Mining companies may have seen best of profit

PricewaterhouseCoopers (PWC) has published its annual review of the mining industry in which it suggests there are signs that net profit in the sector may have peaked.

The authors of the report, which is entitled “As good as it gets?”, highlight the impact of escalating costs on revenue and point out that while the world’s top 40 mining groups grew by 32% in 2007, costs increased ahead of this, at 38%.

Last year, industry net profit rose 21% from $66 billion in 2006, to $80 million, and revenue increased 32% from $237 billion in 2006, to $312 billion in 2007.

However, average net profit margins fell by 2% in 2007, to 26%.

Margins were at their weakest among gold miners, while diversified miners fared better.

The decline in net profit margins is the first recorded by PWC since 2002, when it first began its annual mining company analysis.

By market capitalisation, Brazilian iron ore miner, Vale, recorded the fastest growth of the top three mining companies in 2007 but BHP Billiton retained the lead.

In terms of revenue BHP Billiton posted $40 billion; Vale $35.7 billion; Rio Tinto $29.7 billion and Xstrata $28.5 billion.

Production increased across a range of metals but copper remained the chief source of revenue for the world’s top 40 miners, accounting for 28% of collective revenue.

The same top 40 companies provided shareholders with an average return of 119% in 2007, compared to 55% in 2006.