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New data from advisory firm PwC has found that the top global mining companies were reaching near boom profits, with net profits up 126% in the last year.
Net profits for the top 40 mines reached $61-billion in 2017, and are forecast to climb further to $76-billion in 2018.
Market capitalisation also increased by 30%, to $926-billion in 2017, while revenue for the top miners increased by 23% to $600-billion, and earnings before interest, taxes, depreciation and amortisation (Ebitda) rose 38% to $146-billion.
PwC Australia mining leader Chris Dodd said on Tuesday that strong balance sheets were tempting the top 40 mining companies to pursue bold investment and growth opportunities, but many remained focused on maintaining a robust and flexible balance sheet to avoid the misgivings of the past.
Capital expenditure is at its lowest level since 2006, at $48-billion, with few large-scale projects currently approved.
Dodd said the results from this latest data show, however, that previous infrastructure investment by the top 40 mining companies, made during the mining boom, was now beginning to show results.
“The hard work has been done by these mining companies to cut costs, drive efficiency and keep supply at sustainable levels,” he added.
With the increased profits, stakeholders were also looking to increase their share of the pie, with governments, workers and shareholders all likely to demand increased returns in the form of higher dividends, higher taxes or higher wages.
Simultaneously, mining companies will be encouraged to buy more mines and expand operations.
However, Dodd noted that the level of supply coming on line was reduced compared with the past and the “rush to production tonnes” approach from previous years had dissipated, making way for more sensible decisions by mining companies about meeting demand without flooding the market and driving prices down.
“Prices are largely sustainable, no longer boosted by unprecedented growth in China like we saw ten years ago. What we are seeing now is that growth in China has been baked into the base, buying everything they did last year, plus more.”
Dodd said there is not that much new capacity coming on line and although there were signs of merger and acquisition activity, not a lot was actually occurring.
Meanwhile, PwC found that despite productivity cost gains, labour continued to make up a significant slice of operating costs, estimated at 32% across the companies. Overall employee numbers are understood to have been declining, especially through productivity and technology advances.
In addition, the tax expense for the top 40 miners increased by 81%, with cash taxes paid to governments increasing by 67%.
In terms of capital raised, PwC noted that equity raised by the mining industry as a whole, on the traditional mining markets in Toronto, Australia and London, decreased by $1.7-billion from 2016 to 2017. While London saw an increase of 47%, Toronto and Australia decreased by 36% and 9% respectively.
Looking forward, Dodd said he expects revenues to continue to increase this year on the back of favourable market conditions, higher prices and a strong cost management discipline resulting in stronger balance sheets for the miners.
“The biggest risk now for mining companies is whether or not to give in to the temptation to meet rising demand by splashing their newly acquired cash balances on deals, projects or assets as many have done previously.
“To deliver value on a sustainable basis, miners must remain disciplined and transparent in the allocation of capital, and stay focused on the goal of mining for profit, not for tonnes.”source: miningweekly