Mining Industry in Next Phase of the Boom, Although Short-Term Volatility Remains, Finds New Report from PricewaterhouseCoopers

mmodity prices in the second half as the global economic recovery began to take hold."

"It was a recovering year for commodity prices and global mining giants had to contend with improving their financial strength and operating results – all while managing around a very challenging economic environment that spanned the globe," Ralbovsky continued. "For success moving forward, it is essential that lessons from the past be learned so that the industry can identify potential uncertainties and respond accordingly, allowing the industry to fully extract the benefits of being back to the boom."

The report notes that although the total number of mining deals increased 16 percent from the prior year, activity was largely focused on smaller scale deals of less than $250 million, with average deal values of $52 million, down nearly $72 million from 2008. And while some companies had the resources to execute potential transactions, opportunity gave way to caution and no major deals were consummated.

"With no significant transactions completed during the year, we believe that some companies that had the financial resources available may have potentially missed opportunities to acquire assets," added Ralbovsky. "Although the window was small, it was open. As a result, Chinese investment was at the forefront of transactions and made up 22 percent of all global mining M&A activity and 30 percent of the Top 10 deals by value."

Indications of the Next Phase of the Boom

Despite approximately $200 billion of capital expenditure over the past three years, production remained flat across most commodities. Exploration spending by the top 40 declined significantly, given its discretionary nature. As reserve replacement becomes more challenging, the lack of spend on exploration poses the question of when and where the next world-class mines will be found. Add to that the strong fundamentals on the demand side over the medium and long-term, largely attributed to continued growth from China and other developing nations, and the industry may be in the next phase of the boom, the report found.

What's on the minds of industry CEOs?

While views may differ, almost without exception the number one agenda item is the global economy. Fundamental to success will be the ability to understand the lead demand indicators, particularly obtaining a good read on China and other developing nations. Today's CEO is more focused on other macroeconomic factors, such as foreign exchange rates, the cost of energy and the impact potentially unsustainable government budget deficits will have on interest rates, tax regimes, and the global economy. However, operating cost remains a key value differentiator.

Commodity Prices

Metal prices continued on a downward trend for the first six months of 2009, but recovered sharply along with most commodities in the second half. The upward trend in commodity prices continued into 2010 in many cases. The turnaround in copper prices has been most notable with the 2009 year-end spot price reaching $7,342 per ton. In both iron ore and metallurgical coal markets there has been a recent trend towards short-term contracts, driven by the big miners. Gold, on the back of 7 percent production increases and a 12 percent increase in average price, saw its share of total industry revenue increase from 10 percent to 14 percent in 2009.

After a hiatus, the future is looking bright again for the industry. Although significant short-term volatility remains – the long-term demand fundamentals will drive this cycle.

For a copy of the "Mine-Back to the Boom" report, visit www.pwc.com/mining.

About "Mine-Back to the Boom"

PwC analyzed 40 of the largest listed mining companies by market capitalization. The analysis includes major companies in all parts of the world whose primary business is mining.

The results aggregated in this report have been sourced from the latest publicly available information, primarily annual reports and financial reports available to shareholders. Where 2009 information was unavailable at the time of data collation, these companies have been excluded. Companies have different year-ends and report under different accounting regimes, including International Financial Reporting Standards (IFRS), US Generally Accepted Accounting Principles (US GAAP), Canadian GAAP, and others.

Information has been aggregated for the financial years of individual companies and no adjustments have been made to take into account different reporting requirements and year-ends. As such, the financial information shown for 2009 covers reporting periods from April 1, 2008 to December 31, 2009, with each company's results included for the 12-month financial reporting period that falls into this timeframe