Mining profits surge near boom-time levels

Top mining companies are reaching near boom-time profits, with net profit up 126 per cent in the past year, a PwC report has found.

The Mine 2018 report revealed that net profit of the world’s top 40 miners increased to $US61 billion ($79.7 billion), up 126 per cent, and is forecast to rise to $US76 billion in 2018. Market capitalisation of the group increased by 30 per cent to $US926 billion in 2017.

According to the PwC report, revenue increased by 23 per cent to $600 billion, while EBITDA rose 38 per cent to $US146 billion.

At the same time, capital expenditure is at its lowest level since 2006 ($48 billion), with limited new projects in the pipeline.

PwC Australia mining leader Chris Dodd said strong balance sheets were tempting the top 40 mining companies to pursue bold investment and growth opportunities, but many remained focused on maintaining a robust and flexible balance sheet to avoid the misgivings of the past.

He believes the results show that the investment in infrastructure by the top 40 during the mining boom is now reaping rewards.

“The hard work has been done by these mining companies to cut costs, drive efficiency and keeping supply at sustainable levels,” Dodd said.

Dodd said these results increased temptation for stakeholders: governments are looking at increased taxes and royalties, workers will demand pay rises and shareholders will seek increased dividends. He said, at the same time, mining companies would be encouraged to buy more mines and expand operations.

“Everywhere we look people are saying, mining companies look profitable again and how can we get our hands on it to get our fair share,” he said.

However, Dodd said the level of supply coming online was reduced compared to the past and the “rush to production tonnes” approach from previous years has dissipated.

This has made way for more sensible decisions by mining companies about meeting demand without flooding the market and driving prices down, Dodd added.

“Prices are largely sustainable, no longer boosted by unprecedented growth in China like we saw 10 years ago. What we are seeing now is that growth in China has been baked into the base, buying everything they did last year, plus more,” Dodd said.

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