BC mining industry stays healthy 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 earnings were down compared with the record-breaking numbers of 2006. Such are the findings of PricewaterhouseCoopers’ (PwC) 40th annual B. C. mining industry report, released recently at a panel presentation in Vancouver.

“It’s been another very good year for mining in B. C.,” 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 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 decreased from 64.8% in 2006 to a still strong 41.6% in 2007. Total dividends paid out came to $635 million.

Net earnings totalled $1.2 billion, a healthy 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 1 change in the value of the Canadian dollar against the U. S. 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 with 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, despitelower cash flows and net earnings, companies still increased capital as well as exploration and development spending. Capital spending went up 87% to $960 million; exploration and development spending 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, outgoing president of the Mining Association of British Columbia, at the presentation. “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 toget 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 called attention to the need to co-ordinate 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 another 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.”