Review of global trends in the mining industry in 2005
June 2006
The mining sector has delivered another spectacular increase in profits during 2005, on the back of a further strengthening in commodity prices. This is one of the key findings of ‘mine let the good times roll’, the third annual review of global trends in the mining industry by PricewaterhouseCoopers.
The 40 mining companies included in the analysis, which represent over 80% of the total global industry by market capitalisation, reported a 59% increase in aggregate net profits for 2005, up from $28bn to $45bn. This compares to aggregate profits of just $5bn in 2002. These results have prompted the companies to increase the amount returned to shareholders to $16bn in 2005 with further distributions and buy-backs announced in the early part of 2006.
The report shows that investor confidence in the mining industry and its prospects have continued to strengthen: over the last two years mining stocks have outperformed both the S&P 500 and the Dow Jones Industrial Average by over 300%, and in 2005 alone the industry’s market capitalisation increased by 72% to $791bn.
Other financial highlights for the companies analysed include:
- Revenue increased by 25% to $222bn
- Net profit margin improved to 20% from 16% in 2004
- Net cash inflow from operations increased by 34% to $58bn
- Capital expenditure increased by 31% to $31bn
- Exploration expenditure increased by 29% to $2bn
- Gearing dropped to just 16% with year-end cash balances totalling $32bn
- Return on equity has increased from less than 7% in 2002 to 25% in 2005
The report also discusses the future outlook for the industry following interviews with selected CEOs of companies throughout the world involved in various aspects of the mining industry. These findings indicate that whilst the 2006 outlook remains strong, the industry believes it is faced with a number of significant challenges, particularly in delivering new projects on time and to budget. With many companies working hard to expand output to take advantage of the buoyant market conditions, 2005 saw a 31% increase in capital expenditure.
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