Australia's medium-sized miners might be talking the talk on cost cutting but not backing it up judging by their bottom lines, a report shows.
Many needed to act quickly or face failure, with the mining boom investment era over and Australia’s commodity price cycle having returned to the pre-boom years before 2003, says PwC’s annual Aussie Mine report.
The aggregated financial results for 2013/14 of the nation’s 50 biggest miners with market values under $5 billion was a $1.6 billion loss.
They fell into the red despite revenues rising 10 per cent to $24.5 billion on higher volumes.
Iron ore and coal miners were facing a difficult year ahead because of commodity price falls and the worst may be yet to come, the report said.
Large write-downs were likely and there was a risk of failure for some unless they asserted control over costs, productivity, innovation, and mergers and acquisitions.
Shareholders were bearing a lot of the pain, the report found, as they are asked to stump up additional capital and receive lower returns that are below other sectors.
The smallest company on the list, Grange Resources, had a market cap of about $185 million compared to a cut-off of $463 million in 2011.
“The outlook for Australia’s top-50 mid-tier miners remains clouded, with the recent iron ore sell-off yet to be balanced by the fall in the Australian dollar,” PwC’s Energy, Utilities and Mining leader Jock O’Callaghan said.
“Revenue again failed to keep pace with costs, miners are talking the talk of cost reductions and productivity
improvements, but their results are hardly walking the walk.”
Economic uncertainty in key markets and political instability elsewhere were expected to weigh on the industry in 2015.
Life sprung back to the M&A market in the past year, with 14 completed or announced deals worth $3.5 billion, up from only $900 million, indicating confidence about the future.
Standouts included the $1.4 billion takeover of Aquila Resources and a $1.4 billion bid for PanAust.
However Mr O’Callaghan said the most worrying trend was the lack of money spent on exploring for new resources for future mines – medium-sized miners are traditionally the source of the industry’s best projects.
For the past year exploration spend fell between 20 per cent and 30 per cent and 10 per cent the year before.
“The critical long-term trends like global resource scarcity, urbanisation and shifts in economic power should continue to underwrite the mid-50’s future – but with one critical caveat – this continued decline in exploration,” Mr O’Callaghan said.