The mining industry has experienced a 23% increase in revenue despite the slowdown in the global economy, but increasing operating costs are reducing profits, according to a report by PricewaterhouseCoopers (Pwc).

PWC’s sixth annual Mine report says the industry reported revenue of $349bn in 2008, in comparison to $284bn in 2007.

The first quarter of 2009 saw 14 of the top 40 companies announce mine closures, production cuts and the cancellation or deferment of $13bn of capital expenditure, aside from 40,000 planned lay-offs.

The fall in commodity prices has seen the market capitalisation of the top 40 companies shrink by 62% to $2.3bn from 2007.

The report also highlights how increasing operating costs have reduced profit margins. PWC says this will be more acute in the short term if companies fail to reduce costs and improve flexibility.

However, the market capitalisation of gold companies has reduced by just 20% because gold is considered a safe bet for weathering the economic crisis.

PWC says that the rapid fall in market capitalisation and increased debt levels have given rise to two distinct groups – the haves and the have-nots – among the top 40 companies.

After receiving high total shareholder return during the last five years, investors could experience negative returns in 2009, according to PWC forecasts, while weak market conditions have forced a number of companies to revisit their investment decisions.

PWC recommends companies include greater flexibility in their capital project strategy in order to balance long-term impact with short-term needs.