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Mine 2011: The game has changed - PWC

Summary PWC report. See full report attached.

Last year we highlighted the growing optimism in the mining industry and demand fundamentals that were driving the industry back to boom times. The 2010 results have delivered on this expectation, but it is clear that the game has changed.

  • Combined net profits hit $100 billion
  • Operating cash flows up 59%, leaving more than $100 billion cash on hand
  • Emerging market miners outperform traditional players
  • Capital expenditure of $300 billion announced
  • Supply and cost management key challenges

Revenues for the world’s 40 largest miners leapt 32% to a record $435 billion, driven by surging commodity prices and a 5% increase in production output in 2010.The strong top-line result catapulted the miners’ net profits to an impressive $110 billion – a 156% increase over the previous year,

The mining industry has entered a new era. Demand continues to be stoked by strong growth in emerging markets. Supply is increasingly constrained, as development projects become more complex and are typically in more remote, unfamiliar territory. The cost base of the industry has permanently changed as lower grades and shortages of labour take effect.

To keep up with demand, the Top 40 have announced more than $300 billion of capital programs with over $120 billion planned for 2011, more than double the total 2010 spend. While not all will be completed, the sheer size and volume of the announced capital projects demonstrates an industry where fulfilling seemingly insatiable demand is the top priority.

Investment in new supply is increasingly focused on emerging markets, and by new faces, as customers and governments enter the industry with the primary goal of securing supply.

These are interesting times for the mining industry, with ever increasing scrutiny from governments, customers and other stakeholders. Growing demand for its products, driven by emerging markets, highlights that supply will be the most significant challenge it will face. The shift in balance is a positive one for the mining industry, but it will not be simple and will take some managing. All of this highlights that the game has changed.

mine-2011-game-has-changed.pdf

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