Net profits for the global mining industry increased by 64% in
2006. These net profits are now 15 times higher than their 2002
level, indicates Pricewater-houseCoopers (PwC) in its 2007 report,
‘Mine – Riding the wave’.
The report, which looks at the top 40 mining companies –
representing over 80% of the global industry by market
capitalisation – shows that supply in the mining industry is
static and is lagging, partially because of underinvestment in the
nineties. PwC remains confident that fundamentals will lead to the
continuation of high commodity prices.
The report also highlights that cash flow from operating activities
was $76,7-billion in 2006,used portable crusher sale up 40% from 2005. Spending on investment
activities grew by 83%, showing that this cash is also being used
to fund organic growth, as well as cash-funded acquisitions.
Takeover activity in 2006 picked up from its already rapid pace in
2005, and consolidation and expansion through the acquisition of
new assets remain a cornerstone of the cash-rich companies. In
fact, this period of consolidation funded by commworking principles of limestone crusherodity prices has
led to nine of the 2003 top 40 mining companies being acquired by
one of the 2006 top 40 companies.
Leading the way with consolidation and expansion through
acquisition was Companhia Vale do Rio Doce (CVRD), which has grown
from a regional iron-ore producer to become a top-four diversified
mining giant. In 2006, CVRD, with its $19,4-billion all-cash offer,
acquired Canadajaw aggregate crusher plant pictures’s Inco.
In addition to this, “CVRD is looking for more: developing
new businesses, incorporating new companies, and creating value and
strong relationships with communities in its areas of interest and
neighbouring countries”, says the PwC report.
An area of concern that is noted in the report is that of rapidly
increas- ing production costs, leaving lsweden quarry crusher equipment manufacturersittle flexibility.
Supply issues, such as a lack of skilled workers, equipment
shortages, and years of “above nameplate capacity”, are
starting to take their toll on production costs and capacity. The
PwC report shows that capital expenditure by the top 40 companies
increased by 32% in 2006, and operating expenditures rose 23% over
2005. Spending on costs such as labour, steel, electricity, and
diesel are vital and relatively fixed, making it almost impossible
to lower production costs. It is also known that the deeper a mine
goes, the more costs increase.
Although it is unlikely that commodity prices will go down, if they
do – in an environment with high production costs such as we
are currently experiencing – mine closures could be a
reality, because of the lack of flexibility of these operating
costs.
PwC mining division director Hein Boegman asserts
that mining companies are all too aware of this situation and are
working hard and conducting research into lowering operating
costs.
In some cases, innovative ideas have come out of this research,
such as using hybrid diesel/electricity vehicles to reduce
electricity demand. Contract mining and bulk purchasing have also
emerged as ways to lower costs, although, in South Africa, this has
the potential to interfere with a company’s black
economic-empower- ment scorecard.
The costs of mine development are also rising and the development
itself can take a considerable amount of time.
On an encouraging note, PwC is confident that 2006 was not as good
as it will get for the mining industry. “Although challenges
remain with cost control and supply shortages, the industry has
entered 2007 on a very high note, and companies’ fortunes
will depend on how they ride the wave,” concludes
Boegman.