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Mining sector future bright By Business Reporter THE futur
By Business Reporter
THE future of the Zambian mining sector is bright although high production costs still pose a big challenge for operating companies, a new global study by PricewaterhouseCooper (PwC) has revealed.
PwC has further revealed that, Vedanta Resources, the majority stakeholder in Konkola Copper Mines (KCM), was rated among the top 40 mining companies that performed well in 2009 despite the effects of the financial crisis.
The study says that, although the sovereign credit problems in Europe would have a short-term impact on the industry, a second boom would be driven by demand fundamentals.
“We firmly believe that after the financial crisis, the mining industry is in the next phase of the boom and is looking bright again.
“Although significant short-term volatility remains, the 2009 results show there was a dip and there may well be other dips such as the impact of the sovereign debt in Europe, but the long-term demand fundamentals will drive this cycle,” the report states.
However, PwC states in its recommendations that it is essential to learn from the lessons of the past and to ensure that companies are prepared for the inevitable new uncertainties. The organisation feels the industry could fully extract the benefits of being back to the boom.
“The fundamental demand strength over the medium and long-term, driven by continued growth from China and other developing nations and we firmly believe we are in the next phase of the boom,” the report says.
The PwC study analysed 40 of the largest listed mining companies by market capitalisation. The analysis includes major companies in all parts of the world whose primary business is assessed to be mining.
Commenting on the results, PwC global mining leader Tim Goldsmith said although 2009 saw overall revenues decline, a drop in net profit and a decrease in cash flow in the industry, none of the top 40 companies were subject to bankruptcy or voluntary administration provisions.
This was largely due to their ability to remove their debt over hang, strengthening commodity markets over the year and the positive impact of Government stimulus packages around the world.
On the other hand, there were no significant transactions completed during the year, pointing to a potential missed opportunity for those that may have had the availability of financial resources.
Mr Goldsmith said although production remained flat across most commodities despite the approximately US$200 billion of capital expenditure by mining companies over the past three years and exploration spent by the top 40 declined significantly given its discretionary nature, there was potential for more demand.
But at the end of 2009, the market capitalisation of the Top 40 returned to the height of 2007 and a cautious optimism returning to market releases and net debt decreased by 21 per cent.
This was despite the aggregated financial results revealing the impact of a challenging year on the top 40 in 2009 which showed that revenues declined by 15 per cent year-on-year against 2008, while net profit was down by 26 per cent, cash flow from operations also decreased by 27 per cent,
The results, which included Vedanta Resources, also pitted Anglo American Corporation in number one of the top 40 companies that performed well during the year under review.