A half-year industry and financial analysis of Australia’s mid-tier 50 mining companies (MT50) ending December 2022. This analysis should be considered together with our Aussie Mine 2022 Mission Critical report
Australian mining companies have a critical role to play in global decarbonisation and significant progress is being made on increasing the supply of critical minerals. However, much more is needed in order to meet decarbonisation goals. This presents enormous opportunities for Australian mining companies. The strength of the long-term tailwinds for critical minerals well exceeds geopolitical risks and the shorter-term global growth challenges.
In the December 2022 half-year period, cash returns to MT50 shareholders increased 9% to a record $3.6 billion after strong earnings from coal and lithium companies. Coal companies represented 55% of MT50 EBITDA earnings, with critical minerals a further 32%.
The market value of the overall MT50 group increased 33% to $162 billion at 31 December 2022 - a new record level. Lithium producers represented around half of this increase. The values of gold and coal companies were also meaningfully higher. Four MT50 companies each had a market capitalisation greater than $10 billion.
Growth and strong earnings in critical minerals
Virtually all of the 23 MT50 critical minerals companies are actively progressing growth projects. The MT50 includes 10 non-producing companies with advanced projects. The additional planned supply by MT50 and global mining companies, however, isn’t enough to meet the expected surges in demand for critical minerals. Understandably, some pressure on project capital cost and timelines has been noted during the reporting period. This adds stress to existing projected supply challenges.
Revenue, earnings and margins for critical minerals companies were up significantly. EBITDA increased to $5.5 billion on $8.8 billion of revenue, representing an EBITDA margin of 63%. Three lithium producers generated over $1 billion in EBITDA earnings over calendar 2022. While this reflects the high prices for lithium chemicals and spodumene during the year, it also demonstrates the strong returns available in a market environment where demand increases ahead of the supply response.
Rising critical minerals revenue and profits
The market value of critical minerals companies increased by $20 billion (29%) to $90 billion at the end of 2022. Three MT50 lithium companies finished the year with over $10 billion in market capitalisation. Dividends declared from December 2022 half-year reporting increased substantially by 83% to $0.6 billion.
Steep increase in critical minerals' market values
Record coal prices generating record outcomes
The values of coal companies increased significantly after June 2022 reporting. The market capitalisation of the MT50 coal companies at 31 December 2022 was a combined $29 billion, 48% higher than 30 June 2022. This aggregate value was only 1.6 times December 2022 annual EBITDA.
Increase in values for coal companies
Coal companies have benefited from record high prices during the period. While prices have since fallen sharply, they remain relatively strong.
Revenues, earnings and cash flows during 2022 were significantly higher than previous years, with five companies reporting EBITDA earnings over $1 billion. The cash generated from operations has translated into a dramatic shift in gearing. MT50 coal companies had an aggregate net cash position at 31 December 2022 of $4 billion compared to $4.5 billion of net borrowings at 30 June 2021.
Soaring revenues, earnings
Shareholders have benefited from higher earnings with $2.8 billion in cash returns (dividends and buybacks). The strong results have also helped government balance sheets with $7.6 billion in royalties and income taxes in 2022.
Rising gold company values despite lower earnings
The aggregate market capitalisation of MT50 gold companies increased 42% to $34.5 billion by 31 December 2022.
Increase in values
Earnings were 8% lower in the December 2022 half-year period largely reflecting higher costs.
Dip in earnings, margins squeezed
Increase in critical minerals and gold deal activity expected
BHP’s proposed acquisition of Oz Minerals is the largest acquisition noted during the period, followed by the planned St Barbara-Genesis Minerals merger. More critical minerals and gold transactions are expected over the next few years. We will also see more activity by original equipment manufacturers in offtake arrangements, lending and equity positions. Some Australian coal assets are coming onto the market from larger mining companies looking to exit or reduce their coal exposure.
Think differently and act now
It’s hard to understate the opportunities available to Australian mining companies stemming from decarbonisation of the global economy. The current project pipeline falls short of the surge in demand for critical minerals needed to meet the requirements of renewable energy generation, energy storage, and transmission investments. Considerably more exploration and pre-production activity is needed across the spectrum of critical minerals. At risk here is the decarbonisation timetable, and not capturing the full opportunity energy transition presents.
There’s time to speed things up to close the gap. But it does require us all to think differently and act now.
