Soaring costs eroded mining companies' revenues in 2007, a report released by PricewaterhouseCoopers (PwC) on Tuesday indicated.
"While revenues of the top 40 mining companies grew by 32 percent in 2007, costs increased by 38 percent, thereby reducing margins."
The report showed that mining, especially in emerging economies, struggled to keep up with demand in 2007.
"2007 continued to be great for the global mining industry," said PwC's global mining leader Hugh Cameron.
"Record commodity prices and continued growth in emerging economies have let the top mining companies avoid the slow downs that we have seen hitting other sectors."
Cameron said, however, there had been a decrease in margins because of cost increases.
Skills shortages made it hard to bring new supply to the market, he said.
Higher costs of living in mining towns also hindered the growth of profit margins.
The report showed that market capitalisation of the industry grew by 54 percent in 2007.
South African companies in the top 40 are Anglo Platinum, AngloGold Ashanti, Gold Fields, Impala Platinum and Kumba Iron Ore.
The report also indicated that for the first time in five years, external financing was needed besides the cash flow from operations to cover increased levels of investment activities.
"Total shareholder returns for the top 40 averaged 119 percent in 2007, compared to 55 percent in 2006."
The report indicated that chief executive officers needed to take careful decisions in the current economic climate.
"A new breed of CEO ... has been quick to capitalise on the increased operating cash in-flows.
"Many young CEOs (both in age and tenure) have undertaken dramatic transactions within months of taking on top positions."
Cameron said planning and project management by chief executive officers was essential to ensure success.
PwC's partner in Global Risk Management Solutions Division Mike Roy said many regions like South Africa and South America had experienced the effect of a lack of electricity or an inconsistent supply of it.
"SA in particular has been widely impacted with uncertainty around continual power supply."
He said this hindered the ability of mining companies to operate at normal levels of production and bring new projects online.
"The uncertainty of electricity supply may result in a direct impact on the local labour market," said Roy.
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