TORONTO, June 20 /CNW/ - It was a spectacular year for the global mining
industry in 2006-although many leading Canadian companies were acquisition
targets. According to a PricewaterhouseCoopers (PwC) report, Mine - Riding the
wave, global net profits in the mining sector rose by 64% last year, 15 times
higher than in 2002. The number of Canadian companies among the world's 40
largest public mining concerns, however, fell from 12 in 2003 to six in 2006.
"Consolidation in the industry really took its toll in Canada. The loss
of so many Canadian head offices from the global top 40 is striking," says
Paul Murphy, PwC partner and Canadian Mining Practice Leader. "Globally, it
almost looks as good as it gets for the mining industry. Net profits are way
up and so is return on equity. But the wave has carried away some Canadian
icons in 2006."
The trend of fewer Canadian mining companies in the global top 40 was
lead by the 'mega-deal' of Brazilian mining company Companhia Vale do Rio Doce
(CVRD) purchasing Inco. This absorption of corporate offices is similar to
what Australia experienced during the late 1990s. During that period,
consolidation removed many of the mid-tier mining houses and led to larger
global giants that could be headquartered anywhere, with assets spread
throughout the world.
The emergence of Asia in the global top 40 was also notable. There are
now four companies based in Asia in the top 40, compared to none in 2003. Many
of these entities remain controlled by government and are therefore unlikely
to be taken over in the short term. As well, the sheer value of global
industry participants has also grown enormously. The 40th company in 2006
would have been 19th in 2003 based on its current market value.
Riding the wave also reports that even after excluding the dual listed
entities (Rio Tinto and BHP Billiton), the United Kingdom has now surpassed
Canada as the top 40's primary access point for capital. The news wasn't all
bad for Canada, though. The report said that Canada is well positioned with
its historically strong junior and mid-tier sectors.
"Unprecedented global demand, primarily driven by China, continues. Even
with the high production volumes of last year, demand is still outstripping
supply, driving commodity prices higher," says Murphy. "This is rewarding
those who invested when prices were low. And there remains confidence that
fundamentals will lead to continued high commodity prices."
Other findings from PwC's Mine - Riding the wave include:
- The impact of hedge funds on the mining industry has been felt
dramatically in the last two years, through their involvement in
metal trading activities and the volatility this creates in commodity
- With rising commodity prices, acquisitions that are cash funded lead
to a rapid payback and 69% of major acquisitions in 2006 were funded
this way. Cash is also being used to fund organic growth.
- The lack of good quality projects in "safe" areas is leading to
exploration and development efforts in jurisdictions that have until
recently been considered marginal.
- The pure "taxes" that governments levy on mining companies are only
part of the story. A more accurate picture of the total contribution
to government and the community by industry participants needs to
emerge for the real position to be understood.
Looking ahead, Murphy says that, "Although challenges remain with cost
control and supply shortages, the global industry has entered 2007 on a very
high note. Companies' fortunes - as well as their independence - will depend
on how they ride the wave."
The full report of Mine - Riding the wave is available to download at
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