PwC Evaluates 2008’S Top 40 Miners

Mining companies have been slowing down, laying off and shutting down in reaction to the global financial crisis; the next big challenge is figuring out when it’s safe to start reversing all of that, a PricewaterhouseCoopers report says.

PricewaterhouseCoopers’ (PwC) sixth annual review of global trends in the mining industry, Mine — When the going gets tough, evaluates the impact of the global financial crisis on the 2008 results of the top 40 mining companies.

Up until recently, management teams have been busy reacting to whatever they had to, says Steve Ralbovsky, the United States mining leader for PwC.

“I think now they are also sitting back and trying to evaluate ‘when do we react the other way, when do we make an acquisition or restart a project that we had slowed down,'” Ralbovsky says. “But they are all in a tough spot because none of us can tell where this is going.”

PwC found that the market capitalization of the top 40 mining companies plummeted 62% in 2008. All of the companies had a market cap of US$2.3 billion or more. Meanwhile, the S&P 500 companies saw their market caps slide 38%.

And although market caps at the end of 2008 were still higher than they were in 2005 — then considered an outstanding year — mining companies were forced to take action.

Of the top 40 miners, 14 closed mines, cut production or put operations on care and maintenance. Plus, about US$13 billion in planned capital expenditures has been deferred or cancelled and about 40,000 jobs lost.

Costs helped cause grief on income statements. Operating costs rose 27% in 2008, while revenues rose by only 23%.

Ralbovsky says, in some ways, the results were better than expected.

“I was surprised that the numbers held up as well as they did given what the fourth quarter was like,” he explains.

Also noteworthy was the fact that operating costs continued to rise. “It’s not necessarily completely surprising. It was a trend we’d seen over the last couple of years,” he says. “I know that companies are trying to watch that, but when prices are good, you try to produce whatever you’ve got.”

Overall, net profits fell in 2008 by 14% — the first decrease PwC has seen since it began its report six years ago. And half of the top companies recorded impairment charges for a total of US$31 billion, though two major companies (Freeport-McMoRan Copper & Gold and Rio Tinto) that completed deals close to the top of the market accounted for 80% of the total.

In any case, these circumstances caused the overall net profit margin to fall by 30% last year.