The ASIA Miner - Reporting Important Issues to Mining Companies in the Asia Pacific Region
Issue link: https://asiaminer.epubxp.com/i/632337
10 | ASIA Miner | Volume 13 • Issue 1 | 2016 CHINA, the world's largest coal consumer, has halted approvals of new coal mines for the next three years while it continues cutting output at existing operations. The move is aimed at shrinking both oversupply and limiting a worsening pollution crisis. State-run news agency Xinhua has reported that the national en- ergy regulator will close more than 1000 coal mines this year, elimi- nating 60 million tonnes of capacity that is no longer needed. China's air pollution generally increases during winter, when pow- er consumption, much of it fuelled by coal, increases in line with more demand for heating. The situation is particularly bad in the nation's east, including the cities of Beijing, Shanghai and Hong Kong. Late last year authorities issued Beijing's frst-ever red alert for pollution when poisonous air quality prompted the government to close schools, force motorists off the road and shut down factories for more than 72 hours. The air-quality index at the time topped 300 and the US Environ- mental Protection Agency said an index reading above 300 was extremely rare in the US and generally occurred only during events such as forest fres. As well as these measures affecting the coal industry directly, the government has also readjusted its targeted energy mix for 2016. Non-fossil fuels will make up 13.2% of the country's energy, an in- crease from 12% this year; natural gas usage will increase from 6% to 6.2%; and coal usage will be reduced to 62.6% from around 64.4% in 2015. For the next fve years, the government also aims to add more than 20 million kilowatts of installed wind power and more than 15 million kilowatts of installed photovoltaic power. "Due to environment concerns, the government has been quite aggressive in introducing renewable energy into the market but it might take a long time before we see a real shift because prices will remain as the main factor determining people's habits," said ICIS director of research Li Li, who is based at the market information company's Guangzhou offces. China's attempts to phase out coal use are likely to drag coal prices further down as diminishing demand will exacerbate the current glut of coal. While coal-fred power in China has gradually abated in recent years in tandem with the country's slowing manufacturing sector, coal is still largely responsible for power generation, and China comprises nearly half of the world's coal consumption, which means any attempts to reduce its use have major impacts on the global industry. GOLD provided a glimmer of hope in a tough year for Australia's mid-tier miners, with reve- nue up 11% and gold's share of mid-tier reve- nues growing 5%. Copper also glistened with a gross margin of 54%, making it the most proftable 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 confdence 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% beneft 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 cop- per 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 ini- tiatives and cost management to keep pace with plummeting prices. "The focus on costs and effciency needs to continue and will be crucial in protecting margins, however innova- tion and opportunistic M&A; will be fundamen- tal 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 signifcantly. 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 $396 million on 2014. "The pipeline of activity suggests a belief that we might be nearing the bottom of the commodity price cycle," he said. "The majors are continuing to divest non-core assets and mid-tiers should be positioning themselves to be opportunistic with M&A.; In the right hands, and with greater focus and attention, assets the majors consider peripheral will deliver me- dium term dividends." No new coal mines in China Market capitalisation of the 2015 MT50 companies. Gold provides glimmer of hope Market capitalisation less net assets (A$m).