Mined commodities such as iron, gold, aluminum and uranium are essential components of international trade. Thousands of products and processes depend on or include minerals such as these. And in some cases, commodities such as uranium even fuel some power plants.

The global mining industry has experienced exceptional growth over the past few years. The rise in commodity prices has largely accounted for this growth, driven by increased demand from China and the weaker U.S. dollar, explains PriceWaterhouseCoopers:

High commodity prices continue to drive improved results across a range of key performance indicators for the industry. Improvements in profitability mask substantial increases in operating costs, which have occurred due to supply side constraints. Operating expenses have continued their increase, as has exploration expenditures.

The higher metals prices enable mining companies to invest in assets, create ventures or acquire competitors. As well, some mining companies have either been merging or are consider doing so. This could lead to better decisions; yet it could also result in greater concentration of ownership and thus less competition.

Where the investment in mining will take place can affect manufacturers as shipping costs rise. For example, mining investments in China will favor its manufacturers. China's highly elevated level of activity in the international mining results from a huge demand fueled by industries that can make significant profits if the owners can keep the factories operating.

Even by its own recent standards, Chinese activity in the international mining industry has been noteworthy over the past few weeks alone, with major deals taking place.

Mining Journal explains:

There is a reason for this elevated level of activity, and it is not that the Chinese authorities have suddenly perceived the world's mining companies and projects to be undervalued. The Chinese are taking these initiatives because they must. Within 10 years, the consumption of natural resources is expected to equal that of the rest of the world combined. The country already accounts for one-quarter of the world's copper consumption, one-third of the aluminum and almost half or all iron ore.

Chinese interest in foreign metals is not new, with numerous off-take agreements, for example, in Latin America and Australasia in the 1990s. But now Chinese companies (state-owned or private) have the financial resources to match their appetites. The focus now is on assisting in developing mines, rather than simply securing supplies from existing sources.

Revived investment in the mining industry hasn't always come easily, though.

"The global mining industry has always involved substantial risks partly because commodity pricing is highly complex and volatile. Few international trade investors have deep enough pockets or sufficient time to actively manage a diversified portfolio of global mining stocks," explains Suite101.com.

Before the investments — wherever they occur — can pay off, mining companies will have to meet some tough challenges. According to PriceWaterhouseCoopers, these challenges include the following:

• Making the most of industry transactions and consolidation;
• Optimizing capital structures;
• Improving performance and operational effectiveness;
• Managing geopolitical risk;
• Complying with regulatory and reporting requirements;
• Addressing sustainability issues; and
• Recruiting and retaining skilled workers.

As mining companies overcome or innovate through this gauntlet of obstacles to success, more metals may come into the market, helping manufacturers assemble products with the specifications their customers demand. If the mining industry fails to step up to these challenges, they'll see some material substitutions. Engineered plastics producers and nanoparticles manufacturers are waiting in the wings.

Resources

Mining Industry Services: Mining Challenges
PriceWaterhouseCoopers

World's Best Mining Investment
by Daniel Workman
Suite101.com, June 13, 2007

Fiery Breath
by Chris Hinde
Mining Journal, February 2008