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Miners go cold on acquisition strategy as China offers hope

 

AUSTRALIA’S mid-cap miners stopped looking to each other for growth opportunities over the past year and switched their attention to China, as the economic powerhouse became the main financier for the sector.

PricewaterhouseCoopers global mining leader Tim Goldsmith said until a year ago there was steady interaction among the 50 mid-tier players, but that diminished on the back of the financial crisis.

“Companies involved in M&A (over the past year) were involved with companies outside of the 50,” he said, as he released the company’s annual Aussie Mine report yesterday.

“Eighty per cent of the completed transactions were from China, which speaks volumes of what happened.

“The fact there has been less looking at each other in the 50 but more looking offshore was a very significant trend over the past year, which we have not seen quite as obviously in prior years.”

Mr Goldsmith said the previous financial year for the mining sector had started with a degree of hope but the industry was nailed down by the financial crisis before the problems were repaired by a China-led recovery. “We now have most companies balance sheets fixed or fixed to a state where we are no longer in the near death experiences,” he said.

The report found the mid-tier 50s combined revenues increased 8 per cent from $9.8 billion to $10.58bn for the 12 months to June. Companies with exposures to gold, coal and uranium enjoyed revenue growth of 60 per cent, in contrast to a 24 per cent decline suffered by base-metal producers.

The report also showed that China emerged as the main source of funding for companies to progress developments, with banks closing their doors to the sector.

“Through the boom years, funding was easy to come by, we are out of those days and out of those days for a long time to come,” Mr Goldsmith said.

“The banks are scared of the sector and the sector is scared of the banks. While the mid tier companies have repaired their balance sheets, they haven’t got their funding in order for development projects, which is where they need to look at their main customer.”

Mr Goldsmith said going forward, coal will continue to be an increasing focus for China.

“The Middle Kingdom recently reversed a trend of being a net exporter to becoming a net importer of coal,” he said. “China’s decision to increasingly rely on foreign-sourced coal suggests a desire to preserve its domestic reserves to maintain long-term flexibility and competitive advantage.”…read more at The Australian

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