From boom to bust to boom

WHILE 2009 witnessed the world’s 40 largest miners post their first revenue declines since 2002, boom-time conditions may be back on the cards this year, according to a PricewaterhouseCoopers report.
From boom to bust to boom From boom to bust to boom From boom to bust to boom From boom to bust to boom From boom to bust to boom


Staff Reporter

The report, entitled Mine: Back to the Boom, found combined revenues for the top 40 miners fell 15% year-on-year in 2009 from $US383 billion ($A460 billion) to $US325 billion, while net profits dipped 26% to $49 billion and cash flow from operations fell 27% to $83 billion.

The coal producers in the top 40 are Anglo, BHP Billiton, Vale, Shenhua (the world’s biggest producer), Consol, Ivanhoe, Peabody, Rio Tinto, Shanxi and Xstrata.

Coal reserves, which increased by 1% year-on-year to 23.415 billion tonnes in 2009, were relatively stable thanks to additions that offset annual production, the report said.

The major reserve additions from this group are attributable to BHP Billiton, due in part to the resource conversion at the Mt Arthur coal mine; Xstrata, whose coal reserves increased by 39% after the acquisition of the Prodeco coal mine from Glencore; and Vale, whose feasibility study at the Moatize mine in Mozambique resulted in a 15% increase.

These additions accounted for close to 1.4Bt, but were slightly offset by Rio Tinto’s divestiture of its North American coal assets. The remaining life of reserves owned by the coal producers in the top 40 is longer than 30 years.

The falls in revenue were primarily driven by the dip in commodity prices, marginal declines in production levels and less favourable outcomes from customer price negotiations in the first half of 2009.

But a rally in mineral demand during the second half saw the top 40’s market capitalisation surge by 118%, or $696 billion, by the close of 2009.

The top four companies by market capitalisation last year were BHP Billiton, Vale, Rio Tinto and China Shenua, the report said, with Rio gaining a spot on the previous year.

PwC Australian and global mining leader Tim Goldsmith said that during the second half, easing conditions and improved sentiment had helped lift results.

“This period saw the return of traditional, high-volume commodity buyers, notably Japan and Korea,” he said.

“These nations combined with ongoing consumption by developing nations, such as China, India and Indonesia, boosted demand and asset prices.”

Historically, coal resource ownership and production has largely been a domestic industry, particularly in the thermal coal market. The major players have typically produced coal primarily in their home jurisdictions, with BHP Billiton and Rio Tinto in Australia and Peabody and Consol in the US, for instance.

Over the past few years, however, especially as China’s demand for coal has exceeded its own domestic supply, the major coal producers have looked beyond their own borders for opportunities, the report said.

Coal players are looking at mines and acquisition targets outside their home jurisdiction and company forecasts indicate a greater portion of future production is expected to be for the export market.

Goldsmith also said that through the GFC none of the top 40 miners were subject to bankruptcy or voluntary administration provisions.

“This was largely due to their ability to remove their debt overhang, strengthening commodity markets over the year and the positive impact of government stimulus packages around the world,” he said.

The report said the top 40 raised combined total proceeds of $103 billion from debt and equity financing during the year.

In all, the top 40 used $78 billion of this to repay debt, leaving $25 billion to be used for growth and capital expenditure funding.

Goldsmith noted that general volatility and uncertainty in the global economy, exacerbated by sovereign debt issues across the PIIGS (Portugal, Ireland, Italy, Greece and Spain) economies, could still impact miners.

“In the near term, further economic dips could occur that will adversely affect the mining industry. But the future path remains bright – demand from an industrialising Asia is growing – but supply challenges are increasing daily too,” he said.

“None of the top 40 companies took fatal hits during the global financial crisis although many suffered adverse financial stress. However, they are now well capitalised with low levels of gearing.”