Volatile Future for Mining Companies Expected

Michelle Remo, “Big 4″ observer
June 12, 2011 /

A review by global accounting and consulting firm PricewaterhouseCoopers over 40 mining companies suggested that chief executive officers are optimistic about the future, though they expect volatility on the other hand.

The eight annual review of global trends in the mining industry for 2011 presented in Johannesburg late last week noted that “foreign currency fluctuations continue to create volatility in the results and played a role in the cost increase.”

In January this year, PwC reported that the mining industry, along with the energy sector, has helped boost the initial public offering activity in 2010 which recorded a major increase for the first time since 2006, from less than $2 billion in 2009 to $5.5 billion in 2010 based on its survey on IPO activity in Canada.

On the other hand, PwC analyzed 40 top listed mining companies according to their market capitalization globally. South African companies included Impala Platinum and AngloGold Ashanti.

The other 40 mining companies included BHP Billiton of Australia, Vale of Brazil, Rio Tinto, China Shenhua Energy Company of Hong Kong, Xstrata, Anglo American of the UK and Potash Corporation of Saskatchewan of Canada.

In 2010, the net profit of mining companies in emerging markets like China and India increased 156 percent, owing to commodity boom that has been driven by the demand for natural resources.

The top 40 mining companies cashed in $110 billion, up from $43bn in 2009 according to PwC.

At the same time, the operating costs of the 40 mining companies rose 12 percent. Although direct employment fell dramatically, employee costs remained the main driver.

It did not come easily for the mining companies to build new sites and initiate expansion, the report noted.

“Cost inflation, lead times and skill shortages are increasing challenges to all industry players and no one is immune.”

One of the major concerns was the shortage of mining engineers according to Hein Boegman, head of PwC’s Gauteng audit practice who presented the report.

Boegman said the chief executives of the 40 mining companies have been optimistic and acted definitively on capital projects and mergers and acquisitions.

Proposals were raised that the future chief executive officers of mining companies should be politicians since mining has been hot in their agenda.

Particular countries showing signs of nationalization, PwC said, included Zimbabwe, Australia and Papua New Guinea, and talk of the same in South Africa.

Boegman said: “The outlook of the mining industry is different. The job of a chief executive is changing.”

This year alone, the top 40 mining companies announced more than $300 billion in capital programs, more than $120 billion larger than the total that was spent in 2010.

PwC added that in the next nine years, investments for mining companies would increase to $0.26. Cash flow for the top 40 mining companies this year is at $0.18 for every $1, compared to $0.40 in 2007.

 

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