Aussie Mine 2008

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Aussie mine*Reaping the rewards

A review of trends in the Australian mid-tier mining industry

June 2008


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Table of contents

Introduction 5

Executive summary 6

Financial highlights 7

Mid-tier industry in perspective 9

Movements in the Mid-tier 50 9

Market capitalisation 10

Mid-tier 50 profile: New Hope Corporation Limited 13

Exploration expenditure 17

Climate change 23

Aggregated industry financial statements 27

Top line summary 27

Aggregated industry income statements 27

Aggregated industry balance sheets 30

Aggregated industry cash flow statement 32

Glossary 35

List of Mid-tier 50 companies analysed 36

Explanatory notes for aggregated financial information 37

Contacting PwC 38

Other PwC mining publications 39


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It is evident that 2007 was a year that the mid-tier Australianmining sector was reaping the rewards.


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5

Introduction

Welcome to the PricewaterhouseCoopers second annual review of trends in themid-tier Australian mining industry. This report focuses on the results of the largest

50 mining companies listed on the Australian Stock Exchange with a marketcapitalisation of less than $5 billion at 31 December 2007 (the Mid-tier 50).

This report provides an overview of the financial performance of the mid-tiermining sector and explores industry issues such as climate change and exploration.It is evident that 2007 was a year that the mid-tier Australian mining sector wasreaping the rewards.

Thank you for your interest in this report. We trust you find it interesting andinformative.

Tim Goldsmith

Australian and Global Mining LeaderPricewaterhouseCoopers

Derek Kidley

Australian Resources LeaderPricewaterhouseCoopers


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Executive summary

The Mid-tier 50 sector has again had a spectacular year by any measure.Aggregate market capitalisation has increased by 68.5% for the 50 companies

analysed. This is at a time when, in general, global financial markets have beenunder pressure compared with recent years. Similar to last year, the industryssuccess has occurred on the back of strong commodity prices and increasedproduction. These factors have resulted in the Mid-tier 50 companies deliveringextraordinary shareholder value.

There has been a marked increase in the number and value oftransactions that have occurred within the Mid-tier 50 sinceJune 2006. Fifteen major M&A transactions totalling $US11.9

billion were completed or pending. Part of this reflects anincreased interest in the Australian resources sector fromChinese state-owned investors.

We welcome the interest from China. In the 1960s and 1970sthe Japanese provided vital funding that was used to developour resources base and we hope that the Chinese can providethe same stimulus. The challenge for the Australian Governmentis to ensure that Chinese investment remains in our long-termnational interest.

One area that continues to expand is exploration. In thecurrent year, exploration spending and metres drilled increasedsignificantly; however metres drilled remain well below levels of

a decade ago. Further, Australia is still falling behind our overseascompetitors such as Canada that has successfully used initiativessuch as a flow through share scheme to drive exploration.The industry expected the Rudd Labor Government to movequickly and introduce a flow through share scheme as a matterof priority, as promised in the election campaign. If Australianexploration activity does not continue to grow strongly, thenations ability to reap the rewards from its rich natural resourcesover the long term will be severely impaired. A flow throughshare scheme would promote exploration activity and help keep

Australia globally competitive.

An issue on everyones lips is climate change. With theintroduction of an emissions trading scheme by 2010 with strictpolicy and reporting requirements, industry participants need

to prepare themselves now. The range of issues that climatechange raises for companies is broad, including reputation andbrand positioning, risk and pricing. This is a long-term issue and

companies need to be implementing strategies, systems andprocedures to deal with a carbon-strained world.

Notwithstanding the good news for the sector, it has not beenimmune to the systemic reach of the credit crunch. The difficultycompanies are facing in securing debt on favourable terms leadsto project delays and decreased investor confidence. It hasbeen unfortunate to see companies with otherwise good assetslose shareholder value as the market reacts to the debt crisis.The steady rise in the S&P/ASX 300 Metals and Mining Indexexperienced earlier in 2007 has become more volatile since late

August 2007 as markets try to gauge the extent of the globalslowdown and the impact of the credit crunch on the sector.

Events such as the collapse of Opes Prime and subsequenttrading halts have resulted in companies losing considerableamounts of money, executives and investors losing sharessupporting margin loans and large parcels of shares beingtraded.

Our list of mid-tier companies bade farewell to threeminers this year as their market capitalisation moved abovethe $5 billion upper threshold we use to define the sector.However, the sector remains profitable, cashed up and readyto exploit the opportunities presented by continuing globaldemand for commodities and we welcome a number of newentrants to our Mid-tier 50.


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The 2008 year looks more challenging in an increasinglyuncertain world, however we expect miners with lowcost projects in production to be able to build on theirrecent success.


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Mid-tier industry in perspective

Movements in the Mid-tier 50

The structure of the Mid-tier 50 has continued to evolve overthe past year. Lihir Gold, Oxiana and Fortescue Metals Grouphave moved beyond the Mid-tier 50 as their market capitalisationexceeded $5 billion for the first time. They join BHP Billiton, RioTinto, Coal & Allied, Alumina, Newcrest and Zinifex to make upthe 9 listed companies that exceed our Mid-tier 50 ceiling.

Other noteworthy points include:

30 of the 50 remain.

Of the 20 companies that have exited, 3 have exceeded ourmarket capitalisation threshold, 12 have been overtakenin size and 4 have merged or been acquired (the financialresults on 1 entity were not available in time for our review).

The 20 new entrants, by commodity, are gold (5), iron ore (4),nickel (3), coal (2), base metals (2) and other (4).

M&A activity

There has been a marked increase in the number and value oftransactions that have occurred within the Mid-tier 50 since

2006; 15 major M&A transactions, totalling $US11.9 billion, werecompleted or pending at 31 December 2007.

This ongoing M&A activity is driven by a number of factors,including the pursuit of diversification and economies of scale.Escalating project development costs and time delays in bringingnew projects to market make acquisitions increasingly attractive.That said, the recent changes in global financial markets maymake accessing equity and debt to exploit M&A opportunitiesmore difficult.

Table 1: Mid-tier 50 exits due to acquisitions

Mid-tier 50 Company Acquired Acquiror Value US$m Consideration

Agincourt Resources Ltd Oxiana Ltd 329 Equity

Bolnisi Gold NV Coeur dAlene Mines Corp 802 Cash & Equity

Excel Coal Ltd Peabody Energy Corp 1,577 Cash

Kimberley Diamond Co NL Gem Diamonds Ltd 276 Cash

Source: Dealogic M&A Global Database, December 2007

Table 2: M&A activity completed by companies within the Mid-tier 50 by December 2007

Target Acquiror Value US$m Consideration

Aztec Resources Ltd Mount Gibson Iron Ltd 191 Equity

Custom Mining Ltd Macarthur Coal Ltd 241 Cash & Equity

Goldfields Mine Management Pty Ltd Mincor Resources NL 57 Cash

Valhalla Uranium Ltd Paladin Resources Ltd 130 Equity

Consolidated Minerals Ltd Palmary Enterprises Ltd 1,151 Cash

Western Areas Ltd Gold Fields Ltd 749 Equity


Table 3: M&A activity announced by companies in the Mid-tier 50 pending as at December 2007

Target Acquiror Value US$m Consideration

Allegiance Mining NL Zinifex Ltd 695 Cash

Jubilee Mines NL Xstrata plc 2,872 Cash

Midwest Corp Ltd Sinosteel Corp 1,103 Cash

Midwest Corp Ltd Murchison Metals Ltd 924 Equity

Resource Pacific Holdings Ltd Xstrata plc 776 Cash



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Chinese investment

During the past year we have seen increased interest inthe Australian resources sector from Chinese state-owned

enterprises. Although these companies have been active fora number of years, they have now turned their attention to

Australia, particularly iron ore assets.

In the Mid-tier 50, the largest of these proposed investmentsis the bid by Sinosteel Corporation to acquire iron ore minerMidwest. This cash bid is valued at about US$1.1billion and,if successful, would give Sinosteel access to substantial iron oreassets in Western Australia. Other Chinese investments includea 12.9 % investment by Anshan Iron and Steel Company inGindalbie Metals Ltd, MCCs agreed purchase of Cape Lambertsiron ore project and, more recently, the announcement thatSinosteel had acquired a small stake in Murchison Metals Ltd.

Although there are many Chinese companies undertaking thesedeals, most have the Chinese Government as theirmajor shareholder.

These transactions come at a time of increased scrutiny ofinvestments by sovereign wealth funds and other state-ownedorganisations. Concerns centre on the perceived lack oftransparency and motives of the state-sponsored organisations.Notwithstanding these concerns, a significant proportion ofour industry is foreign owned and the benefits generated forthe Australian economy from these projects, which may nototherwise be developed, cannot be ignored. On balance,

Australia should continue to welcome foreign investment and

address ownership or other concerns on a case-by-case basis.

Market capitalisation

Despite the occasional bump in the road, the Mid-tier 50 hassignificantly increased its market capitalisation during the period,outperforming the ASX All Ordinaries Index by a factor of 10 to 1.

The aggregated market capitalisation of the Mid-tier 50 increasedfrom $38.4 billion to $64.7 billion. This 68.5% increase contrastswith an increase in the ASX All Ordinaries of just 6.4%.

More than half the companies comprising this years Mid-tier 50doubled their market capitalisation.

Although some of the increase was the result of equity issues,most arose due to share price accretion. Twenty companiesrecorded share price increases in excess of 100%, with theaverage increase for the sector being 117%.

This strong share price growth has led to companies having amarket capitalisation comfortably exceeding their net assets.The average ratio of market capitalisation to net assets was 8.4,ranging between 1.5 to 37.

The movement in ASX 300 Metals and Mining Index, broadlyreflective of the movement in shares in the Mid-tier 50, shows themagnitude of some of the recent share price movements and, inparticular, the strong recovery from the declines in late August2007 when the subprime crisis began to affect global financialmarkets. Since then the index has experienced considerablevolatility as markets try to gauge the extent of the globalslowdown and the impact of the credit crunch on the sector.Balancing this downside has been the continued growth in Chinaand some very strong commodity price increases for iron oreand coal.

In March 2008, the sector was rocked by the collapse of OpesPrime, a Melbourne based stockbroker. Many of the Mid-tier 50

companies were placed in trading halts as large parcels of sharespledged as security for margin loans were sold. The implicationswere that companies lost considerable amounts of money,executives and investors lost shares supporting margin loans andlarge parcels of shares were traded.

Aussie mine | Mid-tier industry in perspective


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The chart below shows the top five increases in share price within the Mid-tier 50 from January 2007 to March 2008.

Figure 2: Top 5 Percentage share price growth

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Figure 1: S&P/ASX 300 Metals and Mining Index(1 January 2007 to 28 March 2008)

Source: ASX 300 Metals and Mining Index

0%

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Andean Resources Limited Midwest Corporation Limited Sundance Resources

Atlas Iron Riversdale Mining Limited

Jan08 Fe

bM

ar Apr

May Ju

n Jul

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Source: PricewaterhouseCoopers


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Aussie mine | Mid-tier industry in perspective

The following graph illustrates the market capitalisation of the Mid-tier 50 by commodity.

Figure 3: Principal metal/commodity minedKey Commodity of the 50 companies analysed, based on market capitalisation

Other

7%14%

21%

14%19%

8%

10%

7%

Uranium

Iron Ore

Gold

NickelCoal

Platinum

Non-ferrousMetals


The following graph illustrates the market capitalisation of the Mid-tier 50 by asset location.

Figure 4: Location of 50 companies analysed, based on market capitalisation

38% 19%

7%

6%

6%

19%

3%

1%

1%

WesternAustralia

Africa

Asia

New SouthWales

NorthernTerritory

Queensland

SouthAmerica

SouthAustralia

Tasmania


It is interesting to note that consistent with 2006, more than 70% of the companies have their primary asset base in Australia.


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We spoke with Rob Neale, the Chief Executive of New Hope Corporation

Limited (New Hope), about where this listed energy company has comefrom and where he sees its future. At 31 December 2007, New Hopesmarket capitalisation was about $1.86 billion, making it number eight inour Mid-tier 50 list. By 30 April 2008, the groups market capitalisation had

reached $3.13 billion.

Mid-tier 50 profileNew Hope Corporation Limited

Aussie Mine (AM): To begin with, can you give somebackground on New Hope?

Rob: New Hope has close historical ties to the West Moretoncoalfields near Ipswich in South East Queensland, wherethe company began mining in 1952 and developed its directhands-on operations philosophy, underpinning our focus onbeing a low-cost producer. Head office is in Ipswich and we willmove to the new Springfield-Brookwater office at year end.

When I joined in 1996 after 23 years with Exxon, we hadsome modest projects in West Moreton and had ventured intoIndonesia where we held a 50% interest in the PT Adaro project.By 2001, Adaro was the largest coal producer in Indonesia. In2005 we sold our Indonesian interests for US$378 million; at thattime Adaro was producing about 25 mtpa.

We still have one mine operating in West Moreton, as well as ourNew Acland project on the Darling Downs about 200 kilometreswest of Brisbane.

Washington H. Soul Pattinson is our major shareholder witha 60% interest. The company listed on the Australian StockExchange in 2003.

AM: Can you describe the culture you and your managementteam have sought to build at New Hope?

Rob: We are proud of our performance around culture andpeople. Staff turnover sits at half the average of the Australiancoal industry.

The culture we have sought to create centres around fourfundamental principles:

People are Important

Margin Management makes us Competitive

Continuous Improvement makes us Effective

Growth is an Imperative

Our track record on staff turnover and cost management, andthe way New Hope is looking to the future with a well-focusedstrategy, shows we are bringing these principles to life, but thereis always more to be done.

AM: Where are New Hopes current production effortsfocused?

Rob: The New Acland project is a big focus. Its thin coalseams make mining a challenge, but thin seam mining issomething New Hope became very proficient at in the WestMoreton coal fields.

Production at New Acland is scheduled to increase to 4.2mtpa from mid 2008, with plans to expand up to 10 mtpa ifinfrastructure and markets are available.

New Acland benefits from access to port capacity at theQueensland Bulk Handling (QBH) facility, a relativelydemurrage-free coal terminal that operates at the Port ofBrisbane. QBH has initiated a project to increase annual capacityto about 7 mtpa, with completion scheduled for October 2010.

AM: What about future coal production?

Rob:Aside from our New Acland expansion, New Hopesfuture includes projects in Central Queensland where we holdthe New Saraji, Lenton and Bee Creek tenements.

Our New Saraji coking coal project, the most promising interms of production in the near term, sits adjacent to the Sarajiopen-cut coal mine operated by the BHP Billiton-Mitsubishi

Alliance (BMA).

New Saraji is likely to be an underground operation, athough

an open-pit box cut access is being examined.

The current inferred in-situ resource for New Saraji is estimatedat 690 million tonnes of metallurgical coal, including hardcoking coal. Our goal is to increase this to between 1.0 and1.5 billion tonnes.

AM: Has New Hope secured rail and port capacity for futureCentral Queensland coal production?

Rob: Theres no denying this remains a huge concern forour industry. To date it has not impacted on our South EastQueensland operations because we have access to the QBHfacility. From a Central Queensland perspective, we have

managed to secure 10 million tonnes per annum of rail andport capacity as part of the planned expansions at the AbbottPoint terminal.

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Aside from their New Aclandexpansion, New Hopes futureincludes projects in CentralQueensland where they holdthe New Saraji, Lenton and

Bee Creek tenements.


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The introduction of flow through shares as promised by theRudd Labor Government would be a positive for futureinvestment in exploration and the future of the industry.


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Exploration expenditure

In the following article, official data from the Australian Bureau of Statistics has

been used.

Investment in exploration expenditure is a key factor in sustaining the current rate ofgrowth in the mining sector over the long term. Although exploration expenditure andmetres drilled increased significantly in the period under review, Australia still fallsbehind our competitors, including Canada.

A range of factors will influence the decision to invest inexploration expenditure. Economic factors include mineralprices current and future and the costs and availability of

inputs into the exploration process, such as labour, equipmentand other costs.

The introduction of flow through shares as promised by theRudd Labor Government would be a positive for futureinvestment in exploration and the future of the industry.

Total Australian exploration expenditure

Exploration expenditure has continued to increase each year,in line with the current resources boom. Expenditure hasmore than doubled since 2004, increasing from $0.9 billion inDecember 2004 calendar year to $2 billion in 2007.

Expenditure on new vs existing deposits

Exploration spending on new deposits grew by 49% in the

calendar year ended December 2007 a significant increasecompared with the increase in the year to December 2006 of26%. In comparison, exploration on existing deposits grew by35% in 2007 compared with 30% in 2006.

Figure 7 demonstrates that exploration expenditure still trendsstrongly towards existing rather than new deposits. This islikely to be due to the inherent risks and costs associated withgreenfields exploration. The focus of exploration expenditure onbrownfields sites may pose problems for the longevity of growthin the mineral sector if insufficient resources are being directedtoward greenfields exploration.

Figure 6: Exploration expenditure

$0

$500

$1,000

$1,500

$2,000

$2,500

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Years

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millions

Source: ABS, Mineral and Petroleum Exploration, 8412.0, December Quarter 2007.


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Aussie mine | Exploration expenditure

Figure 7: Exploration expenditure new and existing deposits

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2004 2005 2006 2007

$millions

New Deposits Existing Deposits Total Deposits


Figure 8: Exploration expenditure by geographic location

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2004 2005 2006 2007

Year

$millions

New South Wales Victoria Queensland South Australia

Western Austalia Tasmania Northern Territory



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Exploration expenditure by geographiclocation

Exploration spending has increased in all states and the NorthernTerritory over the past four years. Western Australia dominates,attracting more than 50% of total exploration expenditure in2007. Queensland and South Australia come second and third,attracting 15% and 13% of expenditure respectively.

Exploration by commodity type

Expenditure on all major commodities has increased over thepast four years. Exploration in the gold sector has continued tobe a major contributor to overall exploration; however, in the past12 months the stronger performers have been base metals, ironore and coal, which have all increased noticeably.

It is interesting to note that while gold has remained a majorcontributor over the past four years, exploration expenditure ongold has actually decreased as a proportion of total expenditure.In contrast, relative expenditure on uranium, copper and silver

has increased significantly.

Exploration cost

The cost of exploration drilling (per metre) has continued toincrease substantially. The data available does not indicate whatproportion of the increased expenditure is related to an increasein metres drilled versus the increased cost of equipment, labourand other inputs.

Analysing the expenditure per metres drilled over the past10 years is evidence of this trend over the longer term.

Figure 9: Exploration by commodity

0

500

1,000

1,500

2,000

2,500

3,000

2004 2005 2006 2007

Year

$millions

Copper Silver Nickel Base Metals Gold Iron Ore

Mineral Sands Uranium Coal Diamonds Other



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Aussie mine | Exploration expenditure

Figure 10: Proportionate exploration expenditure by commodity

0%

10%

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2004 2005 2006 2007

Copper Silver Nickel Base Metals Gold Iron Ore

Mineral Sands Uranium Coal Diamonds Other


Figure 11: Expenditure per metre drilled

0

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100.00

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250.00

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Year

$



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Figure 12: Metres drilled

0

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1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Years

'000


Metres drilled

Total mineral exploration metres drilled over the past three yearshas increased significantly, rising 39% from December 2004 toDecember 2007.

Interestingly, a different trend emerges over a 10-year period.According to ABS statistics, annual mineral exploration metresdrilled was 30% lower in December 2007 than in 1997.

Further, metres drilled in relation to new deposits, as opposedto existing deposits, has remained consistent from 2006 to 2007with 39% of metres drilled in relation to new deposits for eachyear and 61% on existing deposits.

Such an overall decline in actual exploration (metres drilled) overthe longer term, coupled with a lack of investment in explorationat new sites, are arguments for considering other ways ofencouraging investment in exploration.

Flow through shares

The Labor Governments election campaign includedundertakings regarding the introduction of a flow through sharescheme for smaller operators in the mineral exploration industryto promote investment in exploration.

Understandably, the industry thought the incentive was back onthe table after having been rejected by the Howard Government.

But following the election, it appears the Government isback-tracking over concerns about inappropriate taxationplanning under a flow through share scheme. This is threateningto derail a policy that is needed to encourage exploration.

Under a flow through share scheme, tax losses incurred by

exploration companies can be passed on to shareholders andutilised to offset personal income. This brings forward the benefitof the losses rather than having them accumulate over time withinthe company itself, until such time as sufficient taxable income isearned to extinguish the losses (as is currently the case).

To be fair to the Federal Treasury, a similar scheme wasintroduced in the 1970s and, to some degree, it was exploited.But today, in an era when corporate governance is much strongerand the Australian Taxation Office more vigilant, it should bepossible to develop a scheme that is robust enough to strikethe right balance between promoting exploration and preservingtaxation revenue.

Canada has such a scheme and, although it has its critics, it hasencouraged exploration in that country. Canada is the worldsbiggest explorer after introducing the scheme 7 years ago.

Such a scheme directly encourages investment in juniorexploration companies, thereby providing funds for exploration.

The introduction of a flow through tax credit scheme should bepursued for the long-term benefit of the industry.


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While Australian business leaders are aware of climatechange as an issue and are keen to know more about how torespond, they are not ready for a carbon-constrained world.


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Climate change

The challenge to achieve a stabilisation of greenhouse gas concentrations inthe atmosphere at 450ppm, argued as necessary to hold an increase in global

atmospheric temperature to 2 degrees Celsius, will require a significant shift in theway we generate and utilise energy in our economy.

A key plank of the Australian response to this challenge is theemergence of a mandatory emissions trading scheme that willplace a cap on the level of emissions that will be permitted

from individual facilities. This cap will be consistent with theGovernments long-term reduction target of 60% on 2000 levelemissions by 2050, and should be operational by 2010.

This situation, coupled with the industrys exposure tointernational trade, means that the sector will often have anincreased burden placed on it in terms of emissions reduction,while being required to compete, in some instances, withcompanies that operate in jurisdictions that do not face similarcompliance regimes.

The other major challenge facing the industry is changes in thephysical environment on account of a climate system modifiedby human activity. These include the consequences of changed

weather patterns for instance, increased frequency andintensity of storms, increased flooding in some areas and droughtin others, rising temperatures and heat-related illnesses. In

January and February 2008, for example, rainfall in the southernparts of Queensland and northern NSW was estimated to havecost the mining industry $1 billion in lost revenue on account ofmine closures related to flooding.

The main conclusion from a recent PricewaterhouseCooperssurvey is that while Australian business leaders are aware ofclimate change as an issue and are keen to know more abouthow to respond, they are not ready for a carbon-constrainedworld. Among the business leaders, the mining sector appearsto be leading the pack in their understanding and responses.

Figure 13: Business position on carbon management strategy

0

10

20

30

40

50

60

70

80

Not Aware of Impacts Aware, Keen to Learn Looking forStrategy Response

Responded andReceiving Benefits

%o

fEn

terprises

Total Resources Industry

Source: PricewaterhouseCoopers Carbon Countdown Survey 2008

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Aussie mine | Climate change

What does this mean for the mining industry?

Climate change is a business landscape modifier. Virtuallyall aspects of a companys operating environment supply

chain, customers, operations, investors, regulation and evencompetitors are exposed to its effects. The extent of thisvulnerability represents a real threat to future earnings andexplains why pressure is growing on companies to act swiftlyand decisively to protect and enhance shareholder valueby minimising downside risks and maximising the upsideopportunities of climate change.

Companies are achieving this by implementing a robustcarbon management strategy that addresses the foreseeableimpacts of climate change on the business environment andhelps manage the transition to a fully carbon conscious businessover the long term. Simply branding a firm as going green will

no longer suffice and a companys carbon performance will needto be actively managed.

The following framework is recommended for companies whenplanning to prepare for increasingly unpredictable weatherpatterns and a carbon constrained economy.

1. Identify value at risk first and second order impacts

Identifying value at risk is the necessary and strategic first stepfor any business. The industry will face exposures to climatechange both in terms of the physical risks (first order impacts)as well as changes in the regulatory regime that impose

constraints on greenhouse gas emissions and changes incustomer and consumer behaviour (second order impacts).Assessing a companys exposure (value at risk) because ofclimate change therefore requires investigation beyond acompanys own emissions and energy use. Raw materials thatinvolve significant carbon in their extraction or production andassociated services such as logistics will directly or indirectlyaffect a companys exposure.

Additionally, while some assets may be significantly exposed,others may be protected. What is critical is for companies tofully understand the risks and opportunities associated withthis complex area and develop robust plans to address them.The implication is that the level or quantum of a companys

response should be proportionate to the companys ultimatevalue at risk.

2. Create a senior carbon management position

Leading companies will be managing carbon performance forat least the next 50 years and this will have an enormous impacton shareholder value. Such companies are well-advised tocreate a new, senior carbon management position and team.If the position is a profit centre, it will drive the direction of thatteam from compliance and cost minimisation to a focus on theopportunities created through new investments and trading.

The teams focus should be on driving internal and externalcarbon targets, identifying and leveraging carbon opportunitiesand reviewing and revising carbon strategies across theorganisation.

3. Emissions management identify emissions sources,boundaries, baseline, and prepare forecasts.

Companies will be managing their carbon for legal and legislativecompliance purposes, as well as non-compliance purposes,for as long as they exist.

It is critical that a company understands its contribution to globalemissions, including direct and indirect emissions, from electricityas well as emissions that relate to the companys interaction withsuppliers, partners and customers.

This information, including actual and forecast emissions, willalso form the basis of all carbon-related strategic decisions.It is therefore critical that a company puts in place the processesand procedures necessary to identify and capture the requiredinformation in a manner that is efficient, effective and repeatable.

4. Ensure carbon data is independently audited

Stakeholders want to know that all data on carbon emissions andabatement activities is credible. To ensure credibility, companiesneed to have their data audited by a third party. Meanwhile,companies that trade in the voluntary market will require

independent verification of their offset activities.

5. Report carbon data internally and externally

Transparency on carbon-related issues is essential asstakeholders including capital markets, investors, shareholders,employees and customers are increasingly insisting on beingtold about companies efforts to control their emissions.

A carbon management communications strategy is critical toconvey the companys vision, targets and progress on emissionsreduction. Clear, transparent statements should be made,particularly in sustainability reporting, and Climate Disclosure

Project (CDP) information requests should be answered robustly.

6. Prepare an inventory of abatement options set reductiontargets

Leading carbon performers identify ways to drive reductions indirect and indirect emissions and their associated cost.

Abatement options vary from industry to industry and newoptions are being developed regularly. Energy efficiencyimprovements, fuel switching and load management in transportare some of the more common options. It is important forbusinesses to be aware of the abatement options available and

suitable for their specific situations.


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7. Identify and leverage new carbon opportunities

The immaturity of existing carbon markets and regulation meansthere are huge potential business opportunities. Customers, for

instance, will be actively searching for solutions to their owncarbon management challenges. This situation creates enormousscope for companies to provide carbon-neutral or offset productswhere customers receive a product with the carbon emissionscompletely offset by the use of robust carbon credits.

8. Track competitors responses

Keeping track of competitors responses to climate changeis vital to enable companies to assess how competitors willbe affected by the first- and second-order changes in thebusiness landscape, as well as how competitors carbonmanagement policies might impact their own business, the

industry and the wider business community. To this end, it isimportant to understand whether competitors are more or lessvulnerable to the wide range of first-order and second-orderclimate change impacts.

Longer term, businesses should look at rating competitorscarbon performance against their own.

9. Price carbon into investment decisions

It will become increasingly necessary for companies to factorcarbon exposure into their investment decisions, both withgreenfield developments and when contemplating mergers oracquisitions. Incorporating carbon costs into acquisition analysislessens the likelihood of significant and unexpected carbonexposure and ensures carbon liability shocks, should they occur,are at least manageable.

Leading companies have been incorporating a carbon priceinto their investment decisions for a number of years to helpthem determine the viability of a project despite Australia onlyrecently committing to a carbon trading system.

10. Review progress on carbon targets

Robust carbon management is not a set-and-forget process.It requires regular review and revision to ensure a companyremains responsive to changes in the regulatory and broadersocial environment. To remain ahead of the game, leadingcompanies will need to make sure they constantly refine theirapproach to meeting carbon reduction targets.

For further information contact:

Justin Portelli DirectorTelephone: +61 (3) 8603 3275Email: [email protected]


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Commodity prices have generally remained buoyanton the back of unbridled global demand that continuesto be underwritten by growth in the Chinese economyand constricted supply arising from project delays andinfrastructure bottlenecks.


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Aggregated industry financial statements

Aggregated industry income statements

Income statement 2007A$m

2006A$m

Change%

Revenue from ordinary activities

Operating revenue 12,550 8,356 50%

Non-Operating revenue 447 234 91%

Total revenue 12,997 8,590 51%

Less expenses from ordinary activities (9,390) (5,931) 58%

Exploration expenses (159) (129) 23%

EBITDA 3,448 2,530 36%

Depreciation and amortisation (852) (696) 22%

EBIT 2,596 1,834 42%

Net interest expense (77) (85) -10%

Profit from ordinary activities before tax 2,519 1,749 44%

Income tax expense (620) (416) 49%

Net Profit 1,899 1,333 42%

Key earnings ratios

EBITDA margin 27% 29%

Net profit margin 15% 16%

Interest cover (% EBITDA) 2% 3%

Effective tax rate 25% 24%

Top line summary

Operating revenues of the Mid-tier 50 have surged 50% since 2006. This has been

achieved largely as a consequence of the rush to increase production in a boomingcommodity market.

Commodity prices have generally remained buoyant on the back of unbridled globaldemand that continues to be underwritten by growth in the Chinese economy andconstricted supply arising from project delays and infrastructure bottlenecks.

Notwithstanding the increase in commodity prices, the appreciation of the Australiandollar against the US dollar has had a significant impact on companies that remainexposed to the US currency.


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Aussie mine | Aggregated industry financial statements

Figure 14: Bloomberg commodity price index (January 2006 March 2008)

120

150

180

210

240

270

Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08

Source: Bloomberg

Figure 15: AUD : USD exchange rate

0.7

0.75

0.8

0.85

0.9

0.95

1/01

/200

6

1/03

/200

6

1/05

/200

6

1/07

/200

6

1/09

/200

6

1/11

/200

6

1/01

/2007

1/03

/2007

1/05

/2007

1/07

/2007

1/09

/2007

1/11

/2007

1/01

/200

8

Source: Bloomberg


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Top 5 Mid-tier 50 companies by operating revenue

Company name2007A$m

2006A$m

Change%

Straits Resources Limited 3,694 961 284%

Iluka Resources Limited 920 983 -6%

Centennial Coal Company Limited 902 808 12%

Aquarius Platinum Limited 902 569 59%

Minara Resources Limited 771 752 3%

The Top 5 companies account for 57% (2006 53%) of total Mid-tier 50 operating revenue.

Margin

After excluding outliers, the overall trend in EBITDA margin inthe Mid-tier 50 for the year was an increase from 32% to 37%.

The continued strengthening in commodity prices has morethan offset adverse foreign exchange movements and escalatingoperating costs.

At the headline, operating costs increased 58% year on year;however, after excluding outliers operating costs rose by amore subdued 13%. While some of this increase is attributableto production increases, the boom has also continued in othersectors of the resource industry and continues to put upwardpressure on the operating costs of resource companies.

Infrastructure constraints also played a significant role inincreased operating costs.

The significant demand in the construction market has recentlyresulted in numerous capital projects reporting cost blow outs

and the squeeze in the market for labour and mining material

is continuing to put upward pressure on operating costs andconstruction timeframes for new projects.

These increased costs are having a significant impact on theindustry average cost curve, highlighting that cost minimisationand production growth remain key to competitive advantage andshareholder value.

Although exploration spending continues, most of these costsare capitalised to the balance sheet and have limited impact ondisclosed margins.

Effective tax rate

The effective tax rate was 25% for the year, which is relativelyconsistent with the previous year.

Top 5 Mid-tier 50 companies by profit

Company name2007A$m

2006A$m

Change%

Aquarius Platinum Limited 374 189 98%

Minara Resources Limited 272 339 -20%

Jubilee Mines NL 173 103 68%

Resolute Mining Limited 170 (77) -321%

Independence Group NL 105 35 200%


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Key balance sheet ratios

Ratio 2007 2006

Debt to equity ratio 22.2% 21.3%Net debt to equity ratio -1.5% -2.8%

Current ratio 1.92 2.23

Quick ratio 1.64 1.90

Net debt (borrowings less cash) (190) (228)

Gearing ratios have remained at low levels; indeed, the debt toequity ratio is 22.2%. This low gearing reflects the high level ofcash generated from operations and significant equity fundingflowing from investors eager to participate in this sector.

Of the debt issued during 2007, 96% was accounted for by theproducing companies. Further, 62% of the debt was raised byfour producing companies: Straits Resources Limited, CentennialCoal Company Limited, Western Areas NL and PaladinResources Limited.

Exploration and non-producing companies increased borrowingsby about $78 million over the year. Producing companiesincreased their level of borrowings by about $1.9 billion.

The Mid-tier 50 have invested a large proportion of the fundsraised during the year which is reflected in a $5 billion increase inproperty, plant and equipment and capitalised exploration costsover the year.

Cash on hand exceeds borrowings; however, short-termborrowings exceed $1 billion and will therefore need to berefinanced in the next 12 months. The debt market has certainlybeen impacted by the credit crunch contagion so early attentionto these refinancings will be essential.


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Aussie Mine | Aggregated industry financial statements

Aggregated industry cash flow statement

Cash flow statement2007

A$m

2006

A$m

Change

%Cash flows related to operating activities

Cash generated from operations 3,348 2,474 35%

Net borrowing costs (0) (25) -100%

Other (166) (198) -16%

Income taxes (paid) / refunded (579) (314) 85%

Net operating cash flows 2,603 1,937 34%

Cash flows related to investing activities

Purchases of property, plant and equipment (2,370) (1,481) 60%

Exploration expenditure (740) (474) 56%Purchases of investments and intangibles (1,208) (428) 182%

Other (159) (152) 4%

Proceeds from sale of property, plant and equipment 118 233 -50%

Proceeds from sale of investments 958 84 1040%

Net investing cash flows (3,401) (2,218) 53%

Cash flows related to financing activities

Proceeds from ordinary share issues 1,915 1,635 17%

Net borrowings 1,234 443 179%

- Dividends paid (785) (634) 24%

Total other (9) (68) -87%

Net financing cash flows 2,355 1,376 71%

Net increase/(decrease) in cash and cash equivalents 1,557 1,095 42%

Operating cash flows

In 2006, we described net cash flow from operations asmagnificent, but performance has improved even further in

2007 with total net operating cash flow of $2.6 billion, a 34% rise.

Net borrowing costs have fallen, reflecting a higher return oncash and other investments held by the Mid-tier 50.

Income tax payments have risen by 85%, with the FederalGovernment likely to reap additional benefits during 2008 aspayments typically lag behind tax expense and losses carriedforward from prior years are utilised. We note that this figureexcludes royalties, licence fees and other indirect taxes andtherefore the real cash tax impact on the Mid-tier 50 is,in reality, much higher.

Investing cash flows

Like last year, much of the cash generated from operationshas been reinvested into mine development, expansion and

exploration in the areas shown in the graphs below.


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Figure 16: Capital expenditure by commodity 2007

Other

Uranium

Zinc

Coal

Diversified

Gold

Iron Ore

Nickel

9%

2%

26%

7%

21%4%

18%

13%


Figure 17: Exploration expenditure by commodity 2007

Nickel

Coal

ZincIron Ore

Other

Uranium

Gold

Diversified

7%3%

14%

2%

49%

8%

13%

4%



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The marked increase in proceeds received from sale ofinvestments reflects large transactions completed byResolute Mining and Allegiance Mining during the period.

Project development and expansion has its challenges.The shortage of labour, equipment and other inputs is probablymore acutely reflected in developments than operating costs,with the cost of development substantially above what it wasa few years ago. The other challenge is to deliver on time andon budget: increasing lead times and a lack of skilled labourmake project execution ever harder. The need for strong projectmanagement skills has never been greater. The call for Canberrato cut red tape when it comes to bringing in skilled migrantsto address such labour shortages is one that the FederalGovernment should heed.

Financing cash flowsCash flows from financing activities have increased by $1 billionto a net in-flow of $2.4 billion. Net cash in-flows from borrowingshave increased significantly by 179% to $1.2 billion.

With the onset of the credit crunch, the Mid-tier 50s capacity toaccess debt finance may be restricted or at a higher cost and thiswill create challenges in accessing capital to finance expansionsin the short term.

This may force the Mid-tier 50 to seek additional funding fromshareholders who have already invested significantly, with afurther $1.9 billion invested in 2007 (2006: $1.6 billion), or seek

partnerships with foreign investors. The current level of inboundinvestment could be the tip of the iceberg. The credit crunch mayalso end any prospect of private equity taking a substantial directinterest in our mining industry, even if they wanted to.

Also within financing activities, distributions to shareholders haveincreased slightly from the prior year to a total of $0.8 billion.

Aussie Mine | Aggregated industry financial statements


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Glossary

AIFRS Australian equivalent to International Financial Reporting Standards

Current ratio Current assets

Current liabilities

EBITDA Earnings before interest, tax, depreciation and amortisation

Debt to equity Borrowings

Borrowings plus shareholders equity

Market capitalisation The market value of the equity of the company, calculated as the share price multiplied by the numberof shares outstanding

Net borrowings Total borrowings less cash and cash equivalents

Net debt to equity Net borrowings

Net borrowings plus shareholders equity

Quick ratio Current assets less inventories

Current liabilities


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Mid-tier 50 companies analysed

Symbol Year End Company

MarketCapitalisationas at 31/12/07

($millions)

Rank byMarket Cap

Producer (P)/Non-Producer(N)

ALB 31/12/2007 Albidon Limited 488.49 48 N

AGM 31/12/2007 Allegiance Mining NL 784.23 33 P

AND 30/06/2007 Andean Resources Limited 824.59 31 N

AQP 30/06/2007 Aquarius Platinum Limited 3,327.25 3 P

AQQA 30/06/2007 Aquila Resources Limited 1,945.72 7 P

AGO 30/06/2007 Atlas Iron Limited 509.63 46 N

AVO 30/06/2007 Avoca Resources Limited 527.66 44 P

BMN 30/06/2007 Bannerman Resources Limited 480.16 50 N

CNT 30/06/2007 Centamin Egypt Limited 1,072.24 22 N

CEY 30/06/2007 Centennial Coal Company Limited 1,491.70 15 PCZA 30/06/2007 Coal of Africa Limited 538.35 41 P

CSM 30/06/2007 Consolidated Minerals Limited 1,244.78 20 P

DOM 30/06/2007 Dominion Mining Limited 569.09 37 P

ERA 31/12/2007 Energy Resources Of Australia Limited 3,719.39 2 P

EQI 30/06/2007 Equigold NL 843.34 29 P

FLX 30/06/2007 Felix Resources Limited 1,579.85 12 P

GBG 30/06/2007 Gindalbie Metals Limited 614.25 36 N

GCL 30/06/2007 Gloucester Coal Limited 537.52 42 P

ILU 31/12/2007 Iluka Resources Limited 1,114.29 21 P

IGO 30/06/2007 Independence Group NL 1,028.04 23 PJML 30/06/2007 Jabiru Metals Limited 559.97 39 N

JBM 30/06/2007 Jubilee Mines NL 2,968.21 4 P

KZL 30/06/2007 Kagara Zinc Limited 1,338.89 19 P

LYC 30/06/2007 Lynas Corporation Limited 559.17 40 N

MCC 30/06/2007 Macarthur Coal Limited 1,840.07 10 P

MIS 31/12/2007 Midwest Corporation Limited 1,020.05 24 N

MRE 31/12/2007 Minara Resources Limited 2,897.46 5 P

MCR 30/06/2007 Mincor Resources NL 832.65 30 P

MDL 30/06/2007 Mineral Deposits Limited 567.84 38 P

MBN 30/06/2007 Mirabela Nickel Limited 900.79 28 N

MGX 30/06/2007 Mount Gibson Iron Limited 2,228.57 6 P

MMX 30/06/2007 Murchison Metals Limited 1,393.52 18 P

NHC 31/07/2007 New Hope Corporation Limited 1,859.52 8 P

PDN 30/06/2007 Paladin Resources Limited 4,162.32 1 P

PNA 31/12/2007 Pan Australian Resources Limited 1,406.75 17 P

PEM 30/06/2007 Perilya Limited 519.19 45 P

PLA 30/06/2007 Platinum Australia Limited 531.03 43 N

PMM 31/12/2007 Portman Limited 1,844.74 9 P


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RSG 30/06/2007 Resolute Mining Limited 487.43 49 P

RSP 30/06/2007 Resource Pacific Holdings Limited 1,002.74 26 P

RIV 30/06/2007 Riversdale Mining Limited 1,785.05 11 P

SBM 30/06/2007 Saint Barbara Limited 774.63 34 P

SMY 30/06/2007 Sally Malay Mining Limited 1,013.78 25 P

SGX 31/12/2007 Sino Gold Mining Limited 1,552.75 13 P

SRL 31/12/2007 Straits Resources Limited 1,490.82 16 P

SMM 30/06/2007 Summit Resources Limited 625.36 35 P

SDL 30/06/2007 Sundance Resources Limited 804.71 32 N

SLV 30/06/2007 Sylvania Resources Limited 493.51 47 N

WSA 30/06/2007 Western Areas NL 908.23 27 P

ZIM 30/06/2007 Zimplats Holdings Limited 1,501.54 14 P

Note: Aditya Birla Minerals Limited has not been included, as a consequence of this companys financial year end, financial results were yet to be

released at the time of publication.

Explanatory notes for

aggregated financial informationWe have analysed the largest 50 mining companies listed onthe ASX with a market capitalisation of less than $5 billion at31 December 2007.

The results aggregated in this report have been sourced frompublicly available information, primarily annual reports andfinancial reports available to shareholders. Companies havedifferent year-ends and report under different accountingregimes.

Information has been aggregated for the financial years

of individual companies and no adjustments have been madeto take into account different reporting requirements andyear-ends. As such, the financial information shown for 2007covers reporting periods between 30 June 2006 and 31December 2007, with each companys results included for the12-month financial reporting period that falls into this timeframe.

All figures in this publication are reported in Australian dollars,except when specifically stated. The results of companies thatreport in currencies other than the Australian dollar have beentranslated at the average Australian dollar exchange rate for thefinancial year, with balance sheet items translated at the closing

Australian dollar exchange rate.

Some diversified companies undertake part of their activitiesoutside the mining industry. No attempt has been made toexclude such non-mining activities from the aggregated financialinformation.


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Contacting PwC

PricewaterhouseCoopers provides industry-focused assurance,tax and advisory services to build public trust and enhance valuefor its clients and their stakeholders. More than 130,000 peoplein 148 countries work collaboratively using connected thinking to

develop fresh perspectives and practical advices.

PricewaterhouseCoopers is a leading advisor to the miningindustry, working with more explorers, producers and relatedservice providers than any other professional services firm toensure we meet the challenges of the global mining industry inthe future.

Our strength in serving the mining industry comes from our skills,experience and seamless network of dedicated professionalswho focus their time on understanding the industry and workingon solutions to mining industry issues.

For more information on this publication or howPricewaterhouseCoopers can assist you in managing value andreporting, please speak to your current PricewaterhouseCooperscontact or telephone/e-mail the individuals below who will putyou in contact with the right person.

Australian mining team

Australian Mining Leader

Tim Goldsmith, MelbourneTelephone: +61 (3) 8603 2016Email: [email protected]

New South Wales

Marc Upcroft, SydneyTelephone: +61 (2) 8266 1333Email: [email protected]

Queensland

Wayne Huf, BrisbaneTelephone: +61 (7) 3257 5600Email: [email protected]

South AustraliaAndrew Forman,AdelaideTelephone: +61 (8) 8218 7401Email: [email protected]

Victoria


Western Australia

Nick Henry, Perth

Telephone: +61 9238 3475Email: [email protected]

Global mining group leadership

Global mining leader


Asia-Pacific


Canada

Paul Murphy, TorontoTelephone: +1 (416) 941 8242Email: [email protected]

China

Rita LiTelephone: +86 (10) 6533 2365Email: [email protected]

Derrick RyleyTelephone: +86 (10) 6533 2207Email: [email protected]

Latin America

Anthony Dawes, SantiagoTelephone: +56 (2) 940 0064Email: [email protected]

United Kingdom

Jason BurkittTelephone: +44 20 7213 2515Email: [email protected]

United States

Steve Ralbovsky, PhoenixTelephone: +1 (602) 3648193Email: [email protected]

India

Kameswara RaoTelephone: +91 40 233 00 750Email: [email protected]

South Africa

Hugh CameronTelephone: +27 11 797 4292Email: [email protected]


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Key contributors to this report

Tim Goldsmith, Australian Mining Leader

Phil ClewettPeter DemuraWayne HufStuart LandsbergJustin PortelliJosh RaabeCathy Simons

Adam Vassilieff

For copies of this report, contact:

Jacqui Thurlow

Telephone: +61 (3) 8603 3267Email: [email protected]

Frederic SchnellTelephone: +61 (2) 8266 2983Email: [email protected]

Other PwC Mining Publications

Visit our website www.pwc.com/mining

Global Mine* Bulletin

Quarterly e-newsletter discussing trends andissues in the mining sector.

Mining Deals*2007 Annual Review

Mining Deals 2007reviews deal activity in themining industry including industry trends.

junior mine*Review of trends in the TSX-V mining industry

March 2008

Our second edition examines the top 100mining companies on the TSX VentureExchanges (TSX-V) based on marketcapitalisation.

junior mine*Review of trends in the AIM mining industry

May 2008

Insight into the performance of the juniormining industry, as represented by 50 of thelargest mining companies on the AlternativeInvestment Market (AIM).

mineIndonesia 2007*December 2007

Overview of the performance and trends ofmining companies in Indonesia.

Carbon CountdownA survey of executive opinion on climate change in

the countdown to a carbon economy

January 2008

A major survey to assess how preparedAustralian businesses are to operate in acarbon-constrained economy, particularly inrelation to regulatory requirements, investorexpectations and consumer demand.

Financial Reporting in the mining* industryInternational Financial Reporting Standards

June 2007

An overview of the financial reportingimplications of IFRS across a number of areasselected for their particular relevance to themining industry.

Mine* As good as it gets?A review of global trends in the mining industry

June 2008

PricewaterhouseCoopers fifth annual review ofglobal trends in the mining industry providing

a comprehensive analysis of the financialperformance and position of the sector.


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