Soaring costs eroded the revenues of mining companies in 2007, a report released by PricewaterhouseCoopers (PwC) on Tuesday indicated.
”While revenues of the top 40 mining companies grew by 32% in 2007, costs increased by 38%, thereby reducing margins.”
The report showed that mining, especially in emerging economies, struggled to keep up with demand in 2007.
”2007 continued to be great for the global mining industry,” said PwC’s global mining leader, Hugh Cameron.
”Record commodity prices and continued growth in emerging economies have let the top mining companies avoid the slowdowns that we have seen hitting other sectors.”
Cameron said, however, there had been a decrease in margins because of cost increases.
Skills shortages made it hard to bring new supply to the market, he said.
Higher costs of living in mining towns also hindered the growth of profit margins.
The report showed that market capitalisation of the industry grew by 54% in 2007.
South African companies in the top 40 are Anglo Platinum, AngloGold Ashanti, Gold Fields, Impala Platinum and Kumba Iron Ore.
The report also indicated that for the first time in five years, external financing was needed, besides the cash flow from operations, to cover increased levels of investment activities.
”Total shareholder returns for the top 40 averaged 119% in 2007, compared with 55% in 2006.”
The report indicated that CEOs needed to take careful decisions in the current economic climate.
”A new breed of CEO … has been quick to capitalise on the increased operating cash in-flows.
”Many young CEOs [both in age and tenure] have undertaken dramatic transactions within months of taking on top positions.”
Cameron said planning and project management by CEOs was essential to ensure success.
PwC’s partner in Global Risk Management Solutions Division, Mike Roy, said many regions like South Africa and South America had experienced the effect of a lack of electricity or an inconsistent supply of it.
”South Africa in particular has been widely impacted with uncertainty around continual power supply.”
He said this hindered the ability of mining companies to operate at normal levels of production and bring new projects online.
”The uncertainty of electricity supply may result in a direct impact on the local labour market,” said Roy. — Sapa