Mine 2011: The game has changed

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Record results but it’s clear the game has changed for the mining industry

  • 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, according to a new report from PwC,  Mine: The game has changed.

Emerging market players

The report also highlights the growing trend of emerging market producers outperforming those from ‘traditional’ locations such as Australia, US, Canada, South Africa and the UK.  Over the past four years, the average total shareholder return of companies from emerging markets more than doubled that of those from traditional mining locations.

The composition of the Top 40 has changed over the past eight years, with 45% of companies now from emerging markets, reflecting the continued shift in the players and power base of the mining industry.

Returns strong, but moderated

According to the report, cost inflation has kept a lid on the Top 40’s combined return on equity (RoE), which reached 22% in 2010.  This result was well below the 31% and 28% achieved in the highs of 2006 and 2007 respectively.

Commodity outlook

Almost all major metals saw higher average prices than in previous years, with increases on average between 26% and 49% in 2010.

The price of gold has been on a constant upward trend since the average of $364 per ounce in 2003, reaching $1,421 at the end of 2010, with further increases seen through the first part of 2011 despite some price volatility.