St. LOUIS () -- The global mining industry remains in terrific shape, according to an annual report released today.
The report, Mine - Riding the wave, showed that global net profits in the world mining sector skyrocketed 64% last year - and a staggering 1,423% higher than the industry's $95.3 billion in 2002, the first time this report was released by PricewaterhouseCooper.
Mining revenue also increased to $249 billion in 2006 from $181.5 billion in 2005.
The average one-year total shareholder return, however, was down to 55% compared to 64% in 2005. In 2006, the TSR ranged from a high of 220% to a low of -15%, according to the report. Six companies in the top 40 survey had a one-year TSR higher than 100%, and three companies exhibited negative TSRs.
Copper was the commodity that drew the most revenue, hauling in 32% of total capital. The base metal's revenue was up 120% from the year previous and totaled $68.4 billion. The runners up for the next-biggest piece of the pie were coal and iron ore, which each accounted for 14% of total commodities revenue.
The report lists the top 40 public global miners by revenue, and the top four companies account for 43% of total revenue and 47% of profit generated by the mining sector before interest and tax.
The top four companies by revenue are Anglo American [Nasdaq: AAUK] with $33.1 billion, BHP Billiton [NYSE:BHP] with $32.8 billion, Rio Tinto [NYSE:RTP] with $22.5 billion and CVRD Inco [NYSE:RIO; TSX:N] with $19.7 billion.
Anglo, BHP and Rio Tinto didn't manage a change of more than 21% from 2005, but CVRD, with its huge acquisition of nickel miner Inco Ltd., managed to up its revenue 54%.
Significant profits have led to more investor interest, which has also prompted several banks, including , and to add to their staffs of commodities personnel.
Although still profitable, Canadian companies saw a significant dropoff in the report, as only six were listed in the top 40 public global miners, compared with 12 Canadian miners listed in 2003. The dropoff is likely mostly because of consolidation, with Brazilian CVRD leading the way in acquiring Toronto-based Inco with a $19.4 billion all-cash offer. Even after excluding the dual listed entities among the top 40, the United Kingdom has passed Canada as the top 40 list's primary access point for capital.
"Consolidation in the industry really took its toll in Canada," Paul Murphy, PwC partner and Canadian Mining Practive Leader, said in a statement. "The loss of so many Canadian head offices from the global top 40 is striking. Globally, it almost looks as good as it gets for the mining industry. Net profits are way up and so is return on equity. But the wave has carried away some Canadian icons in 2006."
Of the original top 40 companies in the 2002 report, only 27 remain. Nine of those 40 have been acquired by the remaining 27, keeping with the trend of consolidation.
The report outlines that most of the acquisitions are being made with cash, including three significant all-cash buyouts: London-based Xstrata [LSE:XTA] acquiring Falconbridge, CVRD's buyout of CAEMI and Inco and Eurozinc's buyout of Lundin [TSX:LUN; AMEX:LMC]. The report states that 69% of all major mining deals that took place in 2006 were cash-funded.
Unprecedented demand from a booming Asian economy is a main reason for high-flying mining companies, the report says. Around the industry, the popular belief is that demand will continue to outstretch supply, keeping prices strong, the report says. In interviews with industry CEOs, PricewaterhouseCooper determined that most executives think the gains in the short term are extremely positive as well as potentially repeatable.