midtier miners

Market sentiment shifts in favour of Australian midtier miners ? PwC

PERTH (miningweekly.com) ? The market sentiment has shifted in favour of Australia?s midtier miners, with the value of the top 50 midtier companies now back at pre-crisis levels, PricewaterhouseCoopers (PwC) stated on Wednesday.

The market capitalisation of the ?midtier 50s? increased by over 35% in the 12 months to June, hitting A$63,9-billion.

This was in contrast to 2009 levels where companies shed one third, or 32% of their combined market value.

PwC added that the market value surged even further between July and September, with the combined market capitalisation soaring 32% which matched the entire growth of 2010.

?Putting the market capitalisation increase into context, the past 12 months has simply returned the value that was lost during the global financial crisis. The favourable results suggest some de-coupling from the US and distressed Eurozone economies," said PwC Australian and global mining leader Tim Goldsmith.

The combined revenue of the 50-largest midtier miners jumped by 32% in 2010, underpinned by strong demand for gold, copper and platinum.

The combined revenue increased from A$8,5-billion to A$11,3-billion for the 12 months to June.

?The 2010 financial year has been a period of significant growth and renewal for Australia?s 50 largest midtier miners,? said Goldsmith.

With a return to market confidence since last year, 2010 was marked by A$3,8-billion in successful capital raisings earmarked for new projects developments in copper, coal, gold and rare-earth metals.

"While there is still some uncertainty surrounding the impact of the minerals resource rent tax (MRRT) the midtier remains strong and ready for growth with cash balances accounting for 10 % of total assets during 2010, to be in excess of A$7-billion," Goldsmith added.

According to the PwC report, Chinese investors also continued to target Australian resource companies and projects, although this was being somewhat restricted by the strengthening Australian dollar making Australian assets more expensive.

A higher level of competition now also existed within Australia owing to the significant cash reserves and lower debt levels of the midtier 50 companies. Their stronger cash position enables them to opportunistically seek acquisitions, rather than being the subject of them.

"In terms of mergers and acquisitions, we are seeing a recent trend of Chinese entities seeking control of ASX-listed vehicles with African assets, or the ability to spin African assets into these entities. Chinese companies are increasingly on the hunt for targets that offer in-country experience and relationships with African projects," Goldsmith commented.

Looking ahead, he noted that Australian miners would need to consider the Australian and US dollar exchange rate as the strength of the Australian dollar takes away much of the US dollar-based commodity price upside that has been experienced over the past three to six months.

"Australia's mining sector now has a strong and unprecedented opportunity at its doorstep. The nation's proximity to Asia's industrialising economies, combined with an abundance of in-demand resources will continue to drive our economy, support employment and drive medium- and long-term infrastructure development."

He added that the midtier 50 were well poised for growth and many were planning to invest their cash reserves into project development and expansion activities, as well as mergers and acquisitions.

?While current market conditions suggest short-term volatility will persist, investors should be ready for a return to strength by Australia's mining midtier."