The Asia Miner

JUL-SEP 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 3 | 2017 RESEARCH from BDO shows there has been a broad recovery in the resources sector, highlighted by a resurgence in the number of initial public offerings (IPOs) and another expected increase in cash outflows for the June 2017 quarter. The BDO Explorer Quarterly Cash Update is based on the cash position of Austra- lian-listed explorers based on quarterly Ap- pendix 5B reports lodged with the ASX. BDO Natural Resources national leader Sherif Andrawes said, "The welcome recov- ery we saw in the December 2016 quarter has continued. Cash flows increased once again, as did the number of resource com- pany IPOs. We anticipate this revival of in- creased exploration activity to continue." Battery-related commodities led the way on the back of growing demand for elec- tric cars, accounting for 50% of the funds raised by exploration companies via IPOs. "Of particular significance is the increase in the number of companies lodging Appen- dix 5Bs for the first time since September 2013. "We will wait to see what impact the scrapping of the exploration development incentive (EDI), announced as part of the 2017/18 Federal Budget with a new tax scheme to take its place, will have on junior explorers." "We would expect that as the M&A phase continues and with a return of equity to the broader commodity markets, exploration will again be a strategic priority for a number of companies and that the EDI may stimulate this activity earlier in the process," Sherif An- drawes said. The quarterly update revealed that total exploration expenditure fell from $354 mil- lion for the December 2016 quarter to $305 million for the March 2017 quarter. This was despite an increase in the number of com- panies lodging Appendix 5Bs, with average exploration expenditure falling from $0.51 million to $0.44 million. It is not uncommon for exploration expen- diture to decrease from the December to the March quarter, however BDO notes that the decrease from Q4 2016 to Q1 2017 is much smaller than previous years. BDO says the increase of 13% over the March 2016 quarter total of $267 million in- dicates that there has been a broad recov- ery in the resources section. During the quarter, there were 19 compa- nies that reported exploration expenditure in excess of $2.5 million, dominated by gold, oil and gas and potash explorers. CONSULTING firm PwC believes the bad and the ugly are over and the good is returning to the mining industry. In a report, PwC says the world's Top 40 miners recovered from a race to the bottom in 2016, with bolstered balance sheets and a return to profitability giv- ing them much-needed space to pause and draw breath. The annual review of global mining trends, this year titled 'Mine 2017. Stop. Think. Act.' analyses 40 of the largest listed mining companies by market capitalisation, covering the financials be- tween April 1, 2015 and December 31, 2016. A dramatic statistic is the return to profitability in 2016, with the Top 40 raking in aggregate profits of $20 billion in 2016 compared to total losses of $28 billion in 2015. Rising commodity prices resulted in a 45% total rise in market capitalisation to $714 billion, which is approaching the 2014 level. However, the top miners only saw a marginal increase of 1% in reve- nues despite a rebound in commodity prices in the second half, name- ly coal and iron ore. Any new revenues appear to be going towards debt repayment rather than capital expenditures, which are down 41% to a record low of $50 billion. Companies repaid debt to the tune of $93 billion, up from $73 billion a year earlier, with most debt issued to refinance, rather than fund acquisitions or mine development. Impairment charges, which care a sign of panic in the industry, fell to $19 billion following near-record levels in 2015. Another important trend highlighted was limited mergers and ac- quisitions, with the exception of China. PwC said the reason for a lack of asset sales was possibly the rebound in commodities and improving prospects of their owners. The sales that occurred tend- ed to be strategic, with diversified miners, for example, selling mi- nority stakes in non-mining businesses. Chinese companies funded more acquisitions due to better ac- cess to capital. Such companies, including Chinese private equity firms, were able to pick up assets at rock-bottom prices, as the country continues acquiring mines to reduce its import dependency on certain metals. Notable among Chinese M&As were the deals by China Molyb- denum, a new addition to the Top 40. The company bought the niobium and phosphate business from Anglo, as well as Freeport McMoRan's share of the Tenke copper and cobalt operation. Bad and ugly over, good returning Explorer spending indicates broad recovery: BDO

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