GOLD provided a glimmer of hope in a tough year for Australia’s mid-tier miners, with revenue up 11% and gold’s share of mid-tier revenues growing 5%. Copper also glistened with a gross margin of 54%, making it the most profitable commodity in the sector.

According to PwC’s annual analysis of the 50 biggest ASX-listed mining companies with market values under $5 billion, ‘Aussie Mine: Going for Gold’, falling commodity prices and investor confidence contributed to a decline in total market capitalisation amongst mid-tiers, down 1.5% on 2014 to $36.2 billion.

“The only sectors that glistened in 2015 were gold and copper,” said PwC’s Mining leader, Chris Dodd. “For gold, a 30% benefit in the Australian-dollar gold price is a free kick after years of US dollar parity. While copper accounted for only 5% of 2015 mid-tier 50 revenue, it was responsible for 12% of the gross margin across the industry.

“Mid-tiers who performed well had three things in common - exposure to quality copper and gold assets, discipline around costs, and a realisation of real productivity gains. The cost base was also helped by declining oil prices, relatively low wage growth and a more competitive mining services environment with more providers chasing fewer contracts.”

Elsewhere there was little to celebrate, with falling iron ore and coal prices contributing to a decline in revenues of 1.8%, and drop in gross margins of 25.7%.

Chris Dodd said the margin squeeze demonstrated the failure of productivity initiatives and cost management to keep pace with plummeting prices. “The focus on costs and efficiency needs to continue and will be crucial in protecting margins, however innovation and opportunistic M&A will be fundamental to achieving medium term growth.”

The total value of completed deals in the year to August 2015 was only two-thirds the value of deals the year prior, however activity is forecast to ramp up significantly. A strong pipeline of pending deals has been spurred by the market’s appetite for low-cost gold and nickel projects, with the total value of forthcoming transactions at August 31, 2015 estimated to be $3.1 billion, up $396 million on 2014.

“The pipeline of activity suggests a belief that we might be nearing the bottom of the commodity price cycle,” he said. “The majors are continuing to divest non-core assets and mid-tiers should be positioning themselves to be opportunistic with M&A. In the right hands, and with greater focus and attention, assets the majors consider peripheral will deliver medium term dividends.”

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