In a recent report entitled “”As good as it gets?” released by London advisory group PricewaterhouseCoopers, it has been shown that the profit margins of some of the world’s largest mining companies may be in trouble. Production increases have been stunted by mounting cost pressures, leaving many wondering if a ceiling on net profits margins has been reached.
Indeed, revenues recorded in 2007 by the top forty mining companies have grown by 32 percent; however, this was offset by a 38 percent increase in operating costs. Many optimists still believe that the explosive growth of the industry in recent years is a trend that will continue, although, numbers don’t lie. On the flip-side of the coin, analysts also noted that certain corporations operating low-cost, long-life mines should remain largely unaffected, and continue to fare well.
The report was not released to incite panic, but rather to increase public awareness of potential pitfalls in an industry that will require the help of a new breed of executive to circumvent these issues. Industry leader Tim Goldsmith noted that a more rigorous approach to project planning and management will ultimately be a key factor in determining a company’s success or failure. Mr. Goldsmith offered his opinion on how victory over adversity may be achieved: “To help achieve growth, all CEOs must now more than ever be attuned to managing the 3P’s: people, power and procurement.”
From a shareholder perspective, the general feeling is one of mixed sentiment. 2007 yielded impressive returns, yet with these new observations coming to light, the prudent investor will need to remain extremely cautious.
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