Aussie miners new dilemma: ore reserves up, exploration down
Sluggish market conditions have not stopped mining companies from increasing their ore reserves, but a recent report by PwC Australia warns scarce spending on exploration will jeopardize future mines.
In its Mining Benchmarking Insights Report 2014, PwC analysts say that despite 2013 was a challenging year for most mining companies, 50% of the 28 firms surveyed reported an increase in their reserves compared to the previous financial year.
Exploration expenditure, however, accounted for just 6% of total capital spent, as miners focused on completing existing projects and sustaining capital initiatives.
“Against this backdrop, the current-year increase in resources may be masking a bigger issue for mining companies,” says the report.
"With shareholders demanding greater returns and capital discipline from the majors, funding still hard to find for everyone else, and exploration spending continuing to decline, the question is, where are the next mines going to come from?."
Based on the survey results, leading miners did three things better than the rest: maintained the cost of the finance function at 0.41% of revenue or better; initiated and finalized the annual budgeting process within 30 days; and began and completed the financial forecasting process within 10 days.
New equity, but no diversity
In terms of funding, PwC survey’s participants rated new equity raising as the most common funding source during 2013. This was closely followed by new debt issues, with the cost of debt making it attractive to the industry, despite debt funding typically being less prevalent that in other sectors due to the cyclical nature of the industry.
Miners sought a number of alternative financing structures and models last year, including joint venture or farm-in arrangements, customer prepayments and the sale of royalty streams.
The study also found that diversity remains a challenge for the industry. Only 12.5% of organizations surveyed had some sort of female representation on the executive team and women filled just 17% of management roles.