PWC says mining sector profit margins may have peaked

LONDON (Reuters) - The booming mining sector may have peaked in terms of net profit margins after costs surged more than revenues last year for top firms, a report released on Tuesday by PricewaterhouseCoopers said.

"While most indicators still show exceptional growth, there are signs that some areas are tapering off and may be close to a current peak," it said.

"Net profit margins, ROE (return on equity) and ROCE (return on capital employed) indicate that companies' relative earnings have maintained or slightly reduced compared to previous years as cost pressures escalate."

Revenue for the world's top 40 mining groups grew by 32 percent last year but was outpaced by cost increases of 38 percent.

"We predict 2008 will reflect production growth, albeit, with results that reflect growing cost pressures," according to the report titled "As good as it gets?"

Average net profit margins fell to 26 percent last year from 28 percent in 2006 while return on equity slipped to 29 percent to 33 percent.

Gold companies had the weakest margins, it added.

Market capitalisation for the biggest mining groups gained by 54 percent, with the best performance from diversified majors and emerging market firms, the report said.

Brazil's Vale (VALE5.SA) saw the fastest growth, surpassing Anglo American (AAL.L) to move into the third position last year and seeing annualised growth of 79 percent since 2003.