Prospects improving

THE patience of shareholders in the mineral industry is starting to pay dividends, with a report indicating that returns have jumped substantially over the past year.

Net profit return on average shareholders’ funds was 13.9 per cent in 2000-01, compared with 4 per cent in the previous year, according to a study by PriceWaterhouseCoopers for the Minerals Council of Australia.

Despite the gloomy economic forecasts and talk of recession, the return is well up on the average 10.1 per cent return mineral industry investors have enjoyed in the 25 years that the survey has been commissioned.

Industry consolidation, micro-economic reform leading to increased productivity, and the low Australian dollar have contributed to the strong returns.

Minerals Council of Australia president Barry Cusack said the results consolidated Australia’s position as a world leader in mineral development and processing.

“Profitability has recovered to more sustainable levels, which demonstrates the improvements that many companies have made in productivity and the efficiency of their business operations,” he said.

But the industry also has been adopting smarter hedging practices, after being caught short following the devaluation of the dollar.

The JP Morgan September quarter hedging review indicates gold hedging was down 1.4 million ounces, or 3.7 per cent, over the quarter to cover just 43 per cent of Australian gold reserves – down from 46 per cent in the June quarter.

Of the gold producers, Normandy Mining, Sons of Gwalia and Newcrest slashed their hedging book while Lihir, Hill 50 and Normandy NFM increased their books.

Australian Gold Council CEO Greg Barns said hedging would continue to remain out of favour for the next quarter at least.

“We expect the impact of the lower Australian gold price, lack of new projects and lower contango to produce another decline in hedging in the current December quarter,” he said.

Mr Cusack said the continued profitability of the industry hinged very much on what the Government would do in terms of reform including the way it taxed fuel.

“Other key issues, such as the elimination of industry fatalities, injuries and diseases, the implications of the Kyoto Protocol, continuing microeconomic reform and a competitive regulatory environment are vital to the future of the minerals industry,” Mr Cusack said.

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