The Asia Miner

JAN-FEB 2017

The ASIA Miner - Reporting Important Issues to Mining Companies in the Asia Pacific Region

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4 | ASIA Miner | Volume 14 • Issue 1 | 2017 GLOBAL energy markets will need around $50 trillion in new investment to fund expect- ed growth in energy demand over the next two decades, according to Rio Tinto non-ex- ecutive director and former CSIRO chief ex- ecutive Dr Megan Clark. The energy market is expected to grow by 40% through until 2035 with that higher consumption continuing to rely in part on baseload fossil fuels. The estimates came with a warning that infrastructure underpinning electricity grids will have to fundamentally change. Central to this shift will be developing new renewable energy storage technologies and embracing cutting-edge technologies in the pipeline, with much being led by Australia. Megan Clark made the comments in de- livering the AusIMM 42nd Essington Lewis Memorial Lecture. She said global energy sectors were poised for a revolution driven by the strong strategic forces of supply/demand, technological development, social expecta- tions and geopolitics. "The current global demand picture for en- ergy is strong. Primary energy demand ac- counts for 7% of global GDP. Emerging mar- kets are expected to show growth in demand for coal and for oil, the latter being driven by rising incomes, urbanisation and more cars. "Around $50 trillion in energy investments will be needed to meet this demand. How this investment is made will write the script of our energy future. "Technology has also rapidly progressed where genetics, robots and artificial intelli- gence are all happening now in mining – and Australia is leading the way in many areas. "Renewables now account for around 50% of all new power generation, and 2015 saw a record of 121GW of combined solar and wind power capacity installed. Wind and solar are now competitive without subsidies." Megan Clark went on to say, "Australia's mining industry has to ask itself what it needs to do to be partners and helpers in building a more equal and sustainable world. Among that will be the need for more collaboration on major problems like climate, water and supply chains. "In places like Australia and Mongolia water is precious, which is why the industry sup- ports work by the Bureau of Meteorology and the CSIRO who are looking at the structure of the Great Artesian Basin for the first time in 30 years. These basin-scale projects provide an important context for our miners for local water use. "The mining industry must also continue to tackle water recycling with Rio's Oyo Tolgoi copper-gold mine in Mongolia a good exam- ple, reaching a benchmark of 84% recycled water." THE global mining industry has endured a difficult few years and for many mining companies, optimism has been in short supply. Persistently low commodity prices, waning demand and tightening capital and credit markets have been squeezing the industry. Companies of all sizes have seen the strong profits of 2011 and 2012 give way to painful losses, and exploration has slowed to a trickle as the industry waits to see if and when markets begin to cycle upward. However, according to BDO's inaugural Global Mining Middle Market Monitor the end of the downturn may be in sight. The study found that although companies continue to struggle, there is reason for optimism - among global middle market mining companies, from 2014 to 2015, median exploration expenditures grew 17% and me- dian cash balances increased a modest, but still promising, 2%. "The global mining industry has had to navigate intensely murky waters over the past half-decade, first digging out of the fallout of the 2008-2009 financial crisis and rebuilding, only to falter again amid volatile commodity prices and softening Chinese demand," said BDO's Global Natural Resources Practice leader Charles De- whurst. "Creativity in this industry may be the ultimate kingmaker: mining companies who can find effective ways to streamline their busi- nesses, maximise their resources, collaborate with the right part- ners and develop a nimble core business will be the first able to take advantage of any market rebound." The monitor reviews and analyses financial data reported by 528 publicly traded middle market mining and diversified metals compa- nies from 61 country and international stock exchanges from 2010 to 2015. These companies reported revenues up to US$1 billion, with median revenue of US$127 million. Additional findings: • Revenue is on the road to recovery: Though median revenue among the companies declined 10% from 2014 to 2015, it grew 23% from 2010 levels. By way of comparison, among the world's 28 largest mining companies, median revenue de- creased 16% between 2014 and 2015, and grew 4% from 2010 to 2015. • Investors remain skittish: It comes as little surprise that investor confidence has suffered, with median global market capitalisa- tion declining from nearly US$280 million in 2010 to US$76.7 million in 2015. However, there may be reason to believe this could turn around in the next couple of years - the global median price-earnings ratio decreased 31% between 2010 and 2015, but increased 15% in the last year alone. • Tax rates bottom out: Despite operating in countries and regions with historically high corporate tax rates, middle mining companies have seen their median effective income tax rate steadily decline as profits gave way to losses. Median effective tax reached a five-year high in 2011 at 17.8% but by 2013 was to 9.8% and by 2015 middle mining companies were paying virtually no tax. Optimism emerges for mining $50 trillion needed to meet energy demand The 42nd Essington Lewis Memorial Lecture was delivered by Dr Megan Clark.

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