Current Edition >> Archives Section >> Leading Stories >> 16-31 Aug 2005

Mining growth spectacular

The indications are that the mining industry had a spectacular year in 2005. According to a review of global trends in the mining industry released by PricewaterhouseCoopers recently, the mining industry's performance has, over the last two years, exceeded that of the market as a whole by over 300%.
Investor confidence in the sector and its prospects have continued to rise, fuelled by a sustained rise in commodity prices, which, in turn, has caused an exceptional increase of 72% in the market capitalisation of the industry.
For the companies analysed, net profits increased by 59% compared to 2004 statistics and are now at eight times the 2002 level. Return on equity reached 25%, compared to 6% in 2002, and the net cash inflow from operating activities was $58-billion, an increase of 34% compared to statistics for 2004.
The core drivers of improved performance since 2002 remain commodity-price increases, particularly copper, gold, iron-ore and coal prices. However, these improvements in profitability mask substantial increases in operating costs that occurred in 2004 and last year.
The report also sounded a note of caution on the impact of investment funds that have been investing directly in commodities and could well exacerbate price volatility.
The report also states that the continuation of strong profits and operating cash flows has led to an increasingly strong industry balance sheet. Companies are reinvesting a significant proportion of their operating cash flows in capital projects and acquisitions, with net cash outflows from investing activities up 41% to $38-billion since 2004.
Many companies have also chosen to increase substantially their returns to shareholders, which almost doubled in the last year to $16-billion. Even after these distributions, net debt has decreased by almost $7-billion since 2004 to $38-billion and the industry gearing ratio is now only 16%.
Looking ahead, the review states that the outlook for this year remains strong, although many industry executives acknowledge that significant challenges lie ahead, particularly in relation to supply.