Mid-tier mining companies leading Australia's economic recovery

Mid-tier mining companies have been the backbone of Australia’s economy amid Covid-19, and will be instrumental in the post-pandemic recovery. A new PwC report highlights the segment’s contribution.

For its analysis, PwC zoomed in on the mid-tier 50 (MT50) – “the largest ASX (Australian Stock Exchange) mining companies with a market capitalisation of less than $5 billion as at 30 June 2020.”

Nestled within Australia’s sizeable mining market, these companies pull substantial economic weight even in a normal year – with more than $60 billion in market capitalisation and 50,000 Australians on their combined payroll.

During the Covid-19 economic onslaught this year, mining was declared an “essential service” in light of its core contribution to the government resource pool. With special safety measures in place, the MT50 trudged on through the crisis with sparkling results. By April this year, PwC reports that MT50 was outperforming the ASX200 index, and has since continued to do so.

That being said, mid-tier mining covers a variety of commodities, and not all have been equal in their financial resilience. The biggest dichotomy drawn in the report is between gold and coal – the former with a stellar performance that has propelled the MT50 forward, while the latter has only served to drag it back.

Gold has always soared during an economic crisis; a natural investor reaction to economic uncertainty is to put money into something tangible and secure. The financial crisis of 2008, for instance, pushed gold to record levels historically. Since March this year, the precious metal’s market capitalisation has reached new highs to outperform the MT50 and the ASX200.

“The surge in gold price over the previous 12 months has shaped the movement in the MT50, with gold miners making up more than 50% of the new entrants. This shift means there are now 22 gold miners in the MT50 (up from 16 in 2019), with a comparable increase in the proportion of total market capitalisation,” noted Debbie Smith, National Mining Leader at PwC.

Coal is moving in the opposite direction. “Only four coal miners remain in the MT50 (down from six in 2019), and coal comprises just 10% of the total market capitalisation (down from 22%, 2019),” noted Smith. The resource-intensive, emission-heavy commodity is rapidly losing ground in the energy market reshuffle, while getting ever more expensive to produce. 

No doubt, coal still remains in heavy demand. In fact, coal revenues were higher than any other MT50 commodity despite plummeting prices. At the same time, the cost of producing coal has also spiked in the wake of Covid-19, putting profits well into negative percentages.

Driving the recovery

These differences notwithstanding, the MT50 has been a key asset for Australia amid the crisis, and is likely to take centre stage in the country’s economic recovery. “There is little doubt that Australian federal and state governments will look to the mining industry to continue to be the bedrock of the economy, and to lead us out of this crisis,” noted Carla Reynolds, Energy, Utilities & Mining Marketing Lead at PwC Australia. 

As they take up this leadership mantle, mid-tier mining companies will have to respond to some industry-specific market trends. The researchers point out several focus areas here, most notably the need to address environmental, social and corporate governance (ESG) concerns in the community.

The mining of old was a resource-intensive, polluting practice that puts workers at risk of injury and long-term health issues. Today, there are myriad technological developments and operational standards that can help companies mitigate these risks. With the global ESG focus only intensifying, MT50 will have to reinvent themselves in line with modern standards.

Once past this hurdle, the goal is to build resilience to future risks and economic uncertainty. For PwC, ramping up productivity is the best answer to uncertainty, and the technology exists to help do this efficiently and cost-effectively. Of course, more tech means more cyber risks, which puts cybersecurity in the spotlight as well.

With this strategic roadmap in mind, the MT50 could well “resource Australia’s economic recovery” according to the researchers, creating thousands of jobs, promoting economic growth and contributing billions in tax.