Mid-tier mining companies in Australia have survived the worst of the industry downturn and are now making a comeback, according to PricewaterhouseCoopers (PwC) mining leader Chris Dodd.
In PwC’s 10th annual Aussie Mine analysis of the 50 biggest ASX-listed miners with a market value under $5 million, it was reported that improvements in dividend payments, market capitalisation, cash flow from operations and capital expenditure are pointing to increased confidence and the end of the mining downturn.
Dodd said PwC was seeing signs that the mid-tier of Australia’s mining industry had hit the bottom.
“Increases in market value, capital expenditure and ordinary dividends all point to confidence returning. Operating revenues are also up by four per cent to $17.4 billion and the miners have done this without increasing production costs, which shows they have walked the talk when it comes to cost control,” Dodd said.
According to the PwC analysis, gold has continued to domainte in 2016 with an aggregated market capitalisation of $20.6 billion as at June 30 2016, a 158 per cent increase on 2015.
“Gold has been the star performer. In dollar terms, the market capitalisation increase for mid-tier gold miners was $12.6 billion, more than all other commodities combined,” Dodd explained.
“It has been an ideal environment for gold stocks with high prices mid-year and a refuge for investors in times of global uncertainty. We have also seen lithium debut as a rising star in 2016 following four new entrants taking the list’s total to five producers and a combined 477 per cent market capitalisation increase.”
Away from the standout areas, difficult market conditions and poor performance have continued in 2016 with the mid-tier 50 companies recording an aggregated net loss after tax of $1 billion.
“Against these tough market conditions a turning point appears to have been reached in 2016 with impairments down by 36 per cent,” Dodd said.
Meanwhile, the composition of the 50 mid-tier companies in PwC’s annual analysis has changed significantly in the past decade since Aussie Mine was launched.
According to PwC, the low-cost iron ore majors have squeezed out the mid tiers, with their market capitalisation decreasing by 71 per cent from $6.3 billion to $1.8 billion. Mid-tier coal miners have consolidated and emerging technologies have resulted in a strong demand for lithium and graphite, the analysis found.
“Today’s mid-tier miners are faced with challenging future scenarios though that will be highly competitive, more volatile and technology driven. The sustainability of improved margins will also need to be proven, particularly if the broader industry recovers,” Dodd said.
“Increased regulation is also making it harder to be a miner and in the past year we’ve also seen trends changing in the deals and equity markets. The average deal value decreased from $398 million in 2015 to $248 million in 2016, yet deal numbers increased with players making strategic counter-cyclical asset purchase decisions.”
However, while the equity market activity increased in 2016, from $800 million to $1.2 billion, the majority of the movement has been fuelled by investor appetite for exposure to commodities needed for emerging technologies, Dodd continued.
“Graphite and lithium capital raisings, for instance, represented more than 50 per cent of the cash received from share issues, up from 12 per cent in 2015,” he said. “On a broader level, the equity market was reluctant to provide capital, out of the 27 equity raisings between July 1 2015 – October 11 2016, six experienced shortfalls and one offer was withdrawn.”