Year of the mid-tier

AUSTRALIA’S top 50 mid-tier miners experienced a stellar 2011 financial year thanks to surging commodity demand and unprecedented merger and acquisition deals. However, the implementation of the mining and carbon taxes means companies need to plan carefully in 2011-12, according to a report.
Year of the mid-tier Year of the mid-tier Year of the mid-tier Year of the mid-tier Year of the mid-tier


Staff Reporter

According to PricewaterhouseCoopers’ report “Aussie Mine – Onward and Upward”, the combined market capitalisation of Australia’s 50 largest mid-tier miners soared 39% over the 2011 financial year from $A49 billion to $67 billion.

PwC Australian and global mining leader Tim Goldsmith said the sector largely overcame the volatility in equity markets.

“High levels of consolidation, extraordinary growth in both operating revenues and a staggering $4.4 billion lift in capitalised exploration and development has not stopped many companies boosting their cash reserves,” he said.

“Rock-solid balance sheets will help them navigate some of the potential headwinds – ranging from labour shortages and the high dollar to the implementation of the mining tax and carbon price – in 2012.”

On the funding front, Goldsmith said shareholders backed the sector over the past year, with 80% calling on further funds, mostly to fund major new projects.

“Balance sheets are just about bullet-proof, suggesting the sector has learnt the lessons from the GFC,” he said.

“Their cash on hand forms a formidable war chest, having grown 20 per cent during the year to $7.6 billion, but with no net debt, the big question is how they plan to spend it.”

He also said there was a welcome return to exploration, with exploration spending up 58% showing high confidence levels throughout the industry.

“CEOs and boards are putting their money where their mouth is,” he said.

M&A activity among the mid-50 in FY2011 saw 34 transactions totalling $40 billion, with the average deal size topping $1.2 billion, up 30% on FY2010.

“2011 was the year of the deal,” Goldsmith said. “The deal momentum throughout the year reflected the sector’s ability to manage and develop quality assets.

Of the top five transactions, four involved companies with an African footprint. According to the report, companies with mostly African investments now comprise almost 20% of the sector’s $67 billion market capitalisation.

“Africa is a high-risk, but increasingly high-reward market for mid-tier miners. As companies continue to look to new frontiers for resources it is likely that local miners will increasingly go overseas for growth,” Goldsmith said.

Looking ahead, Goldsmith said despite the mid-tier miners enjoying unprecedented opportunity, careful planning remained a top priority.

“The mid-tiers will need to get their strategies in place in 2012, whether it be preparing for the MRRT and carbon price or developing their engagement with their local communities.

“They will also need to beware of any contagion that flows from the European debt situation. Fortunately, their strong cash positions will assist.

“The sector’s strong fundamentals are undeniable, which is why we remain firm in our belief that the industry is extraordinarily well placed to meet the challenges ahead.”

This story first appeared on ILN's sister publication