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Mid-tier miners feel the pinch

AUSTRALIA'S mid-tier miners are feeling the pinch from the global slump in commodity prices, with profits tumbling by almost half in the past year.

The annual Aussie Mine series by PwC has examined the annual results of the largest 50 miners listed on the Australian Securities Exchange with market capitalisations of less than $5 billion. That eliminates the big global miners such as BHP Billiton and Rio Tinto.

PwC's report, Aussie Mine 2012 - Staying the Course, noted that rising costs and impairment charges - which topped $1 billion - led to a 44 per cent fall in net profits for the ASX's mid-cap miners, from $2.8 billion last financial year to $1.6 billion.

As a result the combined market capitalisations of those 50 listed companies have plunged from a peak in March 2011 of $75.3 billion to $51.8 billion - down 31 per cent.

The entry point into the mid-tier 50 has fallen from a market capitalisation of $463 million to $289 million in the past year. Two companies previously ranked among the majors - Iluka Resources and Alumina - have rejoined the mid-tier fold.

PwC Energy's utilities and mining leader Jock O'Callaghan said commodity prices were now back to pre-GFC levels. ''In Australian dollar terms, all commodities with the notable exception of gold have returned to levels near those seen in 2007,'' Mr O'Callaghan said.


He said the gold sector would provide investors with some joy in the next year, with merger and acquisition activity expected to rise.

The top 50 now comprises 19 gold producers - up from 11 the year before and the most since the series began.

Goldminers now make up 26 per cent of the sector's value. This reflects the 142 per cent rise in the $US gold price - 90 per cent in Australian dollar terms - over the past five years.

''The goldminers have begun a race to scale'' Mr O'Callaghan said. ''There is an emerging trend for gold producers to diversify away from single-project operations. Rising costs, attractive equity valuations and large global players looking to replenish reserves should drive the takeover activity. China and private equity are also expected to take a close look at the Australian gold sector.''

That merger and acquisition activity will be welcomed. According to a report from Ernst & Young, deal volume and value in the Australian mining and metals sector for January-September 2012 has dropped 17 per cent and 50 per cent respectively compared with the same period last year.

Ernst & Young's quarterly analysis of transactions, financing and capital raising in the mining and metals sector shows there were 167 deals with a total value of $US14.0 billion ($A13.5 billion) from January to September this year, down from 201 deals worth $US28.2 billion for the first nine months of 2011.