Industry Q&A: PwC's Aussie Mine Report 2016
On the 22nd November 2016, PwC released their 10th annual Aussie Mine Report, with the theme this year: “The next act”. With a decade having passed since the release of the first ever Aussie Mine report, Austmine decided to catch up with Chris Dodd, Mining Leader at PwC to get his thoughts on the report, key shifts in the market over the last decade and what he sees 2017 holding for the sector.
2016 is the 10th year PwC have released the Aussie Mine publication. How have you seen the Australian mid-tier market change in this time?
Each year in this report we look at the top 50 mid-tier mining companies in Australia with market capitalisation of less than $5 billion (MT50), and the most telling statistic is that of the 50 companies in our first ever report, only 11 make the 2016 top 50 list. This is remarkable in some ways, but it also ties in with the original hypothesis behind Aussie Mine. The mid-tier Australian mining industry is a strong indicator of the sector as a whole and in particular this section of the market either increases in size, becoming much bigger and moving up out of the report, or they get consumed by other larger companies, or of course they do not succeed in hitting their targets and we see them drop out of the bottom.
A really positive trend we have seen is a continuous focus on safety over this decade. It’s great to see that safety being a priority for senior management in the mid-tiers wasn’t a fad, but instead has become a cornerstone in how all companies think. Talk around the use of technology has been consistent over the ten years, and the time dedicated to it has increased, but perhaps more discussion needs to occur here.
We’ve seen an embedding of the FIFO lifestyle for many mid-tiers miners who have increasingly understood the attractiveness for workers of being able to still have a capital city lifestyle the majority of the time. Some of the bigger players in the MT50 are now using a strong head office model in order to attract in the necessary STEM skills. However, the ongoing challenge for mid-tiers is how to get the best of both worlds, where you had the talent in the city and the staff on the ground who can understand exactly what is going on.
What have been your key findings in this year’s report? What have emerged as the key themes?
There are really three key areas we’ve seen come out in this year’s report. Firstly, is that the Australian MT50 is dominated by gold players in 2016. 46% of the MT50 is gold companies and that’s the strongest domination we’ve ever seen in the Aussie Mine report. This isn’t new information to the sector of course, as the gold prices have been on the climb for a while, but what this really reflects is the unfortunate benefit of global uncertainty impacting on the gold price. The value of the Australian dollar is also working in the gold miners’ favour.
The gold miners worked hard during their commodity downturn to embed a greater discipline in regards to productivity, cost management and efficiency. If they can continue with this and keep achieving the results they have been, hopefully they can change the trend of higher cost environments when prices improve.
The second interesting finding is the emergence of some new shining stars. Five of the top fifty are lithium miners and two are graphite miners. These commodities might still be a small part of the industry, but with such a clear link to increasing demand coming from the changes we’re seeing with battery storage and mobile phone technology, their strengthening position is likely to continue from a demand perspective. I suspect the challenge for those companies will be whether supply comes online at too fast a rate and they end up facing a mini version of the iron ore boom.
The third takeaway from the report is really the ongoing focus on cost that we’re seeing across the rest of the industry. Most of the Australian mid-tiers have survived the downturn of the last three or so years, although a few have disappeared out of the MT50. This strength of the mid-tiers to remain should be credited to a focus on core capabilities and cost disciplines.
In last year’s report you found that safety through innovation, using mobile technologies on site, was a focus, but that mid-tiers were not always prepared to leverage these systems to full capacity. What is the technological focus for mid-tiers this time around?
The technology focus for mid-tiers reflects that of the majors, and includes the use of big data analytics and thinking through what the associated technology can really do for the industry. There’s also talk around the potential of NBN for remote locations, the use of drones, IoT and how increased connectivity will play out with big machinery. Overall we’ve seen that technology is far more on the agenda for mid-tiers than it has been in the past.
On a slightly different angle towards technology, the capabilities of battery storage are fundamentally changing the needs of the mining business, and forcing us to rethink the traditional energy model we employ. After all, mining is a high energy industry. The existing battery technology so far can’t produce the mega-watts that this industry needs, but we’re seeing this improving on a regular basis. We’re seeing a lot more interest from mid-tier miners about how they can harness the potential of solar energy in remote locations, storing the energy for long enough that they could run mines through the night on the power. Currently, this possibility does not exist in an economic sense, but we cannot ignore the step-changes being achieved in energy storage and its potential to revolutionise how the mining industry gets its power.
Based on the findings in the Aussie Mine Report, but also your work more broadly with the sector, how do you see 2017 shaping up for the mining industry?
The results from 2016 show improvements in dividend payments, market capitalisation, cash flow from operations and capital expenditure. These all point to increasing confidence in the sector and the end of the mining industry downturn, which is of course much better news than we’ve seen in recent years.
However, on the flip side, we have the challenge of global uncertainty, which is reflected in the high gold price. Everyone’s unsure about where the world goes next and this is relevant for every industry. Mining has to balance their ongoing need for economic growth with their environmental responsibility. Miners are not in charge of all the important levers that affect their business, including changing regulations and the all-important access to new deposits and these should not be underestimated in the challenge they will present. If demand for certain commodities moves up, supply might not be able to keep up at the desired rate.
You can download the report here.