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Onward and Upward!
Aussie Mine November 2011 2 Onward and Upward! Foreword
Welcome to Aussie Mine for 2011. Our analysis this year shows that the mid-tier has risen to the challenge and produced outstanding results for their stakeholders. Miners have again enjoyed strong momentum delivered by a year of commodity price growth.
The mid-tier is a savvier group as a result of the global financial crisis. Having sustained their growth and safeguarded their balance sheets, they remain cashed up – just how this cash is utilised remains of great interest to industry observers. Wayne Huf Partner Organic growth through the successful development of projects typifies the Australian mid-tier, and this year we see strong evidence of it again. Although they will often fall prey to the larger global players, the mid-tier has taken on the role of strategic acquirer, and consolidation of more junior companies is another strong theme this year. We expect to see a lot more M&A activity in the forthcoming year, as companies jostle to take advantage of the indisputable strength in global demand for raw materials.
The industrialisation and urbanisation of the Asian region continues to present the Australian mid-tier miner with an unprecedented opportunity. The Asian century is upon us and the mid-tier is positioned to take advantage. As we put the finishing touches to this year’s edition of Aussie Mine, a cautionary wind is blowing, in the form of volatility out of eurozone debt contagion fears and continued uncertainty in the US. Will global economic conditions test the group Tim Goldsmith once again? With a high Australian dollar and a tightening labour market, Global Mining Leader operations at the higher end of the cost curve may be in for a bumpy ride. Even with this short-term uncertainty, the strong long-term foundation laid by demand from developing nations remains. The mid-tier 50 are well placed to meet the challenges ahead and keep moving forward – it is onward and upward!
Wayne Huf
Tim Goldsmith
Aussie Mine November 2011 3 Table of contents
1. Executive summary 1
2. Mid-tier industry in perspective 3
3. The rise of Africa 12
4. The way I see it 15
5. Social licence: winning the community’s vote 18
6. Positive investment in Indigenous communities 21
7. Aggregated industry financial statements 23
8. MRRT: time to implement 36
9. Unlocking the sources of future capital 38
10. Mid-tier 50 companies analysed 40
11. Explanatory notes 42
Mining Excellence@PwC 43
Contacting PwC 44
Other Mining Publications 46
4 Onward and Upward! Executive summary 1
2011 was a stellar year for the mid‑tier Equity markets are still big funders. More than 50, with key indicators across the $6.4 billion of additional share capital was raised by the mid-tier 50 in 2011. $4.1 billion of this was issued board pointing to healthy growth in in return for cash. The disposable funds were used for a sector which has recovered from the acquisitions and exploration/development activities; global financial crisis (GFC). signalling confidence in long term global commodity demand, as CEOs put their money where their mouth is. The recent volatility in equity markets has raised some concern, but the fundamentals for the industry continue Transaction activity: a hallmark of the mid-tier 50. to look positive as the mid-tier 50 look onward and Seven of last year’s 50 companies have exited due to upward. Operating revenue has increased significantly, mergers or takeovers and, subsequent to 30 June 2011, as has transaction activity. Cash has been stockpiled to deals are in train for four more of the current 50. The help future-proof the mid-tier 50, and there is growing entrepreneurial nature of the group is exemplified by the excitement about the opportunities in Africa. At home, fact that 15 companies completed acquisitions greater the introduction of the MRRT is a cause for some than $15 million. concern, with many companies now having to consider Cashed up and battle-ready. Cash generated from its implementation. There also remain challenges around operating activities increased 34% to $3.7 billion. working with local communities, and gaining community Despite heavy investment levels, prudent financial support for new projects. On top of that a carbon price management appears to have been a GFC lesson well and a worsening industrial relations environment and we learnt. Balance sheets remain strong – with large can certainly see that many hazards lie ahead. holdings in cash – a stark contrast to the pre-GFC days. Operating revenue: continuing its upward trend. This cash strength indicates that the deals done in 2011 Revenue growth of 37% for the year led to a remarkable are just the beginning and more projects will be funded 6358% or $2.4 billion increase in net profit after tax. into operation. Iron ore companies led the way, almost doubling revenue Onwards to Africa. As economically recoverable from 2010 as a result of the demand-side growth from deposits become more difficult to identify in Australia, China and India. A surge in the copper price, along with investors have increasingly reached out to developing the commissioning of key copper and nickel projects, has nations in a bid to meet future demand. Africa has resulted in revenue growth of 54% and 81% respectively emerged as the continent of choice for the mid-tier 50, across these two commodities. with a 400% (approximately $10 billion) increase since 2007 in the value of companies with the primary asset in Africa. The increased risk of investing in some of these nations is clearly being offset by the rewards for those who succeed in navigating sovereign risk and other barriers to entry, such as a lack of infrastructure.
Aussie Mine November 2011 1 Strategic planning – critical over the next Europe. The eurozone debt contagion that threatens twelve months: to spread has not been kind to the industry, with share prices reflecting that. It may be a tough year ahead, and MRRT and carbon pricing. The true impact of the MRRT companies will need to develop strategies to deal with and a price on carbon is not likely to be seen immediately. what could become the second chapter of the GFC story. These legislative changes are expected to have a greater However, today’s cashed-up mid-tier 50 stands in better bearing on future investment decisions rather than stead than their peers back in 2008. current production. In 2010, we challenged each company to ‘Rise and Shine’. Sovereign risk. Unfortunately, sovereign risk is now Given the outstanding results posted by the mid-tier readily associated with investment in Australia – a 50 this year, they have succeeded. In 2011, the mid- categorisation normally reserved for regions that are tier 50 is showing tremendous resilience in the face of viewed as politically unstable. Whether these changes considerable domestic and global challenges. Although genuinely increase sovereign risk over the longer term there are headwinds, it is onward and upward! is debateable. At this stage, it seems the damage to the Australian mining brand, and changing the perception of investment in Australia, will not be easy to remedy.
Cash generated from operating activities increased 34% to $3.7 billion.
2 Onward and Upward! Mid-tier industry 2 in perspective
2.1 Market capitalisation overview: Whilst the whims of commodity markets have been reflected in the recent share price performance, our a year of growth analysis shows that the results for the mid-tier 50 are strong and tell a compelling story. Even with the falls The total market capitalisation for this year’s group of 50 since June 2011, market capitalisations are 39% greater mid-tier miners has increased by 39% from June 2010 to than they were in June 2010. For the mid-tier, it has been June 2011 – peaking at $76.8 billion in December 2010. a year of growth. However, the picture from June 2011 to 30 September 2011 is not as bright with market capitalisation falling by The point of entry for this year’s mid-tier 50 is a market $10 billion or 15% – in line with the falls in the broader capitalisation of approximately $463m; an increase over market (ASX 200). the previous year’s figure of $400m. Iluka and Alumina have breached the $5bn threshold and are no longer European sovereign debt default fears and continued part of the mid-tier group. It would be reasonable to economic uncertainty in the United States played on the expect that the cut-off point for entry would decrease, mind of investors post June. This highly volatile situation considering the companies that were in last year’s top took its hold on commodities between June and October 15 such as Equinox, Centennial Coal, Andean Resources with traded commodities being hit hard. For example, and Riversdale Mining have exited due to merger and the price of copper fell 27.5% from the middle of June acquisition activity; however, this is not the case. The 2011 to September 2011 and bounced back 14% through growth in the market capitalisation cut-off for our mid- to October 2011. Even gold – the safe haven against risk tier grouping, despite these exits, points to the fact that – has been hit solidly at the time of writing. Iron ore, a the mid-tier mining industry is burgeoning. non-traded commodity, has been a source of strength in this year’s mid-tier 50; but has not escaped the volatility, with spot prices recently falling 30%.
Mid-tier 50 market capitalisation in AUD $million June 2009 to September 2011
90,000 2010 2011 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0
Jun 09 Sep 09 Dec 09 Mar 10 Jun 10 Sep 10 Dec 10 Mar 11 Jun 11 Sep 11
Market Capitalisation in AUD $million Source:Capital IQ
Aussie Mine November 2011 3 China: continued strong demand for Iron ore: the big mover commodities Market capitalisation for the year to 30 June 2011 for China’s twelfth Five-Year Plan (2011-15) targets GDP the seven iron ore companies totalled $8.7 billion – growth of approximately 7.5% over the five years. It representing growth of 81%. Iron ore is the traditional anticipates the proportion of Chinese living in urban domain of the ‘big’ miners, which is why iron ore hasn’t centres to pass the 50% mark in 2010, increasing to featured prominently in this publication in the past. This 51.5%. Perhaps the most significant part of the Five-Year year, however, with the growing demand for the product, Plan is a shift in focus from export markets to increasing we are witnessing the emergence of the mid-tier iron ore domestic consumer demand. China is a country producer on the back of record prices and a number of not accustomed to missing its targets. The ongoing new projects moving into production. infrastructure build for the migration to cities by the Atlas Iron is top of that list, tripling its market bulk of the population, and increasing standard of living, capitalisation to approximately $3.1 billion. This increase points to ongoing strong demand for raw materials. included issuing shares with a value of approximately In our previous edition we questioned whether the $1.2 billion. Sundance Resources’ market capitalisation strong performance of the mid-tier 50 was evidence of almost tripled (increasing by 177%) at 30 June 2011. Australia decoupling from the United States and Europe. The recent $1.65 billion takeover offer from Hanlong This year, the continued strength of the sector – despite represents an increase of 368% on the 30 June 2010 the struggles of the United States and Europe – provides market capitalisation of the company. additional support for our decoupling argument. The There are signs that the fledging magnetite iron ore Chinese economy continues to rely heavily on its export industry is starting to gain recognition in the Australian base (so is still reliant on the fortunes of Europe and the capital market. Grange Resources, Gindalbie Metals, United States). However, in our view, China’s move to a Jupiter Mines and Northern Iron are all magnetite miners consumption-based economy will eventually decouple or aspirants who have delivered share price growth in the the Australian economy from our traditional western year to 30 June 2011. Outside of the mid-tier 50 there is a counterparts. raft of up-and-coming magnetite hopefuls based around While China is significant, it is part of a bigger picture the Mid-West region of Western Australia and South – the ‘Asian Century’. Rapidly developing nations with Australia. Many of these are likely candidates for the mid- vast populations at Australia’s door step, such as India tier 50 in future years. and Indonesia, will deliver continued strong demand for commodities. Beyond our region, countries such as Brazil with a population of close to 200 million are also on an upward trajectory. This augurs well for the Australia- based mid-tier miner.
Mid-tier market capitalisation at month ends index - by resource - 1 July 2010 to 30 September 2011
81% Iron Ore 40% Copper 49% Gold 24% Other 54% Coal (30%) Uranium 2.50
2.00
51% Iron Ore 1.50 34% Gold 34% Coal 22% Copper 1.00 16% Other
0.50 (49%) Uranium
0.00
Jun 2010 Sep 2010 Dec 2010 Mar 2011 Jun 2011 Sep 2011
Source:Capital IQ
4 Onward and Upward! Gold, copper and coal: solid performers Bathurst Resources Limited held the torch for the coal group and delivered an astounding $646 million increase Unsurprisingly, copper and gold producers have in market capitalisation from just $38 million in 2010, increased their market capitalisation by 54% and 49% even allowing for new share issues of approximately respectively. Their growth in market capitalisation to 30 $173 million. The Buller coking coal project on the South June 2011 correlates with increases in commodity prices. Island of New Zealand has yielded excellent results with The market capitalisation of coal companies increased a potential resource of 60-90 million tonnes of coal being by a much lower 40%. One would expect growth in announced. The company has transformed itself from a coal companies to be similar to iron ore, the other key junior explorer to a producing miner within the space of a ingredient in the steel making process. However, market year, having also acquired Eastern Resources Group. capitalisation growth for coal companies was constrained Beadell Resources Limited has made similar progress, by the impact of the Queensland floods. Coal producers with the company announcing plans to bring its Brazilian in the mid-tier 50 are also more mature with more stable Tucano gold mine into production during the second production volumes when compared to their iron-ore quarter of 2012. The project is estimated to have reserves counterparts, who are only now emerging in the mid-tier of 1.25 million ounces and resources of 4.3 million and have delivered sharper share price growth. ounces with forecast production of 150 to 180,000 Two companies had market capitalisation increases of ounces per annum. greater than 300%: Bathurst Resources Limited and Beadell Resources Limited.
The 10 mid-tier 50 companies with greatest increase in market capitalisation in the year to 30 June 2011
1000 1690%
800
600
400% 400 276% 264% 240% 208% 208% 203% 200 177% 157%
0
Ltd Ltd
Limited Limited Limited Limited Limited Limited Bathurst
Intrepid Mines
Bandanna Energy Atlas Iron LimitedGryphon Minerals Regis Resources Discovery Metals Resources LimitedBeadell Resources Lynas Corporation Sundance Resources
Source:Capital IQ
Even with the falls since June 2011, market capitalisations are 39% greater than they were in June 2010. For the mid-tier, it has been a year of growth.
Aussie Mine November 2011 5 The Australian mid-tier miners are characterised Looking forward, with carbon pricing becoming a reality by projects in the late stages of development and at a time when the demand for energy is booming, the early stages of production. The entrepreneurship need for ‘clean energy’ is greater now than ever. Nuclear shown by these companies in moving from explorers power should not be forgotten.Countries such as China, to project development and production continues India, Japan, Korea and Russia have a stated ambition an exciting trend. to increase their nuclear generation capacity and these ambitions remain unchanged despite the Japanese While these companies have risen strongly, they earthquake. As these nations seek to secure their future have also been amongst the hardest hit as sentiment energy supply, the need for uranium should increase. in the markets from 30 June 2011 to 30 September The impact of the expansion of South Australia’s turned sour. Examples of significant falls in market Olympic Dam on global uranium supply will be carefully capitalisation recorded during these months include monitored by producers, given the volume of uranium Beadell (15.5%), Lynas (43.4%), Bandanna Energy this project has the potential to deliver. (56.2%), Intrepid (36.7%), Altas Iron (18.1%) and Gryphon Minerals (28.1%). 2.2 Mid-tier 50 vs. other While Sundance Resources increased by 23.9% on the back of a takeover offer, and Regis Resources increased performance measures by 6.5%, their peers took a battering. It seems to be a case 2010 saw a strong fight back in global markets, with all of the faster you rise the faster you fall. three comparative mining indices – ASX 300 Metals and Uranium: one to watch Mining, FTSE 350 Mining Index and TSX Global Mining Index – posting healthy increases. Uranium is the only major commodity group to see share price declines this year. The Japanese earthquake In 2011, the trend has continued with the three indices and tsunami impacted the opinions of people and posting healthy gains, led by 42% growth in the FTSE governments world-wide on the future of nuclear 350 Mining Index (FTSE 350) to 30 June. The growth in power, with Germany vowing to shut down their nuclear the comparative indices demonstrates the resilience of generation capacity by 2022. The immediate reaction the resources sector, despite global uncertainty stemming in the aftermath of the natural disasters saw a fall in from weakening economic conditions and a series of uranium prices. natural disasters. No doubt, a significant factor in this performance is the continued demand stemming from the resource-hungry Asian markets of China and India.
The Australian mid-tier miners are characterised by projects in the late stages of development and early stages of production.
6 Onward and Upward! Comparison of key mining indices July 2010 - September 2011 (July 2010 = 1) 43% TSX GMI 42% FTSE 350 1.8 20% ASX M&M
1.6
-5% FTSE 350 1.4 -2% TSX GMI -4% ASX M&M 1.2
1.0
0.8
Jul 10 Jul 11 Aug 10 Sep 10 Oct 10 Nov 10 Dec 10 Jan 11 Feb 11 Mar 11 Apr 11 May 11 Jun11 Aug 11 Sep 11
S&P/ASX 300 Metals & Mining - Index Value FTSE 350 Mining Index S&P/TSX Global Mining Index - Index Value Source:Capital IQ
Compared to the outstanding growth in the FTSE 350, World markets bounced back with reports of up to the ASX 300 Metals and Mining (ASX 300) posted a $35 billion of insurance claims, resulting in large scale significantly lower increase of 20%. The higher Australian rebuilding plans for the affected areas. Given Australia’s key dollar exchange rate had a part to play in this: as the role in the global supply of iron ore and coal, the ASX 300 Australian dollar increased against the British Pound, posted the most significant increases, jumping almost 20% the value of Australian equities relative to the world was in the weeks following the initial plunge. The FTSE 350 also greater, and as such the growth in the Australian index rebounded with an increase of 15%. was not as great. April 2011 saw fears of European sovereign debt default In the nine months from July 2010 to March 2011, the unfold. A rising Australian dollar, coupled with fears of Australian and international markets displayed solid and a slowdown in China (where inflation remained above consistent increases of between 25% and 45%. However, government targets), resulted in the ASX 300 posting the the Japanese earthquake and tsunami in March 2011 rocked largest fall of the comparative indices (approximately markets across the world, with significant losses being 16%) for the period from April to September 2011. posted on benchmark global indices. Not surprisingly, all It is clear that despite increased commodity prices of the comparative indices followed suit, with double digit and strong demand, the Australian economy and percentage losses over the days following the disaster. mid-tier 50 are not immune from global events and economic uncertainty.
S&P/ASX 300 Metals & Mining (Industry) - Index Value
1.60
Japan earthquake & tsunami 1.40 European sovereign debt crisis
1.20
1.00 1 week after earthquake
Downward trend to September 2011 0.80
Jul 10 Jul 11 Jun 10 Aug 10 Sep 10 Oct 10 Nov 10 Dec 10 Jan 11 Feb 11 Mar 11 Apr 11 May 11 Jun11 Aug 11 Sep 11
S&P/ASX 300 Metals & Mining (Industry) - Index Value
Source:Capital IQ
Aussie Mine November 2011 7 2.3 M&A: mid-tier’s signature Acquisitions by the Australian mid-tier (Deals – September 2010 to September 2011) In the role as acquirer, the mid-tier featured in 71% of the completed deals in 2011 – up from 46% in the previous The mid-tier 50 have been named in 34 transactions year. The mid-tier 50, who have traditionally fallen prey totalling $40.2 billion since September 2010 – the largest to consolidation, have taken the opportunity to bring being Barrick Gold’s acquisition of Equinox Minerals more of the junior players into their asset portfolios. for $7.1 billion. The average deal value this year was $1.2 billion – a 30% jump in comparison to our prior With many of the companies in the group carrying year analysis. The deal momentum typifies the ongoing significant cash balances, and with relatively strong share capacity of the mid-tier 50 to manage early stage risk prices to support scrip transactions, consolidation in the and deliver up quality assets to feed the ongoing demand sector is set to continue. in the market for mineral projects. The companies on our mid-tier list typically begin to attract attention once Increasingly, we see the mid-tier 50 growing through their assets are ‘de-risked’, and the initial hard work to acquisitions. Atlas Iron is a stand out example of progress the asset to production is completed or close to this. We are perhaps seeing the responsibility for completion. greenfield exploration being left more and more to the junior players, with the mid-tier focusing on project Insatiable demand by foreign investors, development and the acquisition of attractive juniors. not just China More in the wings? The five largest deals in 2011 were driven by large As this publication went to print, speculation about multinational mining companies. These transactions M&A activity surrounded several of the mid-tier accounted for 76% of total completed deal value during miners, specifically New Hope Corporation and Extract the year. Despite the hype, there is only one Chinese Resources. New Hope, which commenced a formal company on the list of foreign investors with acquisitions bidding process on 5 October, may fetch up to A$6 billion in the mid-tier 50 this year. The deal activity has not according to analysts. Speculation also surrounded a bid diminished despite their absence, evidence of the fact for Extract Resources by Guangdong Nuclear Power (a that it is not just the Chinese that are looking to secure Chinese nuclear power company), which is expected to key commodities. result in a A$2.2 billion offer. Rio Tinto also seems well Many of the companies in the mid-tier 50 that were positioned to make a bid for Extract, with an asset located subject to bids this year had their project assets located adjacent to Extract’s Husab mine. outside of Australia. Other than Macarthur Coal, the The acquisition of Minara Resources by Glencore larger bids (greater than $1 billion) have arisen for International was announced after 30 September and companies with their primary asset located in Africa: therefore did not form part of our analysis. Equinox, Riversdale, Anvil and Sundance. Other foreign assets that were targeted included Andean Resources’ (South America) and Citadel Resources (the Middle East). The number of offshore assets held by the mid-tier 50 is now significant.
In regard to domestic assets over $1 billion, it is coal that has attracted most interest, with Centennial being acquired by Banpu Public Company Ltd and the acquisition of Macarthur Coal from Peabody Energy Corporation, now complete. New Hope Corporation has recently put up a ‘for sale’ sign and Whitehaven Coal has tested the waters as well. Coal representation in the mid-tier 50 seems set to continue its decline due to these significant acquisitions.
8 Onward and Upward! Completed M&A activity in the mid-tier 50: deals greater than A$15 million Target Acquirer Acquirer Ownership Approximate Announcement country interest deal value date (AUD$m)
Equinox Minerals Ltd Barrick Gold Corp Canada 100% 7,120 25/04/2011
Riversdale Mining Ltd Rio Tinto Plc UK 100% 3,905 23/12/2010
Andean Resources Ltd Goldcorp Inc Canada 100% 3,373 03/09/2010
Anatolia Minerals Avoca Resources Ltd US Merger 2,097 08/09/2010 Development Corp Centennial Coal Banpu Public Thailand 100% 1,958 05/07/2010 Company Ltd Company Ltd
Citadel Resources Ltd Equinox Resources Ltd Australia 99% 1,250 24/10/2010
Mantra Resources Ltd JSC Atomredmetzoloto Russia 100% 1,020 15/12/2010
Giralia Resources Atlas Iron Ltd Australia 100% 810 21/12/2010
Donaldson Coal Gloucester Coal Ltd Australia 100% 550 16/05/2011 Holdings Ltd
Jabiru Metals Ltd Independence Group NL Australia 100% 579 09/02/2011
Dominion Mining Ltd Kingsgate Consolidated Ltd Australia 100% 380 20/10/2010
Conquest Mining Catalpa Resources Australia 100% 350 15/06/2011
Aurora Energy Paladin Energy Ltd Australia 100% 262 17/12/2010 Resources Inc.
FerrAus Ltd Atlas Iron Ltd Australia 100% 214 27/06/2011
Hanlong Mining Sundance Resources Ltd China 16% 213 18/03/2011 nvestment Pty Ltd Northern Energy New Hope Corporation Australia 81% 200 10/02/2011 Corporation Ltd
Ellemby Holdings Pty Ltd Gloucester Coal Ltd Australia 100% 150 16/05/2011
Afarak Platinum Ltd Aquarius Platinum Pty Ltd Australia 74% 110 13/04/2011
Silver Standard Kingsgate Consolidated Ltd Australia 100% 75 01/08/2011 Australia Pty Ltd
Auvex Resources Ltd Mineral Resources Ltd Australia 100% 51 22/03/2011
Eastern Resources Group Bathurst Resources Ltd Australia 100% 32 28/10/2010
Centaurus Metals Ltd Atlas Iron Ltd Australia 19.90% 19 27/07/2011
50% (takes Terra Energy LLC Guildford Coal Ltd Australia 17 06/07/2011 to it 70%)
Laguna Resources NL Kingsgate Consolidated Ltd Australia 100% 16 25/10/2010
Total 24, 751
Aussie Mine November 2011 9 Pending or unsuccessful M&A activity in the mid-tier 50: deals greater than A$15 million as at 30 September 2011 Target Acquirer Acquirer Ownership Approximate Announcement Status country interest deal value date (A$m)
Minmetals Equinox Minerals Ltd China 100% 6,027 04/04/2011 Unsuccessful Resources Ltd
Peabody Energy Macarthur Coal Ltd US 100% 4,680 11/07/2011 Pending Corporation
Minmetals Anvil Mining Ltd China 100% 1,357 30/09/2011 Pending Resources Ltd
Sundance Hanlong Mining China 100% 1,344 04/10/2011 Pending Resources Ltd Investment Pty Ltd
Sundance Hanlong Mining China 100% 1,164 18/07/2011 Unsuccessful Resources Ltd Investment Pty Ltd
Catalpa Resources Ltd St Barbara Ltd Australia 100% 349 13/05/2011 Unsuccessful
27% Glencore Investment Minara Resources Ltd Switzerland (remaining 270 24/08/2011 Pending Pty Ltd interest) Northern Energy New Hope Corporation Australia 100% 180 08/10/2010 Unsuccessful Corporation Ltd
19.2% Northern Energy New Hope Corporation Australia (remaining 50 29/08/2011 Pending Corporation Ltd interest)
Platinum Mile Aquarius Platinum Ltd Australia 100% 16 01/06/2011 Pending Resources Pty Ltd
Total 15,437
The mid-tier 50 have been named in 34 transactions totalling $40.2 billion
10 Onward and Upward! 2.4 Movements in the mid-tier 50 The list of exits from last year’s mid-tier 50 is as follows:
It has been a year of high turnover in the ranks of the Mid-tier exits Reason mid-tier 50. Acquisition activity accounted for seven of the 16 exits from our list. This compared to just 11 exits Alumina Market capitalisation moved beyond $5 billion in total in 2010. The rise in the market value of the iron ore, copper and gold producers has lifted the market Andean Resources Taken over by Canadian company capitalisation entry point at the bottom of the group Gold Corp (the 50th company on our list this year was Guildford Coal, with a market capitalisation of $463 million Avoca Resources Merged with Anatolia Minerals to form (2010: $ 400 million). Alacer Gold – dual listed on the ASX & TSX Companies such as Aston Resources (coal), Mineral Resources (nickel), Regis Resources (gold), Sundance Brockman Resources Market capitalisation below threshold Resources (iron ore) and Discovery Metals (copper) have entered our list. For companies like these, a Centennial Coal Co Taken over by Thai company Banpu strong growth in market capitalisation has been delivered through a combination of exploration success, Citadel Resource Group Taken over by Australian company buoyancy in underlying commodity prices and improved Equinox Minerals production results. However, as quickly as Sundance Resources entered the mid-tier 50, it seems likely to Equinox Minerals Taken over by Canadian company exit following a takeover offer from Chinese company Barrick Gold Hanlong in October 2011. Gujarat NRE Coking Coal Market capitalisation below threshold Iluka Resources and Alumina were pushed out of the mid-tier 50 as their market capitalisation grew beyond Iluka Resources Market capitalisation moved beyond our $5 billion ceiling. They join the five other companies $5 billion (BHP Billiton, Rio Tinto, Newcrest, Coal & Allied and Fortescue Metals), who continue to be excluded from the Indophil Resources Market capitalisation below threshold list on the basis that their market capitalisation exceeds the $5 billion ceiling. Mantra Resources Taken over by Russian company Atomredmetzoloto Alacer Gold was formed on 18 February 2011 following the merger of Avoca Resources and Anatolia Minerals. Mineral Deposits Market capitalisation below threshold The company is listed on both the ASX and TSX but has been excluded from our analysis this year as the combined Murchison Metals Market capitalisation below threshold company has not yet reported annual results. With a market capitalisation of over $2 billion we look forward to Panoramic Resources Market capitalisation below threshold their inclusion into the mid-tier 50 in 2012. Riversdale Mining Taken over by Rio Tinto
Summit Resources Market capitalisation below threshold
Aussie Mine November 2011 11 The rise of Africa 3
With economically recoverable An additional 7.5% of companies by market capitalisation deposits in Australia diminishing, have secondary investments in Africa. the race for explorers and producers African projects 2011 compared to 2007 to establish themselves in developing markets has well and truly begun. In 12 2011 our inaugural Aussie Mine publication 10 2007 in 2007, any foreign investment that 8 existed was focused on neighbouring jurisdictions, predominantly Papua 6
New Guinea and South East Asia. But 4 in 2011 this picture is different. 2 Whilst Australian assets continue to dominate, the 0 growth of African investment is marked. The market Primary project Other significant capitalisation of the mid-tier 50 has grown from in Africa project in Africa $51 billion to $67 billion in 2011. Companies with predominantly African assets make up 18% of this $67 Source: Company Financial Statements, PwC analysis billion, compared with just 4% in 2007; an increase in In 2011 over one quarter of the mid-tier 50 (13 dollar terms of approximately $10 billion. Of course, this companies) have projects in Africa, with 10 out of 50 excludes the African asset-based companies that were having their primary project there. In 2007 there were acquired during the year such as Equinox and Riversdale, just two companies with major projects with only two so would have been higher again in 2010. more with a significant project on the continent. Historical trends in asset geography The African continent is now accepted as one of the next frontiers for large scale mineral investment and, as Mid cap miners - Investment location projects advance, there is no doubt that it will make up an increasing proportion of the market capitalisation of 70% the mid-tier 50. 60% 2011 2007 Africa: looking forward 50% In her recent address to the Mining Indaba conference in 40% Cape Town in February, Australia’s High Commissioner 30% to South Africa, Ann Harrap, cited some remarkable facts on Australian investment in Africa. Since 2005, the 20% number of resource projects in Africa has nearly tripled 10% (over 143 new projects added in 2010), with Australian investment in the sector tipped to exceed A$20 billion. 0% Australia Asia Africa South North Europe The Indaba conference was a measure of this, with the America America number of Australian companies in attendance doubling over the past five years. The spread of companies in *Based on market capitalisation of companies and location of primary asset. attendance ranged from junior and start-up miners Source: Company Financial Statements, PwC analysis to service providers exploring opportunities to utilise Australian expertise.
12 Onward and Upward! Interest in Africa has certainly not been limited to junior Where in Africa? explorers or the mid-tier. The big players in the mining sector have also clearly acknowledged African potential. With its relatively advanced and developed Australian companies with African projects continue to infrastructure, South Africa has been the location of experience significant M&A activity. Examples include: choice. However, over the last few years, there has been emerging investment growth in West African countries • Xstrata’s acquisition of Sphere Minerals, giving it such as Burkina Faso, Ghana, Guinea, and Mali. These control of significant iron ore assets in Mauritania countries accounted for almost one third of all Australian • Barrick Gold’s acquisition of Equinox Minerals, investment in Africa. Given its historical lead, projects securing the operating copper mine (Lumwana) in in South Africa are more advanced and this is reflected Zambia in their market capitalisation. • Rio Tinto’s acquisition of Riversdale, also giving it access to significant coking coal deposits.
Gryphon Minerals Limited
Resolute Mining Limited
Sundance Resources Ltd
Perseus Mining Limited
Perseus Mining Limited Anvil Mining Limited
Resolute Mining Limited
Paladin Energy Ltd Paladin Energy Ltd
Zimplats Holdings Limited
Extract Resources Limited
Discovery Metals Limited Copper Gold Coal Platinum Uranium Jupiter Mines Ltd Iron ore Aquila Resources Limited Maganese Aquarius Platinum Limited Coal of Africa Limited
Aussie Mine November 2011 13 Why the shift to Africa? The lack of infrastructure investment is a significant barrier to entry. Estimates are that, in addition to the As the discovery of economically recoverable deposits estimated 10,000 km of existing roads in Africa, a further in Australia becomes more challenging, local mining 50,000 to 100,000km is required to fully integrate the companies are seeking projects abroad. Recent success continent. Due to the higher infrastructure investment stories like Sundance Resources, Gryphon Minerals and required, initial development costs to bring a mine to Perseus Mining, have added weight to the argument operation is higher than most developed nations. The for African investment. Emerging African explorers are overarching sovereign and political risk is also a major able to access additional equity in Australia, despite concern. However, we are seeing this investment being any perceived political or operational uncertainty. The made despite the hurdles. Ultimately it is the anticipated Australian Government’s proposal for the MRRT and return on investment that will drive the investment carbon tax is also noted as a factor in the decision to decision, and the steady flow of capital into the region pursue offshore opportunities. speaks volumes. The application of tried and tested exploration and production techniques from Australia and other The race is on advanced mineral provinces has played a significant Where there is increased risk and high barriers to entry, role in the African success story. Australia’s Trade there is also great reward. Stakeholders from around Commissioner in South Africa, Greg Hull, recently noted the globe, particularly China and South East Asia, that Australia’s mining industry is one of only a few in the are fuelling much of the current capital investment. world capable of developing a mine from exploration to a These stakeholders are tapping into the work done by fully operational state. Australian companies in exposing the assets to then take full advantage of opportunities in Africa. As we noted Risk vs. reward in the M&A section, bids for Australia-based companies It is important to note that the large potential upside with investment in Africa made up four of the five largest of African investments also carries risk. Two significant transactions in the mid-tier 50 this year. hurdles to investment remain resource nationalisation Based on current investment trends, it is hard to look and a lack of infrastructure. An obvious example is beyond Africa as one of the major frontiers for mining Zimbabwean president Robert Mugabe’s nationalisation investment, not only from Australia, but from across the of the country’s foreign-owned mining industry, placing globe. The more stable political and civil positions in many half of its mines into a sovereign wealth fund. countries is encouraging further investment to tap into There is also uncertainty in South Africa, despite unexplored areas in the quest for economic development reassurances by South African president Jacob Zuma across the continent. that nationalisation was not government policy.
In contrast, new frontiers are opening in Africa, with For further information: investors turning their attention to opportunities in less Ananth Rajaratnam, Senior Manager, Assurance traditional countries such as Mozambique, Botswana, [email protected] Namibia and other countries in West Africa, where the Ben Lim, Manager, Corporate Tax regulatory and political environment has improved. [email protected]
14 Onward and Upward! The way I see it 4
Q&A with Russell As demand for the product increases, market focus and perception will improve. There are a number of aspiring Clark – Managing magnetite producers, but Grange is the only one in Director and Australia currently in production. Magnetite is a fledgling industry in Australia and as other miners move into the Chief Executive production stage, the focus within Australia will improve. Officer, Grange We expect valuations to improve in conjunction with this Resources Limited increased focus. Magnetite iron ore production has not yet been classified as ‘emissions-intensive, trade-exposed’ (EITE). You have stated Grange Resources Limited owns that a carbon price of $25 per tonne could and operates Australia’s largest add significant costs to the production cost integrated iron ore mining and pellet of magnetite concentrate. What is your view on the carbon price and emissions production business, which is located trading scheme? in Tasmania. It is also developing a magnetite project at Southdown in Western Australia. As Australia’s The magnetite mining industry has been subjected to a number of new taxes in a very short space of time: the leading magnetite producer, and carbon price, including the abolition of the diesel rebate, the only commercial producer of and the MRRT. magnetite pellets in Australia, Grange The MRRT is an opportunistic attempt by the government Resources is a major supplier of to take advantage of the good times, but it has come at a quality iron ore pellets in the region. time when the magnetite industry is in its infancy. The risk Managing Director Russell Clark has and reward profile is vastly different to eighteen months ago. The implication of the scale and sheer number of over 30 years of mining experience in changes to the tax regime is not well understood among Africa, Papua New Guinea, USA and the mining community, let alone the public. The sovereign throughout Australia. risk of investment in Australia has no doubt increased as a result of these changes. The industry has not done a good Magnetite has historically not attracted job in explaining this. The taxes push Australian mines as much investor attention as the more higher up the cost curve and place them at a competitive traditional hematite product. Do you expect disadvantage to their peers in other parts of the world. to see a change? In relation to the carbon price, the magnetite industry is seeking greater assistance from the government and Increasing demand for iron ore inevitably means that is hopeful of a positive outcome. The production of demand for magnetite ore will increase. As hematite magnetite ore requires more energy earlier in the supply grades decrease and impurities increase, and as chain, but the completed product (concentrate) shipped available lump hematite diminishes, we expect that requires less processing overseas and therefore reduces magnetite ore will make up a larger proportion of the the carbon footprint of the downstream steel producer. global iron ore trade. For each tonne of steel produced from magnetite there is actually less overall carbon emitted than when using
Aussie Mine November 2011 15 hematite to make steel. Imposing a tax on magnetite Having experienced firsthand an investment producers in Australia imposes a higher cost on the from a Chinese partner, what are your views value that is added here. Carbon emissions are a global issue, and taxing the industry in Australia without any on Chinese investment, in particular by state- recognition of the reduced carbon emissions downstream owned enterprises, in Australian assets? puts magnetite at a competitive disadvantage. My view on Chinese investment is no different to my view In its current form, the carbon price punishes ‘value on investments from America or any other country. There add’ in production. The Western Australian government are occasionally good grounds for rejecting a foreign royalty rates, on the other hand, seem to recognise investment proposal, regardless of where it is sourced. the value add with lower rates for magnetite (5%) as For example, an approach on Prominent Hill was rejected opposed to lumps and fines (7.5%). There is a value add on the grounds of national security. component embedded within the WA Royalty scheme There is a misconception that all Chinese investment that is not recognised in taxation changes by comes from the SOEs – this is not the reality. There are the Commonwealth. a number of independent Chinese companies investing in Finally, the administrative burden that accompanies these Australia. The key point to note though is that regardless of tax changes is being underestimated. The management the ownership, policies and procedures should be applied time and resources that will need to be dedicated to this consistently; there should be no difference in treatment area are significant, not to mention the additional costs based on the country an investment is sourced from. that are incurred in hiring consultants and experts to The easy money from China is gone. Chinese investment understand and model the impacts. is not what it used to be prior to the GFC. Their investment is now focused on risk-based return rather A number of companies have announced cost than simply looking to secure supply at any price. blow-outs and delays in project timelines. The required capital investment to complete the How would you describe your experience Southdown project has been estimated at $2.57bn. of having a Chinese investor in the business; What do you see as the key focus areas for effective would you have changed anything? capital cost management? The reason and focus for the investment can vary from All aspects of resourcing, particularly equipment and off take to being exposed to owning a public company. labour, will be difficult. The lead times for equipment are Understanding the investment drivers up-front is important. growing once again. Throughout the GFC, suppliers to Getting this right ensures that strategy is appropriate. the mining industry continued to make significant capital Knowledge of corporate governance from a public investment, but even with this increase in supply we are company perspective is a critical area that has not always again experiencing very long lead times. The location of been a focus for the Chinese. It continues to be a critical Southdown allows us to provide a more attractive work part of operating in Australian markets. location and lifestyle for our employees. This should provide Grange with an advantage in attracting the right people and also enable us to develop stronger ties with the local community.
Having government and local community support is also critical to a ‘social licence to operate’. For example, with our Savage River mine, the Tasmanian Government has been fantastic. They have worked with the project and set strong environmental guidelines which are closely monitored. They recognise the value of jobs in Tasmania and have ensured that the ground rules were set up-front and agreed by all parties. Agreeing the ground rules and not having the goal posts move goes a long way.
Southdown has a competitive advantage in that there is already existing infrastructure such as an established port, water pipeline route and power easements. If infrastructure of this nature exists, it greatly increases the likelihood of companies making an investment.
16 Onward and Upward! Our relationship with Jiangsu Shagang (Shagang) The European and US debt crisis has has evolved over time and is now stronger than ever. emerged as a potential major headwind. Their investment came at a crucial time for Grange and they have been a cornerstone investor ever since. What is your view on the debt crisis and The board has been very supportive through a difficult what do you think the impact will be on time. There are the obvious hurdles such as culture commodity prices and exchange rates? and language and these take time and experience to overcome. The interaction between the two countries The drivers for the Australian resource industry are largely is increasing but there is still a lot to learn for both sides. Asian-based, and in particular, China is driving much of the current demand. The US and European debt woes Shagang’s investment in Grange represents a significant are affecting investor sentiment, and we have seen our direct iron ore investment in Australia. It has allowed stock, as well as many others, lose value as a result of Grange to lever off a strong balance sheet for the future poor investor sentiment. There is currently a ‘disconnect’ and they will be a major customer agreeing to off take at market prices. This will provide Grange with a stable between the intrinsic value of resource stocks (represented revenue stream. Great advantages have flowed from by the NPV of their operations) and their market their investment. capitalisation. We look forward to improved share prices when investor sentiment around the world improves. The deal resulted in a large proportion of Grange’s share capital being held by a single investor resulting in a relatively illiquid stock. As a consequence, I believe the share price is not reflective of the true value. In hindsight, we might have utilised different deal structures that would have resulted in a better outcome for all stakeholders.
Aussie Mine November 2011 17 Social licence: winning 5 the community’s vote
Increased demand for commodities Regional communities, armed with new communication has resulted in Australian mining methods such as social media, have made themselves more vocal in recent times. The ‘fight’ against new mining companies investing $180 billion projects has already had significant impacts, for example: in designing, constructing and • governments introducing new policies and more commissioning new mining, rail and stringent regulations for new mining projects port operations over the past decade. • public opinion over new mining projects is diminishing Looking ahead, continued demand in favour of support for local communities, including the has prompted another $325 billion farmers in NSW, Queensland and the Margaret River of planned investment in new mining wine region in Western Australia and LNG projects over the next 10 years • in Queensland, a ‘tough project approval process’ is already being telegraphed as a key election agenda (ABARE, 2010). item by both sides of politics These substantial investments are concentrated in • an increasing number of mining projects are remote areas including the Pilbara and Mid West regions experiencing delays due in Western Australia, Olympic Dam in South Australia, to community concerns, causing direct impact to and the Bowen Basin in Queensland. Rapid investment project NPV and forecasted growth. and growth have had a significant social, economic and environmental impact on these regions. While many of these impacts are positive, growing community concerns over some perceived negative aspects have started to emerge.
Mining operations impact on the Bowen Basin (2000-2010)
Coal production 72% 2010 Resident 15% 2000 population
Median House 564% Prices
Rural area with no mining Average Salary 61% Bowen Basin area
Source: Australian Bureau of Agricultural and Resource Economics
18 Onward and Upward! To date, community engagement activities have been How can mining companies achieve this? The premise managed mainly through the Environmental Impact is simple: Statement (EIS) process. While an EIS process is an important compliance piece, it has some deficiencies, namely being: • ‘single-project’-centric – assesses the impacts of a project with little regard for other growth projects in a company’s portfolio or its existing operations Win the community’s • nearby community-centric – mandates the need to support for new assess the social and economic impacts of communities mining projects living in the vicinity of the project.
Consequently, the EIS process has consistently failed to address various community concerns, prompting local communities to oppose new mining projects. The Government’s response to community discontent is to add more policies, procedures and regulations to Inform the government the EIS process, in the hope that new regulations will of their voters’ support address the community’s concerns. This action makes compliance costs higher, the EIS approval process take longer, and reduces the operational flexibility of future mining operations.
We consider the broader community concerns to be one of the major risks for mining projects over the Win government course of the next decade. Mining companies need to approval address the community concerns outside of the EIS compliance process, and be proactive in winning the hearts and minds of local communities. Companies who are able to ‘win the community vote’, will carry a strong competitive advantage over their competitors in getting their projects across the line more quickly and with lower compliance costs.
Aussie Mine November 2011 19 Over the past decade, mining companies have mastered 3. Establish and communicate ‘community the EIS process required to comply with government proposition’ regulations and policies. In order to set its strategic objectives, a mining company We believe community and government approval needs must be able to clearly define and communicate its a Community Engagement Process (CEP), which is ‘community proposition’. The community proposition’s separate to the EIS process, and is the missing link in objective is to create a strong emotional connection with current processes. The CEP is designed to inform, engage the constituency through a ‘promise/values statement’. and win the support of the communities at the company A good community proposition is simple, easy to level, rather than at a project-by-project level. There five understand, relevant (to the target audience), unique steps in the CEP: and consistent. 1. Define the constituency 4. Action plan While the compliance process revolves around the local Execute a continuous engagement plan that is designed communities, the definition of the constituency should to reinforce the company’s community proposition across be more inclusive in order to address the concerns of a the constituency and link it to the company’s growth much wider population base. This step focuses on the projects. ability of a mining company to share and spread the economic and social benefits over a wider group than just 5. Community approval the local communities. Communicate the overall community proposition and 2. Engage the constituency approval to government through the project’s EIS process and consistent messages throughout its communication A constituency engagement program is designed to plan, Social Impact Statement and Social Impact understand the needs and wants of the constituency, Management Plan. as well as answering the question ‘what are the constituency’s perceptions of our brand and operations?’ For further information: Ran Heimann, Senior Manager, Consulting [email protected]
The Community Engagement Process (CEP) in practice The new Major Resource Projects Housing policy, published by the Queensland Government in August 2011, states that new mining project proponents must offer their workforce and their families a complete choice of accommodation options. While large miners are able to provide these choices through a portfolio of closely located mining operations, mid-tier miners may be disadvantaged and forced to design more flexible working arrangements which could harm operational efficiency and productivity. Other states may follow suit. Whether your growth projects consider autonomous mining, a fly-in, fly-out workforce, camp vs. town accommodation, or better representation of females and traditional owners in your workforce, a CEP would assist mid-tier miners in meeting their community and regulatory obligations in a more efficient manner with reduced overall costs. A well-structured CEP will help companies mitigate one of the major risks of a mining project: gaining community support. It will help win over the hearts and minds of the community, thereby giving the mining company a strong competitive advantage, enabling them to get their project up-and-running quickly, and keeping costs down.
20 Onward and Upward! Positive investment 6 in Indigenous communities
Each year, mining companies invest The industry has clearly demonstrated its commitment millions in Indigenous employment and to ensuring the provision of work readiness programs to Indigenous populations in all areas of operation; yet there Indigenous community wellbeing. The is still the dominant challenge of engaging people in these struggle is often to find proportionate programs. There is also then the challenge of translating outcomes for the level of investment. sufficient numbers from these programs into mine The latest research1 shows a workforce participants. surprisingly different investment may Social wellbeing investment: revolutionise the industry’s value for mutually beneficial money. The mining industry has a It is clear the problem is not ‘under-investment’. golden opportunity to reap greater On the contrary, many companies have invested heavily returns for its Indigenous community in Indigenous initiatives. It is not the quantum of investment dollars. investment that is the issue. Historically, funds have been channelled into work training programs; instead Indigenous involvement: an of programs that enable Indigenous people to be ongoing challenge ‘training-ready’, and indeed ready to face the workplace culture of the industry. The ironic challenge facing the mining industry is that although the demand for employees continues to be The industry recognises the most significant inhibitors high, there remains high unemployment in neighbouring to the capacity of many Indigenous communities to be Indigenous communities. Many companies are, or ‘training-ready’ and ‘workplace-ready’ relate to social will soon be, subject to obligations under Native wellbeing factors. These identified social wellbeing Title or other negotiated agreements to increase factors specifically preclude engagement in employment Indigenous employment. and, more fundamentally, the ability to engage in basic life skills. Issues such as substance abuse, over-crowded The resources sector recognises it has much to gain from housing, poverty, family violence and physical health employing local Indigenous people. The use of a nearby, can be daunting to address. They may indeed appear to plentiful and stable resident workforce can often provide the be beyond the scope of any mining company. However, ideal complement to fly-in, fly-out workforce arrangements. research now identifies that social wellbeing investment, Amongst some resource industry operators in WA, for if properly focused, has the potential to greatly increase example, companies are finding that solid, longstanding Indigenous employment and retention, and provide Indigenous employees are retained longer than non- a number of other commercial advantages to the industry. Indigenous employees.
1 Mr Charlie Leneghan, CEO Rio Tinto, ‘Minerals Week’ 2005, Brereton D, and Parmenter, J the Centre for Social Responsibility in Mining, University of Queensland, Indigenous Employment in the Mining Industry, Journal of Energy and Natural Resources Law 21(1) pp66-90; Australian Parliamentary Inquiry into Successful Initiatives in Indigenous Employment (June 2007) and Boom and Bust: 1960-2007 Valuable Lessons in Indigenous Employment in the Mining Industry, Mining, Petroleum, Oil and Gas Symposium;, 9-10 July 2007, Broome
Aussie Mine November 2011 21 For companies maintaining legislative and social licenses Partnerships like this demonstrate that it is possible for to operate, local Aboriginal community wellbeing is mining companies to partner with governments and the essential, and often a key part of the company’s social not-for-profit sector to respond to some entrenched social impact management plan. It is sometimes the case that wellbeing issues in Indigenous communities – getting non-Indigenous anti-mining campaigners base challenges to the heart of making a real change to Indigenous to new mine developments on a perceived threat to the employment numbers within the mining industry. way of life of Indigenous communities. However, this is a This collaboration and investment from the resources difficult stand for campaigners to maintain if the benefits sector will provide the industry with benefits beyond to Indigenous social wellbeing – provided by mining political recognition. It will improve work force companies – are recognised and appreciated by the local availability which will help alleviate existing labour Indigenous communities. shortages that are destined to exacerbate as investment in The future: partnering to boost employment mining continues to increase.
Governments and industry now have the opportunity to For further information: work in collaboration with Aboriginal and Torres Strait Natalie Siegel, Director Islanders, focusing on key areas that will have a broad Social Policy and Indigenous Affairs impact both on raising baseline Indigenous employment [email protected] figures in the mining industry, and improving the quality of the lives of Australian Indigenous communities generally.
In Queensland, a partnership between Xstrata plc and the Queensland Government has been established to provide domestic violence perpetrator programs to communities in the Gulf and Bowen Basin regions. Xstrata provides the perpetrator service funding, and the Queensland Government provides the corresponding victim and child‑witness domestic violence services, in addition to the staff required to monitor minimum standard delivery and administer funding.
It is clear the problem is not ‘under‑investment’. On the contrary, many companies have invested heavily in Indigenous initiatives.
22 Onward and Upward! Aggregated industry 7 financial statements
7.1 Income statement
The aggregated income statement of the mid-tier 50 is presented below.
Operating revenues increased by 37% due to higher commodity prices and a ramp up in production across all key commodity groups. This has contributed to the increase in gross margins resulting in a net profit of $2.5 billion. The mid-tier mining industry’s onward and upward march comes at a time when many other parts of the Australian economy have struggled. This year we have seen the mid-tier 50 turn from borrowers to investors, as demonstrated by the $49 million in net interest income.
2011 2010 Change A$’m A$’m % Revenue from ordinary activities - Operating revenue 12,397 9,022 37% - Non-operating revenue 197 157 26% Total revenue 12,594 9,179 37% Less expenses from ordinary activities (8,295) (6,444) 29% Exploration expenses (448) (309) 45% Total operating expenses (8,743) (6,754) 29% Gross profit 3,851 2,425 59%
Other income/(expenses) (79) (291) (73%) Adjusted EBITDA 3,772 2,135 77%
Gain/(loss) on sale of investments 954 (380) (351%) Impairment (47) (126) (63%) EBITDA 4,679 1,628 187%
Depreciation and amortisation (1,324) (976) 36% EBIT 3,355 652 415% Net interest income/(expense) 49 (88) (156%) Profit from ordinary activities before tax 3,404 564 503% Income tax expense (950) (526) 80% Net profit/(loss) 2,454 38 6358%
Source: Company Financial Statements, PwC analysis
Top five mid-tier companies by revenue
2011 2010 Change A$’m A$’m % 1 OZ Minerals Copper 1,128 609 85% 2 Macarthur Coal Coal 687 671 3% 3 Aquarius Platinum Platinum 676 519 30% 4 Mt Gibson Iron Iron Ore 672 536 25% 5 PanAust Copper 651 465 40%
Source: Company Financial Statements, PwC analysis Aussie Mine November 2011 23 The top five companies accounted for 31% of the operating • PanAust – copper-gold miner with operations in South revenue of the mid-tier 50, consistent with the prior year East Asia – benefited from record copper prices and (2010: 33%). However, there were a number of changes on higher production at the Phu Kham mine the leader board, with only two of 2010’s top five retaining • Centennial Coal was acquired by Banpu Public their places: Macarthur Coal and OZ Minerals. Company in October 2010 This year’s changes to the top five revenue contributors to • New Hope Corporation suffered from the Queensland the mid-tier 50 were: floods which hampered production, resulting in a fall • Aquarius Platinum – operating in South Africa and in revenues Zimbabwe – continued its impressive growth with sales • Energy Resources Australia also exited the top five up by nearly 30% through ramping up its Everest mine due to a 26% fall in revenues – the fall was driven by operations and continued strong prices for platinum a combination of production issues arising from wet • Mt Gibson Iron – hematite miner and explorer – weather at Ranger, declining uranium prices, and shrugged off a 20% reduction in production volume, adverse foreign exchange movements. benefiting from a 55% increase in iron ore prices Revenue Composition of aggregated mid-tier 50 revenue by sector
FY11 FY10 3% Copper 5% 17% 8% 10% 18% Platinum
Coal 7% 11% Iron Ore 11% 10% Gold Uranium 15% 16% Nickel
Manganese 21% 24% 14% 10%
Note: Company revenues have been classified by their primary commodities Source: Company Financial Statements, PwC analysis
Operating revenues increased by 37% due to higher commodity prices and a ramp up in production China and India across all key commodity groups. have a long way to go on their path to industrialisation, which will see them move rapidly up the steel consumption curve
24 Onward and Upward! The growth of iron ore and copper, which was driven not Soaring commodity prices generated above average only by higher commodity prices but also by increased revenue growth for copper (54%) and iron ore (97%), production, has resulted in those commodities taking a whilst nickel revenue growth (81%) largely reflects the larger share of the total ‘revenue pie’. ramping up of production by Western Areas and Mirabela Nickel. Among those lagging were coal (18%), and Despite over one third of the mid-tier 50 constituents uranium (-15%) for the reasons previously highlighted. changing this year, the broad composition is consistent with 2010.
Movement in revenue by commodity
2010 9,022 Copper 798
Platinum 232 y
t 404 i Coal d o Iron Ore 832 m m
o Gold 376 C Uranium (152)
Nickel 586
Other 297
2011 12,397 7,000 8,000 9,000 10,000 11,000 12,000 13,000 AUD $’m Movement in operating expenses by commodity Source: Company Financial Statements, PwC analysis 2011 6,165 Iron ore Copper 168 The 97% growth in revenue for iron ore companies is not The rise in the commodity price only tells part of the Platinum 103 completely unexpected given the demand generated by story, as both Atlas Iron (Wodgina mine) and Northern y
t 390 thei ongoingCoal and well-documented growth in emerging Iron (Sydvaranger mine in Norway) increased iron d economieso Iron Ore such as China and India – resulting in ore production during the year. Production increases269 m
substantialm price increases. The average spot price of iron contributed $269 million of additional revenue. o Gold 231 oreC increased by 46% between 2010 and 2011 and the majorsUran continuedium to drive the shift to shorter contracts. 190
Nickel 275
IronO Otrhee rrevenue profile 215
22001100 857 8,005 5,000 5,500 6,000 6,500 7,000 7,500 8,000
Production 0 $’m 269 Movement in Adjusted gross profit by commodity Price 563 2011 2,563
Copper 630 2011 1689
Platinum - 200 400 600 800 1,000 1,200 1,400 1,600 1,801210 y
t 23
i Coal AUD $’m d o Iron Ore 513 m
Source:Cm opp Companyer reven Financialue pro fStatements,ile PwC analysis o Gold 196 C 2010 Uranium 1454 (327)
Nickel 300 Production 0 254 Other Aussie Mine November82 2011 25
2010 Price 0 4,102 532 2,000 2,500 3,000 3,500 4,000 4,500 $'m 2011 2241
Movement in net profit by commodity500 1,000 1,500 2,000 AUD $’m 2011 2,563 AUD $'m Copper 1,280 Nickel revenue profile Platinum 22 2010
y 727
t 636
i Coal d o Iron Ore 436 Prm oduction 0 426 m
o Gold 232 C
UraPnriicuem0 160 (283) Nickel 56
2O0t1h1er 1313 37
2010 - 200 400 600 800 1,000 1,200 1,400 AUD $’m - 500 1,000 1,500 2,000 2,500 3,000 $'m Uranium revenue profile
2010 997
Production 1
Price (26)
FX (127)
2011 845
200 400 600 800 1,000 1,200 AUD $’m Demand onward and upward As emerging nations industrialise, their crude steel rapidly up the steel consumption curve (refer diagram consumption accelerates. China and India, the worlds below). This will drive global demand for iron ore and most populous nations, have a long way to go on their coking coal. It will be significant over the longer term path to industrialisation, which will see them move and will sustain the industry for decades.
Trend of Crude Steel Consumption relative to Gross National Income Bubble Represents Population Size of Country 2007
1,200 UAE: 23,723; 1,527
Taiwan 1,000 Rep of Korea
800 Spain Italy Japan 600 Czech Rep Canada
Thailand Malaysia Germany Hong Kong USA 400 Mexico Slovakia Switzerland China Australia Saudi Arabia France Norway NZ Ireland 200 Russian Fed UK Crude Steel Consumption per Capita (kg/capita) India South Africa Nigeria Brazil 0 Egypt 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000 Indonesia Pakistan -200 Bangladesh GDP per capita per year
Source: ABARE, BIS Shrapnel, Morgan Stanley, Queensland Government Coal Statistics, ABS, Known Tendered Contracts, ISII, World Bank, Mainsheet Iron Ore revenue profile
Copper2010 857 Copper miners have contributed most significantly to the Oz Minerals now accounts for over 50% of the revenue increaseProductio nin 0revenue, adding $787 million to the top line generated269 by the mid‑tier 50 copper producers with production. The year ended June 2011 saw copper prices Prominent Hill recording its first full twelve months break through the US$ 10,000/t mark during the year, but in production. Price 563 they have subsided significantly since. Supply of copper PanAust’s Phu Kham operations (located in Laos) came is constrained by limited new project development and 2011 back on track, increasing production by 26% in a year declining head grades at existing mines. 1689 - 200 400 600 800 that1, 0saw00 the fledgling1,200 project1,400 fine-tuned1,600 free of1 ,8the00 disruptions that slowed output in 2009. AUD $’m
Copper revenue profile
2010 1454
Production 0 254
Price 0 532
2011 2241
500 1,000 1,500 2,000 AUD $’m Source: Company Financial Statements, PwC analysis AUD $'m
26 OnwardNickel and revenue Upward! profile
2010 727
Production 0 426
Price 0 160
2011 1313
- 200 400 600 800 1,000 1,200 1,400 AUD $’m
Uranium revenue profile
2010 997
Production 1
Price (26)
FX (127)
2011 845
200 400 600 800 1,000 1,200 AUD $’m Iron Ore revenue profile
2010 857
Production 0 269
Price 563
2011 1689
- 200 400 600 800 1,000 1,200 1,400 1,600 1,800 AUD $’m Nickel Copper revenue profile After minimal nickel production in the mid-tier 50 Growth in this sector was tempered by Minara Resource’s in previous2010 years, Mirabela and Western Areas145 have4 principal operation, the Murrin Murrin mine, failing to emerged as significant producers in 2011: meet production guidance stemming from a pipeline failure. As we have seen before, a temporary decline in •P roMirabeladuction 0 commissioned their Brazilian Santa Rita 254 operation in January 2010, producing over 10,000 value can be viewed as an opportunity, with Glencore tonnes of nickel in its first year International completing the take-over of Minara Price 0 Resources in October 2011. 532 • Western Areas ramped up production at Forrestania,
resulting2011 in a 233% volume increase, with production 2241 of 32,000 tonnes of nickel in concentrate from increases at their established5 Flying00 Fox mine, along1,0 00 1,500 2,000 with first year production from Spotted Quoll. AUD $’m AUD $'m Nickel revenue profile
2010 727
Production 0 426
Price 0 160
2011 1313
- 200 400 600 800 1,000 1,200 1,400 AUD $’m
Source: Company Financial Statements, PwC analysis Uranium revenue profile Nickel producers profile
90,00201 0 997 80,000 Production 1 70,000 60,00P0ri ce (26) 50,000 FX Western Areas (127) 40,000 Mirabela Nickel 30,00201 1 845 Minara Resources 20,000 200 400 600 800 1,000 1,200
Nickel in concentrate (tonnes) Independence Group 10,000 AUD $’m - 2010 2011 Source: Company Financial Statements, PwC analysis
Aussie Mine November 2011 27 Iron Ore revenue profile
2010 857
Production 0 269
Price 563
2011 1689
- 200 400 600 800 1,000 1,200 1,400 1,600 1,800 AUD $’m
Copper revenue profile
2010 1454
Production 0 254
Price 0 532
2011 2241
500 1,000 1,500 2,000 AUD $’m
AUD $'m Nickel revenue profile
2010 727
UraniumProduction 0 426 Uranium was the only sector in the mid-tier 50 to ERA has been impacted by production issues; however, Price 0 160 record a reduction in revenue. In this sector, uranium production losses from ERA have been offset by Paladin is represented by two producing companies and is Energy’s increased output from its Langer Heinrich and therefore2011 more prone to volatility. 1313 Kayelekera mines. The adverse impact of the Japanese - 200 400 600 earthquake800 on prices,1,0 0and0 the high1, 2Australian00 dollar,1,400 AUD $accounts’m for the fall in revenue in comparison to 2010.
Uranium revenue profile
2010 997
Production 1
Price (26)
FX (127)
2011 845
200 400 600 800 1,000 1,200 AUD $’m
Source: Company Financial Statements, PwC analysis
28 Onward and Upward! Operating costs production increased only slightly as Oz Minerals’ Prominent Hill mine reached full scale production. Aggregate operating costs increased by 29% between Uranium was the poorest performer on the cost front 2010 and 2011 – considerably less than the increase in due to operational issues previously discussed. For gold, revenue (37%). Consequently, aggregate gross margin higher input costs weighed significantly, despite an has improved to 33%. Increases in commodity prices are increase in production overall. the biggest contributor to the gross margin improvement; although it is clear that this is not all falling to the bottom Average cost per unit of production line as cost pressures bite. Commodity Unit 2011 2010 % The increase in operating costs is largely attributable to increase higher production. All commodity groups had higher Copper tonnes $4,637 $4,614 1% production in 2011 compared to 2010. Copper, nickel Coal tonnes $88 $82 7% and gold all had significant increases due to ramp ups Nickel tonnes $9,204 $8,212 12% in production by a number of companies. Even coal recorded increased production, despite the Queensland Gold oz $794 $690 15% floods. New production is typically expensive, as plants Iron Ore tonnes $62 $66 -6% ramp up to full capacity. Source: PwC Analysis
The emerging iron ore group only contributed an The increase in production cost per unit of nickel is additional $275 million in operating expenses – an attributed to the fact that were a number of operations increase of approximately 30% on 2010. Sales volumes in early production phases, as was the case for Mirabela’s on the other hand increased by $832 million (35%). Santa Rita plant. As the operations reach full scale As expected, iron ore was the only commodity to production we expect to see the unit costs reduce. show unit costs of production decreasing due to Atlas Iron and Northern Iron seeing significant increases The higher Australian dollar played a key role in raising in production volumes from their respective mines. unit cost of production for Australian-based assets. Significant capital projects across the country have also While increased volumes accounted for the majority led to constraints in supply for labour and consumables, of operating cost increases, all commodities, except which has led to cost increases for those inputs in the for iron ore, showed an increase in costs per unit mining process. There is continued pressure for the of production. The copper producers’ unit cost of industry to manage and contain its costs.
AUD/USD exchange rate July 2009 to June 2011
1.20
1.10
1.00
0.90 D U
A Average rate for $ 0.80 FY11 is 0.9881 Average rate for 0.70 FY10 is 0.8824 0.60
0.50
Jul 2009Aug 2009Sep 2009Oct 2009Nov 2009Dec 2009Jan 2010Feb 2010Mar 2010Apr 2010May 2010Jun 2010Jul 2010Aug 2010Sep 2010Oct 2010Nov 2010Dec 2010Jan 2011Feb 2011Mar 2011Apr 2011May 2011Jun 2011
Source WM/Reuters Source: WM/Reuters
Aussie Mine November 2011 29 While demand is growing and prices are buoyant, Copper was the highest margin product followed by otherwise marginal operations remain viable. In gold and iron ore. Coal and uranium delivered the periods of commodity price growth, higher costs are slimmest margins. The result for coal seems surprising, overshadowed by revenue growth. When the going gets although on closer inspection it was the performance tough, however, projects with higher operating costs will of one company, Coal of Africa, that held back the group. be rapidly exposed. The first three months after June 2011 Evidence of the margins which can be achieved with have showed signs of this with prices coming off highs. sustained production can be gathered from the three largest coal producers: Macarthur Coal (30%), New Extract from aggregated income statement Hope (27%) and Gloucester Coal (25%). Although the 2011 2010 coal companies suffered through the Queensland floods, A$’m A$’m total coal production volumes increased year-on-year and, rather than increased cost pressures, it was volume Operating revenue 12,397 9,022 increases that resulted in higher coal operating costs. Operating expenses (8,295) (6,444) Gross profit * 4,102 2,578 As we reported in our global publication, Mine 2011: The game has changed, the EBITDA margin for the Gross margin (%) * 33% 29% world’s 40 largest mining companies by market * Gross profit and gross margin defined here exclude non-operating revenues capitalisation in 2011 was 43%. In light of this, the and exploration expenses 33% margin recorded by the Australian mid-tier is an Source: Company Financial Statements, PwC analysis impressive result, particularly if it is acknowledged that this group does not always possess the same calibre of assets, scale or diversity within their portfolio.
Revenue and gross margin by commodity - FY11
60.0%
50.0%
40.0% ) % (
n i 30.0% g r a m
s
s 20.0% o G r 10.0%
0.0%
- 500 1,000 1,500 2,000 2,500 3,000 3,500 Revenue
Copper Platinum Coal Iron Ore Gold Uranium Nickel Other
Note: Bubble size reflects the number of mid-tier 50 companies in the sector in FY11 Source: Company Financial Statements, PwC analysis
Revenue and gross margin by commodity - FY10
50.0%
) 40.0% % (
n Onward and Upward! 30i
g 30.0% r a m
s 20.0% s o
G r 10.0%
0.0% (500) - 500 1,000 1,500 2,000 2,500 3,000 Revenue Copper Platinum Coal Iron Ore Gold Uranium Nickel Other Net profit When compared to the group of 2010 mid-tier companies, the profit result for 2011 shows just how far Top five mid-tier companies by net profit the mid-tier 50 have moved in terms of profitability. For example, New Hope, which was ranked second based on profitability in 2010 (net profit of $184 million), would 2011 2010 A$’m A$’m not have been ranked in this year’s top five with that result. This year’s 5th ranked company by profitability, 1. OZ Minerals 587 (512) Mt Gibson, recorded almost double the profit of its 2. New Hope Corporation 504 184 equivalent in 2010 (Macarthur Coal at $125 million). 3. Aston Resources 243 (138) Not only have gross margins on day-to-day production 4. Macarthur Coal 241 125 improved, but transaction activity that resulted in losses 5. Mt Gibson 240 132 in prior years has also contributed significantly to profits in 2011, with gains on the sale of investments totalling Source: Company Financial Statements, PwC analysis almost $1 billion; whereas in 2010, deals were made Three of last year’s top five most profitable mid-tier 50 at a loss for the mid-tier 50. companies retained their place in the top five in 2011. Energy Resources Australia and Zimplats dropped back to 19th and 6th respectively.
For reasons previously highlighted, OZ Minerals catapulted from 50th in 2010 to 1st in the mid-tier 50. Similarly, Aston Resources leapt from 48th to 3rd despite not being a producer, aided by a $254 million gain on the sale of a 15% stake in the Maules Creek Coal Project in NSW.
Aussie Mine November 2011 31 7.2 Aggregated industry balance sheet
The aggregated balance sheet of the mid-tier 50 is presented below.
As a result of the high level of cash on hand the mid-tier 50 has a negative gearing ratio. The mid-tier 50 now has a strong cash war chest at its disposal. How this cash will be used in the coming years is a source of interest.
Despite the 20% increase in cash on hand, companies have invested significant amounts in development as they position themselves to take advantage of growing demand from emerging economies.
Current assets 2011 A$m 2010 A$m Change % Cash 7,668 6,381 20% Debtors 1,437 1,303 10% Inventories 1,507 1,337 13% Derivative financial assets 156 59 167% Assets held for sale 41 640 (94%) Other current assets 3,556 1,976 80% Total current assets 14,366 11,696 23%
Non current assets Investments in associates and joint ventures 492 502 (2%) Deferred taxation assets 310 285 9% Property, plant and equipment 11,129 9,804 14% Capitalised exploration expenditure 4,600 3,440 34% Capitalised development expenditure 6,766 3,575 89% Intangible assets 618 387 60% Other 1,968 1,382 42% Total non current assets 25,884 19,374 34%
Total Assets 40,250 31,070 30%
Current liabilities Accounts payable & accrued liabilities 1,947 1,617 20% Taxes payable 352 195 81% Borrowings 600 942 (36%) Other 559 620 (10%) Total Current liabilities 3,459 3,374 2%
Non current liabilities Borrowings 3,199 3,076 4% Deferred taxation liabilities 1,951 1,262 55% Provision for environmental rehabilitation 882 693 27% Other 542 455 19% Total Non current liabilities 6,574 5,486 20%
Total liabilities 10,033 8,860 13%
Net assets 30,217 22,210 35%
Key balance sheet ratios Ratio 2011 2010 Debt to equity ratio 12.60% 18.10% Net debt to equity ratio (12.80%) (10.60%) Current ratio 4.15 3.47 Quick ratio 3.72 3.07 Capitalised Exploraiton and Development as a percentage of total assets 28.2% 22.6%
32 Onward and Upward! Cash and debt levels Issued capital In the post-GFC environment, companies have emerged The mid-tier 50 continued to look towards shareholders with strong balance sheets. Cash on hand increased by for funding and also used share capital to complete $1.3 billion or 20% in 2011. The emerging trend is for deals in a number of instances. An additional $6.4 companies to hold cash that may assist them to deal billion or 31% in share capital was issued during the with short term volatility. This cash has come from year. strong operating cash flows indicating that the mid-tier Atlas Iron led the way, issuing $1.2bn worth of new 50 is maturing with more projects coming on line and shares, primarily to fund asset acquisitions. Investors delivering returns. displayed a willingness to accept scrip when presented With strong cash balances, the question is: how will with a growth story. The taxation rollover relief benefits the cash be utilised? The mid-tier 50 has a series of of scrip transactions also remain compelling. projects under development and has traditionally not Headlining the push for the coal miners were: been dividend payers. This could change with sustained strong results. • Aston Resources’ $400 million IPO – the largest coal IPO ever seen in Australia In 2011, cash was used to fund acquisitions and to extinguish debt, with the debt-to-equity ratio of the • Gloucester Coal’s raising of $671 million through mid-tier 50 reducing by one third to 12.6%. The net a combination of share and rights issues debt ratio is negative 12.8% – a remarkable position • Macarthur Coal’s institutional placement of over of financial strength. $430 million. Exploration and development Overall, additional share capital issued by coal producers represented approximately 44% of the almost The mid-tier 50 have made significant acquisitions $3 billion issued during the year by the mid-tier 50 to fund throughout the year, and this is reflected in the increase expansions of mines. in capitalised exploration and development which has risen by almost $4.4 billion – or a staggering 62% in 2011. Exploration and development totals just over Share capital issued in 2011 (A$) 28% of total assets held by companies in the mid-tier 50 – an increase from 22.6%, indicating it has been a big Macarthur Coal Limited investment year. 8% Aston Resources Limited 8% The increase in mine development expenditure has been Gloucester Coal Limited 37% driven by Atlas Iron’s acquisition of mining tenements Coal producers (Other) resulting from the takeover of Giralia Resources NL, and 14% Atlas Iron Limited Kingsgate’s acquisition of capitalised development as part of its takeover of Dominion Mining. Other
In our 2010 edition of Aussie Mine, we mentioned 14% a general unwillingness to “flick the switch” on new mine 19% development projects. The tide appears to have turned. Based on the new mine developments undertaken, the Source: Company Financial Statements, PwC analysis mid-tier 50 are taking a longer term view as they seek to reap the rewards of increased development through positive cash flow; something that we have already seen in the current year results. Of the additional capitalised development expenditure it is not just the larger players making these investments: across the mid-tier 50 we are seeing expenditure to develop projects or make acquisitions.
Aussie Mine November 2011 33 7.3 Aggregated industry cash flow
A bevy of cash sits on the balance sheets of the mid-tier The reinvestment of operating cash flow has not satisfied 50. On the back of strong profits, the operating cash flows the mid-tier 50’s need and it has looked to equity markets show a dramatic upturn. The additional cash generated to raise further capital to fund their expansions. The by the industry has again been largely reinvested into equity markets have provided $4.1billion in cash again the business – as demonstrated by the 58% increase in 2011. This represents 14% of the total equity of the in exploration, 16% increase in property plant and mid‑tier. The market’s continued support of the mid-tier equipment expenditures, and the 310% increase in is a resounding vote of confidence. investments and intangibles.
2011 $m 2010 $m Change % CASH FLOWS GENERATED FROM OPERATIONS Cash generated from operations 3,693 2,759 34% Net borrowing costs (165) (257) (36%) Other (1) 66 (101%) Income taxes (paid)/refunded (368) (1,127) (67%) Net operating cash flows 3,159 1,441 119%
CASH FLOWS RELATED TO INVESTING ACTIVITIES Purchases of property, plant and equipment (3,320) (2,858) 16% Exploration expenditure (991) (629) 58% Purchases of investments and intangibles (1,277) (311) 310% Other (735) (267) 175% Proceeds from sale of property, plant and equipment 488 29 1570% Proceeds from sale of investments 790 3,216 (75%) Net investing cash flows (5,044) (820) 515%
CASH FLOWS RELATED TO FINANCING ACTIVITIES Proceeds from ordinary share issues 4,127 4,128 0% Net borrowings 185 (437) (142%) Distribution to shareholders (738) (1,010) (27%) Other (128) 68 (288%) Net financing cash flows 3,447 2,750 25%
Net increase/(decrease) in cash and cash equivalents 1,562 3,371 (54%)
Note: The main reconciling item between the above cash flow statement and the balance sheet movement in cash is the effect of foreign exchange.
Companies have invested significant amounts in development as they position themselves to take advantage of growing demand from emerging economies.
34 Onward and Upward! Operating cash flows: copper headlining For the first time in three years, the mid-tier 50 has seen positive cash flow from external debt. Debt funding Cash generated from operations increased by an appears to be thawing somewhat following the ‘credit impressive 34%. OZ Minerals and PanAust together freeze’ during the GFC. Gindalbie Metals was the primary increased their operating cash flow by $652 million – beneficiary, raising $383 million in debt to finance their accounting for half of the overall increase in the mid- Karara iron ore project. While debt finance appears tier 50 and representing an increase of over 300% for to be more readily available, the mid-tier miners have these companies. generally chosen to utilise cash flow to extinguish debt The gross margins for the mid-tier 50 have translated into to the greatest extent possible, with gearing at very a strong operating cash flow performance. low levels. We expect that this cash will continue to be reinvested Payments to shareholders decreased by 27% in 2011, into the businesses. We have seen some companies primarily due to a special dividend of $602 million paid bring projects on-line this year and there is a large in 2010 by New Hope following asset sales, compared development pipeline within the mid-tier 50 that will to a special dividend of $116 million in 2011. Excluding require continued investment in forthcoming years. these special dividends paid by New Hope, there has The significant fall in total income tax paid is largely a been a rewarding 61% increase in dividends paid when consequence of tax paid in 2010 by New Hope Corporation compared to 2010. Fourteen companies (compared on the sale of its New Saraji asset, making 2010 an unusually to eleven last year) declared dividends on the back high year for income tax paid. of profits. Almost all of the commodity groups have increased Investing cash flows: with confidence dividend payments, with the coal sector maintaining the comes growth lead despite a minimal increase. The largest dividend payment ($94 million) was delivered by OZ Minerals Companies have positioned themselves to move onward (copper) off the back of a 163% jump in profits. Dividend and upward with investing outflow (after adding back yields are still below 1%. With continued strong cash the impact of the sale of investments) increasing by generation forecast, we expect dividends to increase in $1.8 billion from $4 billiion to $5.8 billlion. Increased the future. confidence in long term demand underpins this investment decision: CEOs and boards are putting their Commodity Dividends paid Dividends paid money where their mouth is. 2011 (A$m) 2010 (A$m) The boost to exploration expenditure is a positive Coal $179 $174 sign and is more evidence in support of the long term Copper $94 – confidence in the industry. However, exploration spend Nickel $79 $37 as a percentage of total cash outflows remains fairly Uranium $63 $65 low. The mid-tier 50 is made up of companies looking to progress assets to the production phase and has relied on Gold $48 $25 transactions to take hold of exploration areas. Platinum $38 $10 Total $499 $310 Capital spend on property, plant and equipment (PPE) increased by 16%. The capital expenditure has largely been directed toward the development of new projects Dividends paid Dividends paid across commodity groups and locations, with companies 2011 (A$m) 2010 (A$m) such as Gindalbie, Lynas Corporation, Paladin Energy, Dividends paid $499 $310 Perseus Mining and Whitehaven Coal being large Market capitalisation $65,553 $50,185 contributors to total capital investment. This is a sign of at 30 June confidence across the board. Dividend yield 0.76% 0.62% Financing cash flows: tapping into the market Note: New Hope’s 2010 and 2011 special dividends have been excluded from the dividend yield calculation. Despite the outstanding cash generation, 80% of the Source: Company Financial Statements, PwC analysis mid-tier called on funds from shareholders. The largest five largest equity raisings accounting for $2 billion were completed by Mirabela Nickel, Ivanhoe Resources, Aston Resources, Macarthur Coal and Gloucester Coal. In almost all cases the funds were used to develop a major new project.
Aussie Mine November 2011 35 MRRT... time 8 to implement
The second exposure draft of the These domestic transfer pricing rules have been Minerals Resource Rent Tax (MRRT) hotly debated during the legislative drafting and consultation process. The Policy Transition Group legislation has now been reviewed (PTG) recommended the MRRT should give miners and digested by the industry and the flexibility to apply the arm’s length method most the release of final legislation is appropriate to their circumstances, rather than imminent. Although some uncertainty prescribing or restricting the methods that taxpayers can apply. However, the most recent exposure draft lingers around whether the new tax (second draft) of the legislation departed from this will ultimately be passed into law, recommendation and took a more prescriptive approach; the limited time remaining before seemingly an attempt to limit the amount of value miners 1 July 2012 means that the coal and iron can attribute to their downstream operations. ore sectors need to turn their minds to The final form of these domestic transfer pricing rules the implementation process now. will be revealed when the final MRRT bill is released (imminent at the time of publication of this article) and In this article, we explore just a few of the practical the hope is that the final law will provide more flexibility. issues and lessons from the proposed legislation and the implementation process so far. Notwithstanding the continuing debate, many taxpayers are now well advanced in developing their MRRT pricing Valuing the resource at the taxing point: a methodologies. Key steps in this process include: domestic transfer pricing regime for miners • managing the uncertainty associated with the value at taxing point rules (eg building potential ATO Transfer pricing principles have traditionally been engagement into their MRRT plan) applied across international borders, to arrangements between related parties. However, these same principles • analysing their project value chain and assessing the have a significant role to play in the determination of value attributable to the components upstream and mining revenue for MRRT purposes. downstream of the MRRT taxing point • valuing ‘outsourced’ versus ‘in-house’ One of the fundamental design principles of the MRRT downstream activities is that it should only apply to the value of the resource at the taxing point. It should not apply to value added • identifying and carefully evaluating potential downstream. Therefore, the ‘mining revenue’ taxed ‘comparables’ (ie benchmarks) for the value added under the MRRT is the arm’s length value of the resource by downstream activities immediately after it has been extracted (ie at the Run- • for miners who sell product to overseas related parties, Of-Mine (ROM) pad). Because many miners do not applying consistent principles in calculating the sell a ROM product to an arm’s length party, they must international (cross border) transfer price and the determine the arm’s length value at the ROM pad by MRRT (domestic) transfer price other means (ie a domestic ‘transfer pricing’ exercise). • deciding on the degree of consistency and alignment with the methodologies adopted by joint venture partners • ensuring consistency between starting base valuations (when using market value method discussed above) and the value of the product at the taxing point.
36 Onward and Upward! Which starting base method? Experience shows that outcomes can vary markedly depending on specific circumstances (eg the age and The benefits of upstream capital investment prior to historic book depreciation profile of relevant assets and 2 May 2010 are preserved through the MRRT starting the overall value of starting base assets) and miners base. In recognising a starting base, miners can apply should prepare appropriate project-by-project modelling either the ‘book value’ or the ‘market value’ method. before selecting a starting base method. From our experience, miners are not always aware that they have the option of selecting an optimal starting base Other points to consider method on a project-by-project basis. In order to apply the market value starting base method, an irrevocable Some other key points which coal and iron ore miners will election needs to be made. If no election is made the book need to consider around MRRT implementation include: value method will apply. • the capacity to combine project interests held by different members of a corporate group Market value Book value method method • consolidation for MRRT purposes within a wholly owned corporate group, including amendments to tax Starting point Market value of mining Book value of mining sharing and funding agreements projects upstream of projects per audited taxing point financials available • the tax effect accounting implications of the MRRT, at 2 May 2010 including when any temporary differences should be Assets included Fixed assets Fixed assets recorded (substantial enactment of the new law) Mining rights The accounting value • preparing appropriate records to substantiate of mining rights, Improvements to land MRRT positions – it seems likely that, following an mining information and initial ‘honeymoon’ period, significant ATO reviews Exploration goodwill specifically will commence. excluded
Amortisation Straight line basis Diminishing value basis The implementation of MRRT systems and processes is rates* over the lesser of over five years using a ‘whole of business’ issue with a series of interrelated the effective life of prescribed accelerated moving parts. The points above provide a glimpse into the the project asset or depreciation rates broad range of issues that need to be considered. Miners 25 years should be starting the implementation process now, to ensure they have ample time to carefully consider the * The rates which apply to augment the starting base also vary depending on the starting base method selected and this can have a significant impact over the life of a project. impact, and make informed choices in order to preserve shareholder value. In many cases we see miners assuming the market value starting base method will produce an optimal value For further information: outcome. One significant reason for this approach is the Hamish McElwee, Director, Transfer Pricing inclusion of the value of the resource under this method. [email protected] However, the book value approach allows for accelerated depreciation and more significant augmentation rates, Tamika Cullen, Manager, Corporate Tax which may serve to outweigh the inclusion of the resource [email protected] under the market value method.
Aussie Mine November 2011 37 Unlocking the sources of 9 future capital
What would you do if you were a mid-tier Years of investment in the mining industry has enabled mining company seeking funding in the the ASX to build strong credentials in the resources sector. The community that surrounds the mid-tier mining current volatile market environment? industry in Australia is unparalleled in the region, and Despite the successes up to the year ended 30 June 2011, is matched only by that of the TSX. The brokers and the immediate outlook is not favourable for a mid-tier miner corporate service providers such as geologists, accountants (or anyone else for that matter) looking to secure credit or and lawyers better versed in the nuances of the mining raise equity given the current uncertainties associated with industry, give the Australian market a natural competitive the European debt crisis and the American economic deficit advantage. The sophistication of the Australian retail dilemma that have unfolded since 30 June 2011. investor also provides added benefit. We know the successful mid-tier miner relies on seed The conduit to Asian funds and the increase funding (such as a founding equity participant) to in competition from other platforms develop its project. This assertion is supported by the fact that in the year ended 30 June 2011, we have In the same way that geographical location gave the seen A$6.4 billion of scrip (A$3.2 billion in IPO’s and initial advantage to the ASX (and the TSX), the rapid placements) being issued by the mid-tier miners. Having globalisation of the mining industry has contributed the right exposure and adequate coverage together with to the rise of other platforms including the Hong Kong favourable market conditions is critical to the miners’ Exchanges and Clearing (HKEx) and the Singapore ability to raise capital. Exchange Ltd (SGX). According to the AME Group Copper Outlook for September, Asia will account for Therefore, in the current environment, companies may 60% of world copper demand in 2012. China is expected need to look to alternative strategies including non- to account for 40% of world demand. The story for traditional equity markets to secure the funding required. iron ore is even more compelling with approximately Equity markets for mid-tier mining companies 70% of forecasted apparent iron ore demand expected to come from Asia (51% from China alone). For The ASX is the preeminent capital market platform for coal, Asian demand is forecasted to be 65% of global mining companies in the Asia-Pacific region. In addition, demand. The customer base (and arguably the source current statistics suggest that the ASX and the Toronto of funds) is now more than ever Asia centric. This will Stock Exchange (TSX) have the highest number (and come as no surprise when you consider the world’s highest market share) of the global mid-tier mining population spread. market. The origins of this trend are most likely borne Regional exchanges such as the HKEX and the SGX start from the historical geographical locations of the behind the ASX in terms of their current attractiveness underlying resources. for the mid-tier miners, but this has the potential to Geographical location may have been the primary driver change. It is not just the demand for commodities coming for the ASX to develop into a resource hub; however, from Asia, there is a growing supply of funds from the sustained success of the ASX in attracting resource the region eager to take on a share of the companies companies is a significant achievement. The exchange’s that produce the commodities. Foreign investment by initiatives to bring assets from around the world onto Chinese companies into the mid-tier mining sector in the boards, including regions that have historically been Australia is well publicised. The number of mid-tier shunned by investors (such as Africa and Mongolia) 50 companies that have cornerstone investors (often also are paying dividends. The volume of successful listings the commodity end-users under off-take arrangements) on the ASX from these regions is impressive, as is the based in Asian regions is ever increasing. This presents performance of many of these companies subsequent the mid-tier mining industry with an opportunity to to their listing. exploit this emerging trend.
38 Onward and Upward! Singapore’s proximity to major commodity producing Where to from here? and consuming countries gives it the potential to be one of the next regional exchanges for the mining sector. The mining industry is global and becoming more Whilst there is currently not a significant volume of so at a rapid rate. The locations for mining companies resource stocks traded on the SGX, Singapore certainly are increasingly diverse. We have seen the rise of Africa has its attractions: it is a commodity trading centre. and increasing activity in central Asia in countries such The stable operating environment and its position as as Mongolia and Kazakhstan. With the diversity of an established fund management base are draw cards geographical locations (and customer/shareholder base) for some companies, as are the incentives available for increasing, it is not as straightforward as listing local foreign investment. There have also been some strides assets on local exchanges anymore. Questions to ask taken by Singapore in attracting the smaller miners, with might include: the SGX introducing new rules for early-stage mineral, • Where is the customer demand? oil and gas (MOG) companies, such as junior explorers, • Where are investor funds readily accessible? to list on its Catalist board. • Where is the company going to receive the best Hong Kong’s significant liquidity, and its proximity to coverage in order to raise funds? Chinese investors where a large proportion of funds are • What are the hurdles that exist to a successful listing? likely to be sourced, deliver a competitive advantage for that exchange. While the listing rules currently do not The mining industry is not alone in its rapid globalisation. allow early stage exploration companies, it does allow Indeed, the flow of capital is global. All exchanges (ASX, non-producing miners with little or no profit track record SGX and HKEx) already have significant proportions, if certain hurdles are passed. Therefore, Hong Kong ranging from 30 -40% of their capital, sourced from cannot be ruled out as a source of funding for mid-tier foreign sources. The challenge for the capital markets in miners. While it is possible the stricter rules imposed the region, and mid-tier miners, will be to find the right by the HKEX (with good reason), leave the HKEx at a platform to exploit the untapped potential of the Asian comparative disadvantage to its peers, the Hong Kong region as a source of funds. market is clearly growing as China grows. The size of the exchange will undoubtedly increase, and with Hong Kong Credits and acknowledgements determined to be the next resource and mining hub of We acknowledge the following representatives from the Asia it may, in time, attract the range of miners necessary respective bourses who have kindly provided us with their to be considered a major resource hub. time to share their insights on this topic. We thank each of the below contributors for their support of Aussie Mine.
ASX – Richard Murphy
SGX – Lawrence Wong and Chong Lek Foong; and
HKEx – Eric Landheer
For further information: The challenge for the capital markets Kim Chew, Director, Assurance in the region, and mid-tier miners, [email protected] will be to find the right platform to Ananth Rajaratnam, Senior Manager, Assurance exploit the untapped potential of the [email protected] Asian region as a source of funds.
Aussie Mine November 2011 39 Mid-tier 50 companies 10
Symbol Entity Name Year End Market Rank by Producer (P)/ Capitalisation Market Non-Producer as at 30-Jun-11 Capitalisation (N) A$m
ASX:ABY Aditya Birla Minerals Limited 31-Mar-11 478 49 P
ASX:ALK Anvil Mining Limited 31-Dec-10 884 28 P
ASX:AQP Aquarius Platinum Limited 30-Jun-11 2,210 9 P
ASX:AQA Aquila Resources Limited 30-Jun-11 2,684 7 P
ASX:AZT Aston Resources Limited 30-Jun-11 1,792 14 N
ASX:AGO Atlas Iron Limited 30-Jun-11 3,081 5 P
ASX:BND Bandanna Energy Limited 30-Jun-11 795 31 N
ASX:BTU Bathurst Resources Limited 30-Jun-11 685 37 P
ASX:BDR Beadell Resources Limited 31-Dec-10 529 47 N
ASX:CGX CGA Mining Limited 30-Jun-11 946 27 P
ASX:CZA Coal of Africa Limited 30-Jun-11 574 43 P
ASX:CPL Coalspur Mines Limited 30-Jun-11 1,121 19 N
ASX:CDU CuDeco Limited 30-Jun-11 529 46 N
ASX:DML Discovery Metals Limited 30-Jun-11 527 48 N
ASX:ERA Energy Resources of Australia Limited 31-Dec-10 782 32 P
ASX:EXT Extract Resources Limited 30-Jun-11 1,986 11 N
ASX:GBG Gindalbie Metals Limited 30-Jun-11 781 33 P
ASX:GCL Gloucester Coal Limited 30-Jun-11 1,409 15 P
ASX:GRR Grange Resources Limited 31-Dec-10 605 40 P
ASX:GRY Gryphon Minerals Limited 30-Jun-11 543 45 N
ASX:GUF Guildford Coal Limited 30-Jun-11 463 50 N
ASX:IGO Independence Group NL 30-Jun-11 1,142 18 P
ASX:IAU Intrepid Mines Limited 31-Dec-10 740 34 N
ASX:IVA Ivanhoe Australia Limited 31-Dec-10 1,005 25 N
ASX:JMS Jupiter Mines Limited 30-Jun-11 694 35 N
40 Onward and Upward! Symbol Entity Name Year End Market Rank by Producer (P)/ Capitalisation Market Non-Producer as at 30-Jun-11 Capitalisation (N) A$m
ASX:KRL Kangaroo Resources Limited 30-Jun-11 635 39 P
ASX:KCN Kingsgate Consolidated Limited 30-Jun-11 1,082 21 P
ASX:LYC Lynas Corporation Limited 30-Jun-11 3,393 3 N
ASX:MCC Macarthur Coal Limited 30-Jun-11 3,308 4 P
ASX:MML Medusa Mining Limited 30-Jun-11 1,240 17 P
ASX:MRE Minara Resources Limited 31-Dec-10 871 29 P
ASX:MIN Mineral Resources Limited 30-Jun-11 1,945 13 P
ASX:MBN Mirabela Nickel Limited 31-Dec-11 860 30 P
ASX:MGX Mount Gibson Iron Limited 30-Jun-11 1,992 10 P
ASX:NHC New Hope Corporation Limited 31-Jul-11 4,334 1 P
ASX:NFE Northern Iron Limited 31-Dec-10 595 41 P
TSX:OGC OceanaGold Corporation 31-Dec-10 693 36 P
ASX:OZL OZ Minerals Limited 31-Dec-10 4,275 2 P
ASX:PDN Paladin Energy Limited 30-Jun-11 1,959 12 P
ASX:PNA PanAust Limited 31-Dec-10 2,238 8 P
ASX:PRU Perseus Mining Limited 30-Jun-11 1,115 20 N
ASX:RRL Regis Resources Limited 30-Jun-11 1,072 22 P
ASX:RSG Resolute Mining Limited 30-Jun-11 547 44 P
ASX:SFR Sandfire Resources NL 30-Jun-11 1,053 24 N
ASX:SBM St Barbara Limited 30-Jun-11 637 38 P
ASX:SDL Sundance Resources Limited 30-Jun-11 976 26 N
ASX:WSA Western Areas NL 30-Jun-11 1,060 23 P
ASX:WEC White Energy Company Limited 30-Jun-11 577 42 N
ASX:WHC Whitehaven Coal Limited 30-Jun-11 2,879 6 P
ASX:ZIM Zimplats Holdings Limited 30-Jun-11 1,345 16 P
Alacer Gold has not formed part of our 2011 analysis as the company has not reported annual results since its formation on 18 February 2011.
Aussie Mine November 2011 41 Explanatory notes 11
We have analysed the largest 50 mining companies All figures in this publication are reported in Australian listed on the ASX with a market capitalisation of less dollars, except where specifically stated. The results than $5 billion at 30 June 2011. The results aggregated of companies that report in currencies other than the in this report have been sourced from publicly Australian dollar have been translated at the average available information, primarily annual reports and Australian dollar exchange rate for the financial year, financial reports available to shareholders. Companies with balance sheet items translated at the closing have different year-ends and report under different Australian dollar exchange rate. accounting regimes. Some diversified companies undertake part of their Information has been aggregated for the financial activities outside of the mining industry. No attempt has years of individual companies and no adjustments have been made to exclude such non-mining activities from been made to take into account different reporting the aggregated financial information. requirements and year-ends. As such, the financial information shown for 2011 covers periods between and 1 January 2010 and 30 June 2011, with each company’s results included for the 12-month financial reporting period that falls into this timeframe.
42 Onward and Upward! Mining Excellence@PwC
While issues faced by miners across the industry may be similar, we understand that ‘value’ means different things to different people. That’s why Mining Excellence@PwC at PwC it’s not just about providing the ‘right’ answers. Our team of mining specialists remain focused on relationships to help our clients navigate the delivers a team of industry complex mining world and deliver on objectives. experts exclusively focused We are passionate about mining and have a team of highly skilled on the mining sector professionals exclusively focused on improving efficiency and adding value across the industry. Mining Excellence@PwC provides our clients: leading edge knowledge connections to our vast the delivery of an and insight network of mining experts experience that meets our We have made considerable investments to and global client portfolio clients’ definition of ‘value’ ensure our people are not only technically We have the widest network of mining experts With mining experts working in each key strong, but also have strong industry experience who work out of strategic hubs across the state, our award winning teams are helping and expertise. Our thought leadership program globe to help better connect you to vital mining clients deliver on specific projects and is focused on providing in depth commentary markets. Our connections provide: organisational growth aspirations. We offer on the key issues being faced by miners in Advisory, Tax and Audit services to global today’s complex operating arena. • collaborative cross-border account management, which ensures seamless client corporations, locally listed companies and Mining Excellence@PwC includes: service private individuals. Mining Excellence@PwC complements this with: • a comprehensive industry insight program. • a global community of mining leaders, This includes: allowing our clients to connect with • a suite of niche mining consulting capabilities key players in all markets to maximise focused on optimising value across mining –– flagship publications such as operations and effectively managing risk Aussie Mine, Mine and Mining Deals deal potential –– web casts available at pwc.com.au • a well-connected and mobile workforce. • a comprehensive Client Feedback program –– The Insight Series providing deep to ensure we are consistently delivering on dives into the issues most individual client needs. important to miners
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Mine 2011 Riders on The game has changed pwc.com.au Review of global trends the Storm... in the mining industry Global mining deals John Gravelle Toronto 2011 mid-year update Carbon pricing Ken Su Beijing pwc.com.au/industry/energy-resources Implications for the Mining sector September 2011
Rise August 2011 John Campbell Aussie Mine November 2010 and Moscow Shine Kameswara Rao Hyderabad
What would you like to grow? Jason Burkitt London • an extensive industry development program for our people and clients. Steve Ralbovsky Phoenix Brian Gillespie Brisbane This features our university-style Stephen Loadsman Brisbane course run in partnership with the Darren Smith Perth Sacha Winzenreid Jakarta University of Ballarat, Hard Hat: Colin Doug Craig Perth Becker The Mining Experience. Santiago
Hein Boegman Johannesburg At the coalface
Hard Hat: Andrew Forman The Mining Experience Ronaldo Valino Rio de Janeiro Adelaide Global Mining Leader Tim Goldsmith Melbourne Michael Happell Melbourne Derek Kidley Jock O’Callaghan Melbourne Sydney
Aussie Mine November 2011 43 Contacting PwC
Global Mining Leader Australian Energy, Utilities and Mining Leader Tim Goldsmith Michael Happell Melbourne Melbourne T: +61 (3) 8603 2016 T: +61 (3) 8603 6016 E: [email protected] E: [email protected] South Australia Victoria Jock O’Callaghan Andrew Forman Adelaide Melbourne T: +61 (8) 8218 7401 T: +61 (3) 8603 6137 E: [email protected] E: [email protected] Western Australia New South Wales Doug Craig Derek Kidley Perth Sydney T: +61 (8) 9238 3262 T: +61 (2) 8266 9267 E: [email protected] E: [email protected] Wayne Huf Queensland Perth Brian Gillespie T: +61 (8) 9238 3356 E: [email protected] Brisbane T: +61 (7) 3257 5656 E: [email protected]
44 Onward and Upward! Global Mining Group Leadership
Global Mining Leader Indonesia Tim Goldsmith Sacha Winzenried Melbourne Jakarta T: +61 (3) 8603 2016 T: +62 (21) 5289 0968 E: [email protected] E: [email protected]
Canada Russia and Central and Eastern Europe John Gravelle John Campbell Toronto Moscow T: +1 (416) 869 8727 T: +7 (405) 967 6279 E: [email protected] E: [email protected]
China South Africa Ken Su Hein Boegman Beijing Johannesburg T: +86 (10) 6533 7290 T: +27 11 797 4335 E: [email protected] E: [email protected]
India United Kingdom Kameswara Rao Jason Burkitt Hyderabad London T: +91 (40) 6624 6688 T: +44 (20) 7213 2515 E: [email protected] E: [email protected]
Chile United States Colin Becker Steve Ralbovsky Santiago Phoenix T: +56 2 940 0016 T: +1 (602) 364 8193 E: [email protected] E: [email protected]
Brazil Knowledge Manager Ronaldo Valino Ananth Rajaratnam Rio de Janeiro Melbourne T: +55 (21) 3232 6139 M: 0405 196 191 E: [email protected] E: [email protected]
Aussie Mine November 2011 45 Other Mining Publications
Mine 2011: The Optimising Our Consulting pwc.com.au game has changed extended mining Experience - Our Consulting Experience Optimising extended operations through mining operations Mining, Oil & Gas through value Mining, Oil & Gas Mine 2011 driver modelling November 2011 “The game has The game has changed Review of global trends value driver in the mining industry Fabio Buckeridge Brian Gillespie Stephen Loadsman changed” points to modelling November 2010 This document an industry that is outlines PwC’s enjoying spectacular This paper seeks to consulting
growth, but is also demonstrate that experience with What do you value? facing new and robust modelling such organisations complex challenges. of operational cost as BHP Billiton, Rio Tinto, Xstrata, Vale, Despite global demand being stoked by and value drivers across the extended life Santos, Anglo American and British Gas. We emerging and industrialising markets, both of mining operation is a key requirement have also worked closely with small and mid- supply and cost management have become for maximising value, regardless of the tier operators to provide business solutions key challenges. This changing supply and economic cycle. and to help to deliver on growth aspirations. demand landscape has catapulted the Contact Contact industry into a new era, with new rules. Brian Gillespie Brian Gillespie Contact Partner, Brisbane Partner, Brisbane Tim Goldsmith Tel: +61 (7) 3257 5656 Tel: +61 (7) 3257 5656 Partner, Melbourne Email: [email protected] Email: [email protected] Tel: +61 (3) 8603 2016 Email: [email protected]
pwc.com.au Social Licence: Global Mining www.pwc.com Carbon pricing – Winning the Deals | 2011 mid- Implications Social Licence: Riders on Carbon pricing Winning the year update – Riders the Storm... for the Mining Implications for community vote community vote Global mining deals the Mining sector on the Storm 2011 mid-year update sector Brian Gillespie Ran Heimann Jane Couchman August 2011 November 2011 This paper explains September 2011 how the proponents Global Mining Deals In this document we of new resource sector Half Year Update 2011 explore the potential projects in Australia presents PwC views impacts the mining are engaging with on Mining M&A in the industry now faces in communities and half year ended June Australia following ensuring that social responsibility is built 30, 2011. After commodity prices neared the release of the Clean Energy Future Plan in to the design stage for major green-field record highs there was a cause for optimism and Exposure Draft of the Clean Energy Bill projects. for global deal making activity. Subsequent 2011. We delve into the facts of The Plan, analysis, however, revealed that M&A during industry reactions, accounting implications Contact 2011 was not all that it appeared to be... and key next steps impacted organisations Brian Gillespie should take. Partner, Brisbane Contact Tel: +61 (7) 3257 5656 Tim Goldsmith Contact Email: [email protected] Partner, Melbourne Liza Maimone Tel: +61 (3) 8603 2016 Partner, Melbourne Email: [email protected] Tel: +61 (3) 8603 4150 Email: [email protected]
46 Onward and Upward! Managing credit Statement of pwc.com Digging into IFRS risk for global Global Mining Mining enters Managing credit risk for global a new era A monthly Australian commodity commodity producers Capabilities | 2011 Statement of capabilities producers newsletter that focuses Brian Gillespie John Hackwood Chris Mihos March 2010 This publication on topical accounting This paper describes discusses the key issues relevant to the the credit risk issues challenges mining energy and resources faced by global companies face today sector. commodity producers and how PwC is and highlights helping to identify and Contact examples of best practice in the areas of the implement solutions. Debbie Smith assessment and management of credit risk. Partner, Melbourne Contact Tel: +61 (3) 8603 2249 Contact Ben Gargett Email: [email protected] Brian Gillespie Director, Melbourne Partner, Brisbane Tel: +61 (3) 8603 2539 Tel: +61 (7) 3257 5656 Email: [email protected] Email: [email protected]
Finding cost Avoiding cost blow- Global Mining www.pwc.com efficiencies in outs on mining Tax Comparison Finding cost Avoiding cost efficiencies in blow-outs on mining mining operations mining operations capital projects capital projects – Income Taxes, through effective through effective value driver modelling project stage gating Income Taxes, through value through effective Mining Taxes and Mining Taxes and Anjuli Steffen Aaron Carter Mining Royalties Jane Couchman Brian Gillespie Brian Gillespie A Summary of Selected Chris Gilbert November 2008 February 2009 Countries driver modelling project stage gating Mining Royalties: A PwC Global Mining Group Updated: December 2010 Summary of Selected This paper highlights This paper highlights Countries Australian mining Australian coal mining best practice in industry best practice There is considerable both operations in the following areas interest today regarding cost management and production value of major capital project management: income tax rates, mining tax rates and maximisation through robust modelling of mining royalty rates levied on mining • phased project management operational value drivers. companies in various countries where • project portfolio management significant mining occurs. Within this Contact • front end loading summary, the reader can roughly compare Brian Gillespie investments across various countries. Partner, Brisbane • contracting strategy Tel: +61 (7) 3257 5656 and management Contact Email: [email protected] • incorporating lessons learnt. Tom Seymour Partner, Brisbane Contact Tel: +61 (7) 3257 8623 Brian Gillespie Email: [email protected] Partner, Brisbane Improving safety Tel: +61 (7) 3257 5656 performance in the Improving safety Email: [email protected] Australian mining performance in the Australian mining industry through industry through enhanced reporting
Erik Ekevall Brian Gillespie Lina Riege enhanced reporting August 2008
This paper outlines the potential for further progress to be made in safety performance by improving the processes involved in capturing, analysing and sharing safety data.
Contact Brian Gillespie Partner, Brisbane Tel: +61 (7) 3257 5656 Email: [email protected]
Aussie Mine November 2011 47 pwc.com.au/industry/energy-resources
Key Contributors
Key contributors to this report
Wayne Huf Tony Keany Nick Heaney Partner Associate Director Consultant
Ananth Rajaratnam Ben Lim Alissa Goodin Senior Manager Manager Senior Consultant
Ben Gargett Michael Leist Director Senior Accountant
For copies of this report, contact:
Jacqui Thurlow Tel: +61 (3) 8603 3267 Email: [email protected]
© 2011 PricewaterhouseCoopers. All rights reserved. In this document, “PwC” refers to PricewaterhouseCoopers, which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity. This document is provided by PwC as general guidance only and does not constitute the provision of accounting, legal advice, tax services, investment advice, or professional consulting of any kind. The information is provided “as is” with no assurance orguarantee of completeness, accuracy or timeliness of the information and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability and fitness for a particular purpose. In no event will PwC or its professionals be liable in any way to you or to anyone else for any decision made or action taken in reliance on the information or for any direct, indirect, consequential, special or other damages related to you or your use of information, even if advised of the possibility of such damages. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all the pertinent facts relevant to your particular situation.
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48 Onward and Upward!