Revenues for the world's 40 largest miners leapt 32% to a record US$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."
"Following the strong 2010 result, the mining industry has entered a new era with fundamental changes. Looking forward, growing demand for products - led by the emerging markets - will drive the industry and supply will be the most significant challenge it will face. The need to explore more remote locations, project complexity and new sovereign risks will compound this issue," says Tim Goldsmith, global mining leader, PwC.
To keep up with demand, the Top 40 have announced more than $300 billion of capital programs, of which more than $120 billion is planned for 2011, doubling 2010 capital expenditure.
Despite the challenges, the Top 40 is well position to capitalise on the upside. Collectively, they own nearly $1 trillion in assets, including $100 billion of cash. They are also largely debt free with net gearing of just 8%.
Emerging Market Players Out Perform
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.
"Chinese demand for raw materials continues to be a strong force pushing the mining sector into a new era of investment and growth," says Ken Su, PwC China and Hong Kong mining leader. "China's appetite for resources is insatiable, and along with strong support from the Government, the development of the mining industry in China will continue to flourish. Chinese mining companies are active in M&A to drive their expansion plans, and as long as valuations meet expectations, we also expect an increase in M&A activity in the mining industry in the coming 12 months."
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.
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