Loss of Canadian head offices in mining sector ‘striking,’ new study says

As the debate over the "hollowing out" of corporate Canada continues, a new report says global consolidation last year in the mining industry "really took its toll on Canada."

According to a PricewaterhouseCoopers report, Mine -- Riding the Wave, released Wednesday, it was a spectacular year for the global mining industry in 2006, although many leading Canadian companies were acquisition targets.

Global net profits in the mining sector rose by 64 per cent last year, 15 times higher than in 2002, the report said. At the same time, the number of Canadian companies among the world's 40 largest public mining concerns fell from 12 in 2003 to six in 2006, it added.

"Consolidation in the industry really took its toll in Canada. The loss of so many Canadian head offices from the global top 40 is striking," said Paul Murphy, PwC partner and Canadian mining practice leader. "Globally, it almost looks as good as it gets for the mining industry. Net profits are way up and so is return on equity. But the wave has carried away some Canadian icons in 2006."

The trend of fewer Canadian mining companies in the global top 40 was lead by the "mega-deal" of Brazilian mining company Companhia Vale do Rio Doce (CVRD) purchasing Inco, the report said. Riding the Wave also said that, even after excluding the dual listed entities (Rio Tinto and BHP Billiton), the United Kingdom has surpassed Canada as the top 40's primary access point for capital.

The news wasn't all bad for Canada, though: the report said the country is well positioned with its historically strong junior and mid-tier sectors.

The emergence of Asia in the global top 40 was also notable, the report added. There are now four companies based in Asia in the top 40, compared to none in 2003. Many of these entities remain controlled by government and are therefore unlikely to be taken over in the short term, the report said.

As well, the sheer value of global industry participants has also grown enormously. The 40th company in 2006 would have been 19th in 2003 based on its current market value, PwC added.

"Unprecedented global demand, primarily driven by China, continues. Even with the high production volumes of last year, demand is still outstripping supply, driving commodity prices higher," said Murphy. "This is rewarding those who invested when prices were low. And there remains confidence that fundamentals will lead to continued high commodity prices."

Looking ahead, Murphy said, "Although challenges remain with cost control and supply shortages, the global industry has entered 2007 on a very high note."

source:www.canada.com