Aussie Mining Industry Survives the Bottom, Shows Recovery Signs and Confidence
Improvements in dividend payments, market capitalisation, cash flow from operations and capital expenditure all point to increasing confidence and the end of the mining industry downturn, according to PwC’s 10th annual analysis of the 50 biggest ASX-listed miners with a market value under $5 billion.
A decade since the first edition of Aussie Mine was published, Aussie Mine 2016: The next act also looks at the original 50 and the 11 companies which remain on the list, as well as what became of the other 39 companies through success, failure or takeover.
- Return to positive EBITDA of $3.3 billion from -$800 million for last year’s mid-tier top 50
- Market capitalisation up by 23% to $44.5 billion
- Premium of market capitalisation over net assets increased from 3% to 47%
- Impairments down by 36% to $2 billion
- Capital expenditure increased by 37% to $5.6 billion
- Ordinary dividends paid increased by 21% to $537 million
- Net cash position increased by 5% (excluding one outlier)
“We’re seeing signs that the mid-tier has hit the bottom, survived the worst and is now making a comeback,” said PwC's Mining leader, Chris Dodd.
“Increases in market value, capital expenditure and ordinary dividends all point to confidence returning. Operating revenues are also up by 4% 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.”
Gold has continued to dominate in 2016 with an aggregated market capitalisation of $20.6 billion as at 30 June 2016, a 158% 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.
“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% market capitalisation increase.”
It’s not all good news though, the gruelling market conditions and poor performance have continued in 2016 with the mid-tier 50 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%,” Mr Dodd said.
Australian mining industry at a crossroads
The composition of the 50 mid-tier companies has changed significantly in the decade since Aussie Mine was first published. The low cost iron ore majors have squeezed out the mid-tiers, between 2014 and 2016 their market capitalisation decreased by 71%, 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.
“It’s to be expected in the mining industry that we’ll see winners and losers, that’s the way it’s been for the past 100 years,” Mr Dodd said. “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.
“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 $0.8 billion to $1.2 billion, the majority of the movement has been fuelled by investor appetite for exposure to commodities needed for emerging technologies. Graphite and lithium capital raisings, for instance, represented more than 50% of the cash received from share issues, up from 12% in 2015.
“On a broader level, the equity market was reluctant to provide capital, out of the 27 equity raisings between 1 July 2015 - 11 October 2016, six experienced shortfalls and one offer was withdrawn,” Mr Dodd said.
According to the report, mining industry will continue to be challenged in the future by technology developments to minimise environmental impacts, volatile prices and hard to predict demand.
“The players that can embrace technology and innovation as the new norm and rebuild the public’s trust in the industry to be socially responsible operators will be best placed for success,” Mr Dodd said.