Australia’s midtier mining sector has reached its highest total market capitalisation since the boom times of 2011, with the ‘quiet boom’ driven by favourable commodity prices and some good investment decisions over the last year, a new PwC report has shown.

The ‘Aussie Mine’ report, which analyses the 50 ASX-listed mining companies (MT50) with market values under $5-billion, states that the market cap for the MT50 increased by 9% to $64-billion.

However, the performance has been mixed, with market cap decreasing for almost half of the MT50 this year, including most coal and lithium miners on the list. Gross margin percentage also dropped across the board, with operating costs outstripping revenues from production increases.

“We’re now into our third consecutive year of strong results for the midtier miners,” PwC Australia mining leader Chris Dodd commented on Thursday. 

“Market cap, revenue and net profit before tax is up, production is up, exploration is finally returning, debt repayments and dividend payments have tripled in three years and companies are holding a very healthy vault of cash. We also had two gold companies break through the $5-billion barrier and graduate from the list.”

However, while there is a quiet boom for gold and iron-ore miners in particular, this is not the case for almost half of the MT50, which saw their market cap decrease over the year. 

Lithium miners, for example, have been dealing with prices that have come right down as product has been brought to market by a growing host of new producers globally without sufficient growth in demand.

Dodd said that PwC expected momentum to return though, given the ongoing strategic importance of the battery mineral to meet demand for advanced technologies.

Coal miners also faced challenges, he said, stating that two ex-MT50 graduates had returned to the list.

“One of the biggest risks coming to the fore was social licence to operate, or acceptance from consumers, communities and society of the role for coal as we move to a low carbon future, with market sentiment significantly ahead of the practical realities of a sustainable power mix for our economy.  Production may be up, but sentiment is down, so the sector needs to articulate to the general population that coal mining is the critical component in our transition to a renewables future and report in a consistent manner to build understanding and trust.”

Dodd said that strong operating fundamentals across the board for midtier miners had created a window of opportunity for MT50 companies to adapt to the growing and changing expectations of their stakeholders. 

“Technology allows mines to operate safely and more efficiently. With ESG [environment, social and governance] impact reporting and maintaining a disciplined strategy to create ongoing value for its stakeholders, the industry can forge a better future for all beneficiaries of the mining industry, consumers and communities alike,” he said.

UNMINED OPPORTUNITIES

Meanwhile, PwC’s 'Aussie Mine' report also states that Australian miners should view India and the emerging South-East Asia nations Vietnam, Indonesia, Philippines, Malaysia and Thailand as a key destination for MT50 commodities.

Collectively, these nations have the largest concentration of middle-income population in the world.

“India and the emerging South-East Asian nations are often overlooked, but they present enormous opportunities for miners in the years to come,” said Dodd. 

“Diversifying offtake partners is one way to mitigate reliance on one jurisdiction.  Middle-income countries like India and those in South-East Asia typically become more ‘metals intensive’ as they develop making them prime new export markets for our MT50 commodities.

Dodd said that changes to Chinese policy were also impacting the MT50 - energy mix, import policies, domestic coal markets, trade tensions regarding rare earths - are all likely to drive ongoing volatility.  Whilst this trend mostly impacts the bigger miners, the MT50 will be monitoring it carefully, and other Asian markets may need to be considered for the midtier,” he said.

SOCIAL LICENCE

PwC’s report further points to effective ESG impact reporting as the most important factor in building trust with consumers and communities for the midtier miners and critical to not only surviving, but also thriving in the year ahead.

“ESG is going to become increasingly important to the miners' social licence to operate."

The report indicates that 36% of the MT50 provide separate ESG reporting, up from only 10% three years ago. Three of the MT50 made the ASX Top 20 of the ASX200 reviewed for ‘leading’ ESG reporting by the Australasian Supply Chain Institute.

However, Dodd said that significant variation still existed in the depth and breadth of what was reported.

“Almost half of the MT50 are only reporting three bullet points or less in their annual report. ESG reporting by all companies, not just miners, is accelerating the debate on whether we are collectively doing enough. Miners are responding and play a crucial role in a lower carbon future. In light of this, ESG impact reporting should be seen as an opportunity to get on the front foot with building understanding and trust,” he said.