Mid-tier miners under pressure

After a long ride of uninterrupted growth, the resources boom may be starting to show signs of slowing.

A PricewaterhouseCoopers report looking at the global market says Australian companies in the mid-tier mining sector are going to be under increasing pressure this year and are unlikely to reproduce the same success as 2007.

Mid-tier mining companies are classed as having a market capitalisation of between $US500 million and $US5 billion. Last year, the market capitalisation of companies in the mid-tier 50 index increased from $US38.4 billion to $US64.7 billion.

The analysis suggests that while commodity prices are rising, increases in the costs of energy, labour and materials will result in slower growth for 2008. Operating costs for miners reached $US51 billion in 2007, an increase of $US14 billion from 2006.

PwC’s mid-tier 50 miner’s index eclipsed gains on the All Ordinaries last year, while revenues for companies in the index grew by an average of 51%. Shareholders in the companies in the mid-tier 50 index saw their dividend payouts increased by 24% in 2007.

PricewaterhouseCoopers mining expert, Tim Goldsmith, says that while the pinch is on for the mid-tier sector, it doesn’t signal an end to the demand for resources.

“It’s all about those in need of short-term funds, I guess that’s the best sign I can point to,” he says. “The last five years have been pretty fair sailing, companies have progressed… all of a sudden a lot of companies have to search around for financing.

“But I think the overall trend is very much intact. There’s huge demand from emerging nations, so I don’t think that’s the problem. It’s a cause for stress for some, and for others… certainly, they can see a very bright future.”

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