Top 40 mining companies’ 2010 financial results ‘spectacular’-PwC
The top 40 global mining companies are poised to break through the US$1 trillion asset mark this year, due to record levels of cash, property and equipment on balance sheets, says a new PwC report. In their report Mine 2011: The game has changed, PwC called the financial results of the top 40 “spectacular” as total revenues increased 32% to US$435 billion, breaking the $400 billion mark for the first time. Rio Tinto and Vale together accounted for 35% of the total increase in revenues in 2010. Net profit rose 156% to $110 billion and operating cash flows grew by 59%, resulting in more than $100 billion cash-on-hand at year end 2010. Net debt was reduced to $46 billion.PwC also determined the top 40′s market cap increased 26%, driving up the market capitalization of the smallest company on the list from $6.5 billion in 2009 to $11 billion in 2010.
Coal, copper and iron ore account for 63% of the Top 40 revenue this year. Iron ore turned in records in 2010 with a 111% increase in average price.
Copper prices also reached record levels last year with the average up 46%. PwC said the copper and industrial metals required to rebuild Japan’s damaged infrastructure with continued growth in the developing world is expected to contribute to continued high demand in the second half of this year.
The largest boost in global mining production last year came from potash, according to the report. Global 2010 mining production increased by 5% overall as emerging markets continue to change the face of the industry, PwC noted.
“One sign is the average Total Shareholder Return (TSR) of companies from emerging markets in the Top 40 more than doubling the return from traditional mining companies over the past four years.”
PwC Global Mining Leader Mine Project Leader, Tim Goldsmith observed mining CEOs continue to believe in the power of emerging markets, “particularly the ongoing growth in China and the nation’s ability to achieve or exceed the 7% growth target outlined in the 12th Five Year Plan.”
Meanwhile, “With mining continuing to climb up the political priority list at a time of budget deficits and changing economic and social priorities, many governments are looking at reforms to their mining codes, grappling with sustainability issues and revisiting their approach to taxation and royalties,” said Goldsmith.
In their research, PwC found most of global mining’s remarkable accomplishments in 2010 were “achieved against a background of natural disasters, including the Chilean earthquake and floods in Australia. Political pressure increased with reviews of mining and taxation laws and government intervention influencing deals in a number of mining countries such as Australia, Canada and South Africa. The tensions in the Middle East and continuing concern about European sovereign debt have also weighed on markets.”
With mega-mining deals proving difficult to execute, in-house greenfield and expansion capital projects have become a high priority for top ranked mining companies,” said PwC. In recent months, the Top 40 miners have announced plans to invest $311 billion in capex, of which $120 billion is scheduled for this year.
“At the same time, there is the challenge of declining extraction grades, more geographically remote and/or politically challenging regions and the increasing scale of projects required to generate economic returns,” said PwC.
In their analysis, PwC suggested mining companies should be wary of the emergence of non-commodity Sovereign Wealth Funds (SWFs) and their heavy investment of mining. “With operations becoming more geographically spread, often in locations with limited democracy and immature or involving government systems, SWFs may be seen to be leading the charge for foreign governments in securing resources. The game has indeed changed.”
During the past 12 months since PwC last undertook mining CEO interviews, the consulting group noted “the greatest change to the thoughts of the CEOs is around resource nationalism.”
While mining CEOs have focused more in their companies’ relationships with stakeholders, PwC suggested the one stakeholder that some mining companies seem to take for granted is the customer. “Clearly, in a supply constrained world, the miner has the upper-hand and the customer has to take what it can. Many of the customers are not happy with this arrangement, particularly in bulk minerals as they sense their sector is far more fractured than the mining industry and they are unable to pass increased raw materials prices on to their customers.”
The result is that some bulk mineral customers are making their move, “increasingly buying undeveloped tier two and three assets,” said PwC. The dash to secure resource is on, and India and China are both up to their necks in it.”
VERTICAL INTEGRATION
As the mining and metals industry has become less vertically integrated, mining customers have embraced the concept.
“The steel industry has seen considerable vertical integration as producers drive for greater self-sufficiency of raw materials, either due to increasingly tight supply or input or increasing frustration with the major miners’ ability to dictate price and pricing terms,” observed PwC.
One example of this is ArcelorMittal, which is significantly increasing its in-house iron ore and coal business as part of the strategy to double iron ore production to 100 million tonnes annually.
Tata Steel plans to achieve 100% iron ore and 50% coking coal self-sufficiency.
“Many power producers, including Huadian of China and Tata Power of India, have made major coal mining acquisitions,” the report noted.
“Amongst zinc smelters, Nyrstar has been active in acquiring mining assets, including their 2011 deal for Canada’s Farallon Mining, which increased its self-supplied zinc concentrate usage to 31%.”
Meanwhile, in contrast to other miners, Vale has taken a 27% stake in the Brazilian steel production assets owned by ThyssenKrupp CSA. “This equity investment is combined with an exclusive iron ore supply agreement, solidifying a domestic buyer for Vale’s Brazilian iron ore,” said PwC.
The consulting firm does not expect traditional mining houses will vertically integrate downstream, but “many will likely continue to integrate into infrastructure.”
Coal, copper and iron ore account for 63% of the Top 40 revenue this year. Iron ore turned in records in 2010 with a 111% increase in average price.
Copper prices also reached record levels last year with the average up 46%. PwC said the copper and industrial metals required to rebuild Japan’s damaged infrastructure with continued growth in the developing world is expected to contribute to continued high demand in the second half of this year.
The largest boost in global mining production last year came from potash, according to the report. Global 2010 mining production increased by 5% overall as emerging markets continue to change the face of the industry, PwC noted.
“One sign is the average Total Shareholder Return (TSR) of companies from emerging markets in the Top 40 more than doubling the return from traditional mining companies over the past four years.”
PwC Global Mining Leader Mine Project Leader, Tim Goldsmith observed mining CEOs continue to believe in the power of emerging markets, “particularly the ongoing growth in China and the nation’s ability to achieve or exceed the 7% growth target outlined in the 12th Five Year Plan.”
Meanwhile, “With mining continuing to climb up the political priority list at a time of budget deficits and changing economic and social priorities, many governments are looking at reforms to their mining codes, grappling with sustainability issues and revisiting their approach to taxation and royalties,” said Goldsmith.
In their research, PwC found most of global mining’s remarkable accomplishments in 2010 were “achieved against a background of natural disasters, including the Chilean earthquake and floods in Australia. Political pressure increased with reviews of mining and taxation laws and government intervention influencing deals in a number of mining countries such as Australia, Canada and South Africa. The tensions in the Middle East and continuing concern about European sovereign debt have also weighed on markets.”
With mega-mining deals proving difficult to execute, in-house greenfield and expansion capital projects have become a high priority for top ranked mining companies,” said PwC. In recent months, the Top 40 miners have announced plans to invest $311 billion in capex, of which $120 billion is scheduled for this year.
“At the same time, there is the challenge of declining extraction grades, more geographically remote and/or politically challenging regions and the increasing scale of projects required to generate economic returns,” said PwC.
In their analysis, PwC suggested mining companies should be wary of the emergence of non-commodity Sovereign Wealth Funds (SWFs) and their heavy investment of mining. “With operations becoming more geographically spread, often in locations with limited democracy and immature or involving government systems, SWFs may be seen to be leading the charge for foreign governments in securing resources. The game has indeed changed.”
During the past 12 months since PwC last undertook mining CEO interviews, the consulting group noted “the greatest change to the thoughts of the CEOs is around resource nationalism.”
While mining CEOs have focused more in their companies’ relationships with stakeholders, PwC suggested the one stakeholder that some mining companies seem to take for granted is the customer. “Clearly, in a supply constrained world, the miner has the upper-hand and the customer has to take what it can. Many of the customers are not happy with this arrangement, particularly in bulk minerals as they sense their sector is far more fractured than the mining industry and they are unable to pass increased raw materials prices on to their customers.”
The result is that some bulk mineral customers are making their move, “increasingly buying undeveloped tier two and three assets,” said PwC. The dash to secure resource is on, and India and China are both up to their necks in it.”
VERTICAL INTEGRATION
As the mining and metals industry has become less vertically integrated, mining customers have embraced the concept.
“The steel industry has seen considerable vertical integration as producers drive for greater self-sufficiency of raw materials, either due to increasingly tight supply or input or increasing frustration with the major miners’ ability to dictate price and pricing terms,” observed PwC.
One example of this is ArcelorMittal, which is significantly increasing its in-house iron ore and coal business as part of the strategy to double iron ore production to 100 million tonnes annually.
Tata Steel plans to achieve 100% iron ore and 50% coking coal self-sufficiency.
“Many power producers, including Huadian of China and Tata Power of India, have made major coal mining acquisitions,” the report noted.
“Amongst zinc smelters, Nyrstar has been active in acquiring mining assets, including their 2011 deal for Canada’s Farallon Mining, which increased its self-supplied zinc concentrate usage to 31%.”
Meanwhile, in contrast to other miners, Vale has taken a 27% stake in the Brazilian steel production assets owned by ThyssenKrupp CSA. “This equity investment is combined with an exclusive iron ore supply agreement, solidifying a domestic buyer for Vale’s Brazilian iron ore,” said PwC.
The consulting firm does not expect traditional mining houses will vertically integrate downstream, but “many will likely continue to integrate into infrastructure.”
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