Annual BC mining report: strong performance in 2007

Vancouver – British Columbia’s mining industry produced strong financial results in 2007 driven as elsewhere by base metal prices and global demand, though net earning were down compared to 2006’s record-breaking numbers. Such are the findings of the 40th annual PricewaterhouseCoopers (PWC) B.C. mining industry report.

“It’s been another very good year for mining in BC,” said Michael Cinnamond, a PWC partner and an author of the report. “Not as good as last year, but still a strong performance.”

The PWC survey summarizes the 2007 year-over-year financial information of 40 mining and exploration companies with B.C. projects at various stages in the development cycle. Of the 40 companies, 19 have operating mines, one owns a smelter, eight have permitting-stage properties, six are involved in advanced exploration, and six have reclamation-stage mines. Though the resulting figures are not fully comparable from year to year, comparative figures are representative of the province’s mining industry.

After-tax returns on shareholders’ investments, a key industry performance indicator, decreased from 64.8% in 2006 to a still-strong 41.6% in 2007. Total dividends paid out totaled $635 million.

Net earnings came in at $1.2 billion, a highly positive result despite representing a 48% decrease from the unprecedented high of $2.3 billion in 2006. The drop in earnings was driven primarily by a lower 2007 average coal price of US$80 per tonne, 26% lower than the US$108 average price from the previous year. The lower coal price, among other factors, led to a 10% reduction in total coal shipments.

Nevertheless, metallurgical coal was the second largest contributor to net mining revenues, bringing in $1.37 billion. Coal prices have picked up in the first quarter of 2008, indicating the draw on this important segment of the industry might turn around.

For the second year running copper was the largest contributor to B.C.’s net mining revenues. Net mining revenues from copper were $1.66 billion, a $337-million or 17% decrease from 2006. A 21% decrease in tonnes of copper concentrate shipped, likely because of the maturing of many of the province’s major copper producers, was offset by a 6% increase in the metal’s average price.

Zinc contributed $1.23 billion to net mining revenues, a slight decrease from the previous year due to a small drop in the average price of zinc plus a 9% decrease in tonnes shipped.

The rocketing price of gold did not have a considerable impact on B.C.’s mining industry because there are very few operations in the province that are focused on the precious metal.

One interesting figure from the report was the impact of foreign exchange. For the companies in the survey, a one cent change in the value of the Canadian dollar against the US dollar would cause a gross revenue shift of $64 million.

And while net earnings were down, employment was up. The average number of people employed in B.C. mining came in at 7,415, compared to 7,345 the year before. Moreover, those employees earned more. The average salary and benefits package was valued at $101,900 per employee, up from $99,900 in 2006. The increase reflects the global shortage of experienced mining personnel.

In a positive sign for the future of the industry, despite lower cash flows and net earnings companies still increased capital as well as exploration and development expenditures. Capital expenditures went up 87% to $960 million; exploration and development monies added up to $158 million.

Increased expenditures were likely made possible by the rising level of capital raised within the industry. New capital raised increased by 157% to $1.05 billion in 2007, of which $253 million came via flow-through share issuances.

“I think the numbers are extraordinary,” said Pierre Lebel, out-going president of the Mining Association of B.C. “One thing that struck me employment is going up and capital investment is going up, even though dividends are going down. That says to me that the industry is working hard to ensure its future.”

Lebel described the mining industry as a “heavy lifter” in the B.C. economy. He warned, however, that it is easy to get lost in the cacophony of voices demanding attention from the provincial government. As such Lebel advocated a shift towards working together, underlined by a need to re-brand the industry as a more directed social movement.

Lebel also spoke to the need to coordinate and streamline the mine permitting process.

“You have the provincial government, the federal government, and 203 First Nations,” he said. “That’s like having three major planets in orbit around your project it’s a very difficult environment to work in.”

Kevin Kruger, B.C. minister of state for mining, was a panel member at the presentation. He first drew attention to the industry’s safety record, which stands at 1.9 injuries per 100 worker-years.

“Any injury is too many but to have the lowest injury rating of any heavy industry in B.C. that’s great,” Kruger said.

Kruger also spoke to the excitement he feels in the province around the return of a stable, successful resource-based industry.

“Families and communities that have relied on the pine forest for years are now looking at 1.9 billion dead trees,” he said. “Now we can tell them, with conviction, that mining is stepping up to the plate in a big way.

“I don’t hear much negative about the mining industry these days,” he continued. “People, especially rural people, know mining is the hope of the province.”