The world's top 40 mining houses reported record profits in 2011, but share prices have plummeted and market capitalisation has fallen by 25%.
Share prices have fallen to about $1.2-trillion from $1.6-trillion the previous year.
PricewaterhouseCoopers’s (PwC’s) ninth annual review of global trends in the mining industry, “Mine: The Growing Disconnect”, found the financial results for the top 40 hit new heights in 2011, which had not been seen since PwC’s first analysis of mining sector trends in 2002.
But the firm expressed concerns about the contrasting results, which show a growing disconnect between profits and the performance of stocks.
Revenues increased 26% to more than $700-billion (iron ore, coal and copper accounted for 57% of the total), net profit was up 21% to $133-billion, operating cash flows grew 34% to $174-billion, and total assets remained above $1-trillion and grew a further 13%.
The companies returned 156% more to shareholders than in 2010, but only six of the world’s top mining companies – China Shenhua, Industrias Penoles, Goldcorp, Randgold, Yamana Gold and Ivanhoe Mines – reported an increase in market value last year. Three were gold companies and the others were either located in emerging markets or almost exclusively focused on emerging markets.
Hein Boegman, PwC’s mining industry leader for Africa, said investors had not bought into the industry’s growth story or were reacting to short-term global economic concerns. “The demand story remains robust and long-term growth in emerging markets is more significant to the mining industry than short-term jitters in the developed world.”
Despite strong commodity prices, operating expenses reached a record $479-billion, a 25% rise over 2010.
Boegman said the onus was on the industry to articulate better what was still one of the strongest investment stories in the world today. “This story is being fuelled by emerging market nations where hunger for commodities remains strong. It is these markets that will decide the future of the global economy.”