5 JUN 2006 - The mining sector has delivered another spectacular increase in profits during 2005, on the back of a further strengthening in commodity prices. This is one of the key findings of ‘mine let the good times roll’, the third annual review of global trends in the mining industry by PricewaterhouseCoopers.
The 40 mining companies included in the analysis, which represent over 80% of the total global industry by market capitalisation, reported a 59% increase in aggregate net profits for 2005, up from $28bn to $45bn. This compares to aggregate profits of just $5bn in 2002. These results have prompted the companies to increase the amount returned to shareholders to $16bn in 2005 with further distributions and buy-backs announced in the early part of 2006.
The report shows that investor confidence in the mining industry and its prospects have continued to strengthen: over the last two years mining stocks have outperformed both the S&P 500 and the Dow Jones Industrial Average by over 300%, and in 2005 alone the industry’s market capitalisation increased by 72% to $791bn.
Hugh Cameron, Global Mining leader, PricewaterhouseCoopers said:
“We are now firmly in a mining boom and 2005 was an exceptional year by any performance measure. The key question on everyone’s mind is how long this can last, but early indications suggest the results in 2006 will be even stronger."
Other financial highlights for the companies analysed include:
- Revenue increased by 25% to $222bn
- Net profit margin improved to 20% from 16% in 2004
- Net cash inflow from operations increased by 34% to $58bn
- Capital expenditure increased by 31% to $31bn
- Exploration expenditure increased by 29% to $2bn
- Gearing dropped to just 16% with year-end cash balances totalling $32bn
- Return on equity has increased from less than 7% in 2002 to 25% in 2005
Commodity price increases, particularly in iron ore, coal, copper and gold are the main drivers of this outstanding performance. With the notable exception of iron ore, aggregate production did not change significantly for most commodities. Also, this improvement in profitability masks a 16% increase in operating costs, reflecting continued pressure on many input costs and a strong focus across the industry on maximising production.
The report also discusses the future outlook for the industry following interviews with selected CEOs of companies throughout the world involved in various aspects of the mining industry. These findings indicate that whilst the 2006 outlook remains strong, the industry believes it is faced with a number of significant challenges, particularly in delivering new projects on time and to budget. With many companies working hard to expand output to take advantage of the buoyant market conditions, 2005 saw a 31% increase in capital expenditure.
Hugh Cameron, Global Mining leader, PricewaterhouseCoopers added:
"Distributions to shareholders increased to $16bn during 2005 and gearing fell to only 16%. Unless the industry is able to identify attractive new developments or acquisition opportunities, investor pressure will mount for increased payments to shareholders.”
Notes to Editor
1. The full report of ‘mine let the good times roll’ is available to download from 5 June at
www.pwc.com/mining.
2. PricewaterhouseCoopers is a leading adviser to the global mining industry, working with a wide variety of explorers, producers and related service providers to ensure we meet the challenges of the global mining industry into the future.
3.
PricewaterhouseCoopers provides industry-focused assurance, tax and advisory services to build public trust and enhance value for its clients and their stakeholders. More than 130,000 people in 148 countries work collaboratively using connected thinking to develop fresh perspectives and practical advice.
4. PricewaterhouseCoopers refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.
