Commodity Watch: Top Miners Near $1 Trillion in Assets (BHP, VALE, RIO, SLW, POT, ABX, GLD, SLV, GDX, GDXJ, SIL)

Consulting firm Pricewaterhouse Coopers has released its annual review of the mining industry, claiming that “the financial results for the Top 40 [companies] were spectacular.” That’s pretty hard to argue with, given a few facts.  Revenues at the Top 40 jumped 32% to more than $400 billion, net profits grew 156% to $110 billion, and most importantly was that the total assets are near $1 trillion

The three largest miners, BHP Billiton plc (NYSE: BHP), Vale SA (NYSE: VALE), and Rio Tinto plc (NYSE: RIO), account for about 50% of the total market cap of the Top 40. The top company as measured by total shareholder return was Silver Wheaton Corp. (NYSE: SLW), with a return of 160% for 2010. The largest production increases came from potash. The leader there is Potash Corp. of Saskatchewan Inc. (NYSE: POT)

The interesting thing about reviews, of course, is that they point out some direction for the future. In mining sectoe, the trends are that demand is being driven by growth in emerging market countries; that supply is becoming more constrained as projects become more complex; and that lower ore grades and labor shortages are driving up the industry’s cost base.

Another interesting development during 2010 saw large gold companies such as Barrick Gold Corp. (NYSE: ABX) acquire properties that contain significant copper as well as gold.

The principal driver of revenues and profits in 2010 was rising prices, urged ever upward by increased demand. Production grew by just 5%, according to PwC, not enough by itself to stoke a 32% rise in revenue. Prices made the difference.

To keep up the pace in 2011, higher prices alone won’t do the job. Cost containment could rule. PwC notes that despite record prices in 2010, adjusted EBITDA is no higher than in 2006 or 2007, both boom years for miners. The cost base has shifted upward because energy costs are higher, capital costs are higher, labor costs are higher — and there is virtually no chance these costs will fall. If anything, they are likely to continue rising.

The bullion ETFs, SPDR Gold Shares (NYSE: GLD) and iShares Silver Trust (NYSE: SLV) were big buyers of the precious metals in 2010. Gold ETFs hold about 70 million ounces of gold, more than double total Top 40 gold production in 2010.

The Market Vectors Gold Miners ETF (NYSE: GDX), the Market Vectors Junior Gold Miners ETF (NYSE: GDXJ), and the Global X Silver Miners ETF (NYSE: SIL) all posted share price gains in 2010, with SIL gaining the most, around 63%.

Paul Ausick