao, said, “Year 2007 continued to be great for the global mining industry. Record commodity prices and continued growth in emerging economies have let the top mining companies avoid the slowdowns that we have seen hitting other sectors.”

The market capitalisation of the industry grew by 54 per cent.

For the first year since 2002, cashflows from operations were insufficient to cover the increased levels of investment activities.

The shareholder returns for the top 40 averaged 119 per cent in 2007, compared to 55 per cent in 2006.

The National Mineral Development Corporation (NMDC) and Neyveli Lignite Corporation are among companies with top market capitalisation, along with the UK-listed Vedanta Group, that have operations in India.

Indian performance

Indian companies have fared well in keeping costs within reasonable control. NMDC results indicate higher margins in comparison to other mining companies.

This was attributed to lower depreciation charges with ageing assets.

Analysis of Indian mining majors shows low exploration expenses.

In addition, the report noted Indian companies lag in disclosures of reserves and resources as it is not mandated by local regulations. This somewhat depresses their market valuations.

The performance of Indian companies shows continued growth, bucking global trend. However, Government-owned companies have found investing the surplus generated from operations a challenge.

Exploit growth

Due to volatile commodity prices, mining companies are well placed to exploit the growth in certain regions, particularly companies with iron ore and coking coal assets.

Domestic mining companies have been hunting for acquisitions in Asia, Africa and in Latin America.

This trend is likely to continue, given expectations of supply limitations.

However, the report cautions against tough competition from the Chinese and other emerging market companies.