Tuesday, 30 June 2009

Mining Companies' Revenues Rose 23% in 2008, according to PricewaterhouseCoopers

Despite the economic downturn in the fourth quarter of 2008, mining companies capitalized on early-year strong demand and record prices to increase revenue 23 percent in 2008 over 2007, according to "Mine -- When the going gets tough," a new report by PricewaterhouseCoopers LLP (PwC). The sixth annual report analyzes the financial performance of the global mining industry and examines current trends in the industry, looking at the top 40 global mining companies, as measured by market capitalization. While financial results were strong, 2008 was a year of two parts with the good times quickly turning bad as the global economic crisis took hold in the last quarter and commodity prices went into freefall.

Operating costs continued to rise at a greater rate than revenue and net profit decreased 14 percent as compared to the prior year. Market capitalization of the top 40 mining companies plunged 62 percent in 2008 compared to the S&P 500, which declined 38 percent over the same period. Shareholders lost confidence in the economy and the industry and share prices plummeted. However, despite the sharp decline, the overall level of market capitalization is still above that recorded in 2005, which, at the time, was seen to be a 'spectacular year.' In 2007, the cut-off for inclusion within the Top 40 was a market capitalization of greater than $9.0 billion, but this total dropped sharply in 2008 to a cut-off of $2.3 billion.

Gold companies were the least impacted. Their market capitalization decreased 20 percent, based upon the perception that the commodity is a protector of wealth and a safe haven in a time of economic turmoil. Gold companies now comprise 26 percent of the total market capitalization of the top 40, more than double the 2007 level, replacing base metals, platinum and coal companies.

The first quarter of 2009 saw 14 of the top 40 announce mine closures, production cuts or moves to place mines on care and maintenance. Additionally, $13 billion of capital expenditure has also been deferred or cancelled. Combined, this has led to more than 40,000 planned redundancies across the industry.

"There is no doubt that the industry is facing a tough road ahead," said Steve Ralbovsky, U.S. mining leader for PricewaterhouseCoopers. "Reducing capital and operating expenditures and managing production levels to ensure they operate at the lowest possible cost will be crucial for mining companies wanting to combat the current economic conditions. However, given the long-term nature of mining projects and associated capital commitments, it may be difficult for companies to drastically reduce costs in the short-term."

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