Despite the world’s 40 largest mining companies seeing their combined net profits plunge US$9 billion in 2008, the mining boom is far from over, PricewaterhouseCoopers (PwC) Australian mining leader Tim Goldsmith said.
According to a recent report conducted by PwC, the mining industry still has many reasons to be optimistic about the future.
“A drop in profits may suggest the boom’s end, but in reality it simply masks the ongoing commodities super cycle driven by the world’s industrialising economies – China, Vietnam, India and others,” Goldsmith said.
“As the resources industry enters a challenging stage, the Top 40 must not lose sight of the long-term end game, the supply of resources to half the world’s inhabitants.
“The resources boom is far from over.”
In 2008, mining profits dropped 14% from US$66 billion in 2007 to US $57 billion, according to PwC.
Goldsmith said the drop was the result of compressed margins, slackening demand and falling commodity prices towards the end of 2008.
There will continue to be falls in 2009 which will affect the profits of major mining companies.
“In 2009 commodities have experienced significant price falls. Iron ore prices have fallen 33% as a result of recent price renegotiations, while coking and thermal coal have experienced similar drops,” Goldsmith said.
“The effects of falling spot prices will clearly impact Top 40 revenues this year and trigger reviews concerning the economic viability of certain projects and stockpile reserves.”
Gold is one of the few metals that has seen significant increases in price in recent months, reaching prices of US$1,000 per ounce last year.
This trend is expected to continue in 2009, Goldsmith said.
“Gold reserves and mine life expectations have increased as producers incorporate higher pricing assumptions into economic projections.”