Aussie Mine 2020: Mid-cap mining explorers are back in fashion
Link copied to
Exploration has returned to the mid-cap mining space with a bang as the most recent edition of a report analysing the 50 largest ASX mining companies, the MT50, with market caps under $5bn revealing some very intriguing insights.
In the 15th edition of its Aussie Mine report, PWC said that it was clear that explorers were back in fashion given that they make up two-thirds of the 12 new entrants.
Notable examples are De Grey Mining (ASX:DEG), Chalice Gold Mines (ASX:CHN) and Legend Mining (ASX:LEG) who ascended into this august company on the back of successful exploration in the 2020 financial year.
De Grey was the biggest gainer with a 3,123 per cent increase in market capitalisation thanks to the company-defining Hemi gold discovery that has been widely credited with opening up a new gold rush in Western Australia’s Pilbara region.
Meanwhile, Chalice can thank the Julimar nickel-copper-platinum group element discovery in Avon, Western Australia, for its meteoric rise into mid-cap stardom.
Further evidence can be seen in the 21 per cent increase in exploration expenditure.
Another key takeaway from the report is the dominance of gold with more than half of the new entrants into the mid-cap space focusing on the precious metal.
This means there are 22 gold companies in the MT50, up from 16 in 2019, with a corresponding increase in the proportion of total market capitalisation.
Gold also accounts for 62 per cent of the total exploration expenditure.
In contrast, just four coal miners – down from six in 2019 – remain in the mid-cap space thanks to prices falling down to 2015 levels.
Here the preponderance of explorers works in favour of the coal plays, who account for 35 per cent of the total revenue – or $11.4bn – generated by the mid-caps covered in the report.
However, three of the four companies saw their operating revenues fall in the 2020 financial year.
On the other hand both gold and iron ore mid-tiers saw their operating revenues increase by 24 per cent and 35 per cent respectively.
The PWC study found that mid-caps have to up their game in environmental, social and corporate governance (ESG) reporting.
ESG performance is growing in importance with recent press coverage serving as a timely reminder that companies, particularly miners, have to operate in an appropriately governed, and environmentally and socially responsible manner.
Strong ESG performance also correlates with higher equity returns, lower cost of capital and better operational performance.
PWC found that while the top half of the MT50 was considered more mature against the World Economic Forum’s Stakeholder Capitalism Metrics, the smaller mid-caps were far less consistent when it comes to ESG reporting.
While 61 per cent of the MT50 had disclosures in the governance pillar, they averaged below 50 per cent in the planet and people pillars.
The MT50 was found to need more work on disclosures related to the prosperity pillar, which focuses on what is being undertaken by the company to ensure all human beings can enjoy prosperous and fulfilling lives.
Resolute Mining (ASX:RML) was lauded for its reporting on the governance pillar, showing clear targets linked to ESG risks, as well as detailing how the board is armed to act on those goals while both Perseus Mining (ASX:PRU) and Galaxy Resources (ASX:GXY) were very comprehensive with their reporting across all four pillars.