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Issue #1555      11 July 2012

Whingeing mining companies never better off

“Resource nationalism” has become the new whinge for mining companies worldwide. And in Australia they add “skill shortages” and “industrial relations”.

One would think the mining companies were losing money when the overall picture for the mining industry globally is one of rude good health.

PriceWaterhouseCoopers, one of the global Big 4 accounting firms, in their annual survey of the mining industry summarised the good news for big mining companies:

“In 2011, the financial results for the Top 40 hit new heights”, it said, listing the following facts:

  • Revenues increased 26% to over $700 billion
  • Net profit was up 21% to $133 billion
  • Operating cash flows grew 34% to $174 billion
  • Investing cash flows grew 92%

The Top 40 returned 156 percent more to shareholders than in 2010

Total assets remained above $1 trillion and grew a further 13 percent.

Share prices might be down, mostly because the investment community is generally risk-averse amid fears of a resurgent Global Financial Crisis. Despite that, or perhaps even because of it (it’s better to buy a company when its share price is down), mergers and takeovers activity is strong.

According to Ernst and Young, another of the Big 4 accounting firms, mergers and acquisitions surged 43 percent to US$162 billion, a level not seen since the pre-GFC days.

Life is so good at the top that, in one of the biggest mergers deals now underway, that of Xstrata and its largest shareholder Glencore, the deal grants A$262 million of “golden handcuffs” to the Xstrata management team – with the biggest chunk of A$45 million going to Chief Executive Mick Davis. There are no performance hurdles at all – they just have to stay around for three years and collect the extra money on top of their already stupendous packages. Money for jam!

But the super-rich always want more. Glencore Chief Executive Ivan Glasenberg, one of those who negotiated the deal with Xstrata, and one of the world’s richest people (worth US$7.3 billion and 125th richest person in the world according to Fortune magazine), has bemoaned Australia’s taxing of mining, oil and gas companies.

In a recent speech to that bastion of the mining industry, the Melbourne Mining Club (meeting in London!), Glasenberg compared Australia to the Congo and Argentina, saying Australia had become a risky place to invest because of the carbon price and the Minerals Resource Rent Tax!

If one looks at what mining companies do, rather than what they say, the lie is exposed. Investment in Australian mining is at astronomical levels and continues to increase, straining the fabric of regional communities and the nation. The latest Australian government figures show committed investment surging 12 percent in just the last six months to A$261 billion – all since the carbon price and MRRT became law.

The whinge about “resource nationalism” seems curious. It is a complaint that nations are somehow being greedy or unscrupulous in seeking to maximise the benefits of resource industries for their people.

Surely it is the duty of government to maximise the benefits of natural resources for the people who own the resources! The Glasenbergs of this world appear to believe government should be competing away the benefits of the industry so that entrepreneurs like him can add further billions to their fortunes.  

Next article – Queensland government medical officers issue warning

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