National Resources Insights 2017

In this publication we reflect on the causes of the turbulence in the national resources sector from 2016 to date. We review the challenges and issues of each major Australian commodity and consider the outlook for you and your clients.

Much of the uncertainty in the market has come from fluctuating commodity prices, slower demand growth and reduced miner cash flow, all of which has led to lower exploration spending. This was further exacerbated by unclear regulation on royalties, several States and Territories introducing moratoriums on gas fracking and an increased amount of environmental campaigning against coal. Global political, financial and jurisdictional changes to mining legislation have also impacted the sector.

While cash flows have reduced overall it is positive to see that diversified miners and gold producers have been reporting considerably stronger operating cash flows driven by an uptick in bulk commodity prices and the success of cost reduction strategies. Cash flow growth has been largely directed to debt reduction and a modest increase in dividends rather than slowing exploration and investment. Some new mines are being developed although they will primarily replace expected exhaustion of existing resources.

The mining services sector continues to feel the impact of miners’ reduced capex spend, cautious investment decisions and reduced operational spending. Consolidation strategies focusing on M&A activity and restructuring operations have been put in place to ensure financial stability.





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