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Aussie mine*A tale of two halvesMay 2009

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Foreward

In 2008, the Australian mid-tier mining sector produced a tale of two halves.

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2008 was the most tumultuous fiscal year in living memory. The global financial crisis rapidly plunged all of us into a period of economic uncertainty.

In early 2008, the Australian mid-tier mining sector continued to enjoy record growth, underpinned by seemingly insatiable consumer demand from awakening giants in China and India, along with soaring commodity prices.

The mining sector quickly shifted from reaping the rewards to battening down the hatches as the global economy spun out of control.

Against this backdrop, we welcome you to PricewaterhouseCoopers’ third annual review of trends in the mid-tier Australian mining industry. This report focuses on the annual results of the largest 50 mining companies listed on the Australian Stock Exchange with a market capitalisation of less than $5 billion at �� December 2008 (the Mid-tier 50).

For the first time, this publication has also analysed half-year financial reports for the period up to �� December 2008. This has enabled us to explore the impact of the global financial crisis on our mining sector.

Aussie Mine* provides an overview of the financial performance of the mid-tier mining sector and explores current areas of focus, including cost management initiatives and the relevance of climate change developments to the mid-tier mining sector in Australia.

Thank you for your interest in this report. We trust you will find it informative and insightful.

Tim GoldsmithAustralian and Global Mining Leader PricewaterhouseCoopers

Michael Happell Australian Resources Industry Leader PricewaterhouseCoopers

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Table of Contents

5

Financial overview 6

Executive summary 7

Mid-tier industry in perspective 8

Movements in the Mid-tier 50

M&A activity

Market capitalisation

Comparison of the Mid-tier 50 to other performance measures

The return to gold

The way I see it – Milan Jerkovic, Straits Resources Limited ��

Cost containment – a guide to how and who �6

Aggregated industry financial statements �8

Income statement

Balance sheet

Cash flow statement

From cost effectiveness to cost efficiency 28

Aggregated industry half-year update �0

Income statement

Balance sheet

Cash flow statement

Indirect taxes – changes and opportunities ��

Climate change – what’s changed? �6

Glossary �8

Mid-tier 50 companies analysed �0

Explanatory notes �2

Contacting PwC ��

Key contributors ��

Other mining publications �6

6

Financial overview12008 A$m

2007 A$m

Change %

Revenue �2,2�� ��,8�� �%

Impairment (2,72�) (69) �,86�%

EBITDA margin % �2% ��% n/a

Return on equity % (�%) �7% n/a

Net profit/(loss) (680) 2,�67 n/a

Proceeds from ordinary share issues �,75� �,�62 2�9%

Distributions to shareholders (2,��2) (�,��6) 77%

Net operating cash inflow 2,��7 2,680 (�2%)

Net financing cash inflow 2,27� �,52� �9%

Net borrowing inflows/(outflows) (2) �,�95 n/a

Cash �,689 �,28� ��%

Property plant and equipment and capitalised exploration �9,0�9 ��,��5 �5%

Total borrowings 5,��6 �,778 ��%

Net assets 2�,0�� �5,6�9 �7%

Market capitalisation ��,2�0 6�,767 (5�%)

Market capitalisation to net assets ratio �.�6 �.08 n/a

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The Mid-tier 50 experienced a year of two distinct halves during the 2008 calendar year. The early part of the year saw continued buoyancy in the Australian mining sector: commodity prices remained relatively high, companies had little difficulty in raising equity to fund asset purchases, and exploration and consolidation in the industry continued at pace. The Australian public was still keen to reap the rewards of the mining boom, and mining stocks were outperforming other industries on the ASX.

Then the worm turned, quickly plunging the industry into economic uncertainty. Commodity prices plummeted, demand that seemed so inevitable six months prior simply vanished overnight, and mining companies were left reeling from this sudden change in external economic factors. Operations and expansion plans that were commercially viable in the first six months of the year were unfeasible by the end of the year.

The sentiment of uncertainty rapidly hit market valuations of the Mid-tier 50. More than half the value of the sector was wiped out in a period of less than six months, bringing the valuation of the sector back to where it was in 2005. Locally, this loss of shareholder value has hit many very hard; however, cashed-up foreign investors view the current predicament as a period of great opportunity to acquire high quality assets. M&A activity is a constant within the industry, and this current period of downturn should see no change in this trend, just a variance in the underlying driver of M&A activity.

The financial results were indicative of this tale of two halves. Revenue benefited from long-term contracts entered into during peak times, and also benefited from a favourable movement in the exchange rate for commodities denominated in USD. As long-term pricing arrangements are re-based in 2009, revenue will start to fall away. The exception to this appears to be gold, which is enjoying a return to favour.

For the first time in recent years, impairment appeared as a line item in the annual results of the Mid-tier 50, and this looks set to increase in 2009 as even more companies reported impairment in the six months to December 2008.

The net asset position of the entities increased significantly during the year, again a throw-back to times when there was greater confidence in the sector. Capital expenditure and

Executive summary2investments increased as companies ploughed funds into mining developments. This rapidly slowed in the six months to December 2008 as companies held back from spending.

Cash flows of the Mid-tier 50 also reflected the split year, most notably with significant funding being pumped into the industry via capital raisings. By the end of the year, the number of capital raisings had decreased significantly and shareholder distributions were held back as companies applied funds to ensure their survival. Exploration expenditure continued to increase: a combination of greater activity and drilling costs.

Despite the tremendous external impacts on companies, it is a time for mining companies to revisit internal decision-making and to realise that a new paradigm is essential for survival. We are no longer operating in a time when the focus is to maximise production at all costs. Companies should be turning to the old heads that bore witness to the pressures that faced the Australian mining industry in the �990s, where cost containment was the critical success factor.

The ability to either successfully re-negotiate debt or access new borrowings will be crucial for survival to many. Some industry participants have managed to roll-over facilities, but none are doing so as easily or cheaply as they were in recent years.

The level of focus on costs, and each company’s approach to cost management, will differ depending on the maturity of their operations and the existing business and governance structure in place. It will be essential for companies to realise that a focus on costs is the responsibility of all levels within the organisation, and companies must quickly identify and act on activities that produce high cost outcomes.

A focus on costs will be essential for obvious areas such as capital budgeting and operational expenditures. Recent changes to indirect taxation laws relevant to the industry may present mining companies with real cost savings if they perform a detailed assessment of their existing indirect tax practices and policies.

The other pressing legislative matter facing the mining industry is climate change. Climate change is a long-term issue that now requires greater attention, as entities start to feel the impact of the legislation requiring them to capture and report emissions data. Those on the front foot in implementing strategies, systems and procedures, will be best positioned for when the CPRS takes effect.

However, among all of the doom and gloom, there is still confidence in the industry long-term. Potential acquisitions in Australian mining continue to be front-page news. The mining sector cannot forego a long-term strategic focus in its efforts to navigate these economic times. Achieving long-term viability will be dependent on making asset acquisitions that are focused on maximising exposure to future upturn.

2008 was a tale of two halves.

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The sharp downturn in the market value of mining companies in the second half of 2008 will provide some companies with further acquisition opportunities to achieve production growth, diversification and economies of scale.

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�.� Movements in the Mid-tier 50The composition of the Mid-tier 50 list fluctuated throughout the 2008 calendar year, given the massive impact of the global financial crisis. There are �5 new arrivals on our list as at �� December 2008, which largely stems from the contrasting fortunes of companies in the nickel, base metals and gold sectors. When compared to our first Aussie Mine* publication three years ago, only 22 of the original 50 companies remain.

Alumina and OZ Minerals slid back onto our list following decreases in market capitalisation to below our $5 billion ceiling. Only six listed mining companies were excluded from this year’s list by virtue of exceeding this threshold, versus nine last year. BHP Billiton, Rio Tinto, Newcrest, Coal & Allied, Lihir Gold and Fortescue Metals all fall outside our analysis this year.

Key observations about this year’s Mid-tier 50 include:

Seven of the �5 arrivals on this year’s list have gold projects. Coal was the next key influencer with three new entrants.

Eight of last year’s 50 companies were acquired.

Companies near the lower end of last year’s Mid-tier 50 with exposure to relatively lower priced commodities during 2008, have been impacted significantly, particularly those with exposure to nickel, zinc, or lead.

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�.2 M&A activityM&A activity within the Mid-tier 50 continued throughout 2008, primarily during the period of high commodity demand experienced during the first half: �� major M&A transactions, totalling $9.2 billion, were completed or pending at �� December 2008.

The sharp downturn in the market value of mining companies in the second half of 2008 will provide some companies with further acquisition opportunities to achieve production growth, diversification and economies of scale. However, the turmoil in global financial markets has severely restricted the availability of debt and equity to finance further M&A activity in the short term.

Table 1: Mid-tier 50 exits due to acquisitions.

Mid-tier 50 Company Acquired Acquirer Approximate Value (A$m)

Consideration

Allegiance Mining NL Zinifex 775 Cash

Consolidated Minerals Ltd Palmary Enterprises �,28� Cash

Equigold NL Lihir Gold Ltd 895 Equity

Jubilee Mines NL Xstrata plc �,20� Cash

Midwest Corporation Ltd Sinosteel Corp �,2�� Cash

Portman Limited Cleveland-Cliffs Inc 502 Cash

Resource Pacific Holdings Ltd Xstrata plc 866 Cash

Source: Dealogic M&A Global database, December 2008

Mid-tier industry in perspective

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Table 2: M&A activity completed or announced by companies in the Mid-tier 50 by December 2008.

Target Acquirer Approximate Value (A$m)

Consideration

Platinum Mile Resources (Pty) Ltd (50%) Aquarius Platinum Ltd 6� Cash and Equity

Fusion Resources Ltd Paladin Energy Ltd �5 Equity

Whitehaven Coal Ltd Gloucester Coal Ltd ��6 Equity

Donegal Resource Pty Ltd Panoramic Resources Ltd 7 Equity

Source: Dealogic M&A Global database, December 2008

Australia for sale..?and address ownership concerns on a case-by-case basis. Undoubtedly, more debate on foreign investment will follow as the local economy simply can not provide the required funding to exploit mining opportunities in Australia.

�.� Market capitalisationThe market capitalisation decrease for the Mid-tier 50 has been staggering, with more than half the value of the sector removed during 2008. At �� December 2007, the Mid-tier 50 had a collective value of $6�.8bn. This had been whittled away to $��.2bn at �� December 2008.

To put this in perspective, our first Aussie Mine* publication reported that at �� December 2005, market capitalisation for the Mid-tier 50 was $28.� billion. Three years of growth in shareholder value vanished in six months due to the effect of the global financial crisis.

Incredibly, this same figure at �0 June 2008 showed an increase to $67.5bn.

Out of the 50 companies, only four bucked the trend and managed to increase their market capitalisation year-on-year.

Table 3: Mid-tier 50 companies that increased market capitalisation – calendar 2008

Company Market Cap 2008 (AUD‘000)

Market Cap 2007 (AUD‘000)

% increase Driver of increase

Iluka Resources �,766 �,��� 59% Buoyant mineral sands prices

New Hope Corporation 2,79� �,860 50% Sale of New Saraji to BMA and higher coal prices

Extract Resoures 28� �99 ��% Significant uranium discovery at Rossing South in Namibia

Felix Resources �,728 �,580 9% Strong coal prices underpinned significant profit increase

Source: PricewaterhouseCoopers

Chinese companies, supported by government war-chests, have the resources to provide funding to the mining sector and are able to take advantage of depressed values, to invest in Australian mining companies. This has hit a raw political nerve with a number of groups in Australia, primarily expressing concerns on the grounds of protectionism.

Significant proposed acquisitions include a US$�9.5 billion investment in Rio Tinto by Aluminium Corporation of China (Chinalco), a $�.2 billion investment in Fortescue Metals Group by Hunan Valin Iron & Steel, and a $�.8 billion investment in OZ Minerals Limited by Minmetals Corp.

The conditions of these proposed investments, which have further increased public scrutiny of investments by state-owned organisations, are currently subject to the review by the Foreign Investment Review Board (FIRB). The key concern is the perceived direct influence Chinese companies (and the Chinese government) may have on the Australian mining sector.

The Australian Government has been perceived by many to be sending mixed messages on foreign investment. On the one hand, significant foreign investment is welcomed for the broader economic impact of creating jobs and pouring money into the local economy. However, protectionist concerns and the intervention of the FIRB are seen by some as impediments to obtaining much needed capital for the Australian mining industry.

All things considered, this is an emerging story and we believe that Australia should continue to welcome foreign investment

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Unfortunately for investors in the sector, these were the exceptions. Half of the Mid-tier 50 lost more than 50% of their market capitalisation during 2008. Nickel producers in particular bore the brunt of the downturn, with three of the poorest five performers by market capitalisation falling in that category.

Table 4. Five largest decreases in market capitalisation – calendar 2008

Minara Resources Limited

500

1000

1500

2000

2500

3000

Market Cap (bn)

Straits Resources Limited

Mincor Resources NL

Panoramic Resources Limited

Murchison Metals Limited

Market Cap December 07

Market Cap December 08

Source: PricewaterhouseCoopers

The erosion of market value has been immense. Other effects of the global financial crisis on the Mid-tier 50 include:

The cut-off point or floor market capitalisation for inclusion in our list of the Mid-tier 50 has significantly changed. In last year’s analysis, 50th place was filled by Bannerman Resources Limited, with a market capitalisation of $�80 million. This year’s 50th company, Platinum Australia Limited had a �� December 2008 market capitalisation of $�27m, representing a 7�% decrease.

Last year’s top �� companies had an aggregate market capitalisation greater than all of this year’s 50 combined.

In this year’s Mid-tier 50, nine companies have a market capitalisation greater than $�bn. Last year 26 companies exceeded this threshold.

Two companies on last year’s list are in the unenviable position of losing more than 90% of their market capitalisation, with Albidon Limited losing 95% and Perilya Limited losing 9�% to slide completely off the Mid-tier 50 list.

Not surprisingly, the ratio of market capitalisation to net assets fell considerably for this year’s Mid-tier 50. With the impact of impairment already creeping into the results of some companies, the ratio for 2008 decreased drastically to �.� from �.� in 2007.

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�.� Comparison of the Mid-tier 50 to other performance measuresWith the effects of the global financial crisis being felt in most sectors, we thought it useful to consider whether the Australian mid-tier mining industry was finding it tougher than other mining indices. Interestingly, after converting all indices into a common currency, the performance of the ASX Metals and Mining Index was virtually a mirror image of both the FTSE and TSX mining indices throughout the year.

Comparison of key mining indices (January 2008 = 1) Jan 2008 – Feb 2009

Source: Thompson Financials

0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

ASX Metals & Mining FTSE Mining Index TSX Mining Index

1/01

/200

8

1/02

/200

8

1/03

/200

8

1/04

/200

8

1/05

/200

8

1/06

/200

8

1/07

/200

8

1/08

/200

8

1/09

/200

8

1/10

/200

8

1/11

/200

8

1/12

/200

8

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�.5 The return to goldGold’s position as a store of wealth and safe haven for investors in tough times has been re-affirmed. The ASX Gold Index has started to pull away from the ASX Metals and Mining Index in the final months of 2008 and this trend has continued into early 2009. This trend is reflected in the composition of our Mid-tier 50, with �� gold-focused companies appearing this year versus �0 last year.

While there are more gold companies in our list at the end of 2008, results for these companies were mixed. Full year revenue increased 6�% for gold companies in the Mid-tier 50, however, EBITDA (earnings before interest, tax, depreciation and amortisation) was negative for this group, primarily due to high operating costs, exploration expenses and impairment. 2009 will provide a clearer perspective on whether gold companies in Australia can fully exploit their position relative to their mining peers. The gold sector is often difficult to predict, with investment being driven not only on company performance, but considered by many as an option for the future.

ASX 300 Metals and Mining vs ASX Gold Index (October 2008 = 1) Oct 2008 – Dec 2008

0.40

0.50

0.60

0.70

0.80

0.90

1.00

1.10

1.20

1/10

/200

8

8/10

/200

8

15/1

0/20

08

22/1

0/20

08

29/1

0/20

08

5/11

/200

8

12/1

1/20

08

19/1

1/20

08

26/1

1/20

08

3/12

/200

8

10/1

2/20

08

17/1

2/20

08

24/1

2/20

08

31/1

2/20

08

ASX 300 M&M ASX 300 Gold Index

Source: Bloomberg

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4 The way I see it – Milan Jerkovic Straits Resources Limited

We spoke with Milan Jerkovic, CEO of Straits Resources Limited (Straits) about the current state of the Australian mid-tier mining industry and its future prospects. Straits has not been immune from the effects of the global financial crisis with a shrinking market capitalisation and an ownership structure which presents unique challenges to unlocking shareholder value. Despite these challenges, we find the Straits CEO quietly optimistic.

Aussie Mine (AM): What do you see as the major challenges facing the Australian mid-tier mining industry?

Milan: On a macro level, some of the challenges are no different to those faced by other industries given the global financial crisis and the state of the financial system.

Access to debt markets is almost non-existent. This is problematic when large-scale expansions requiring debt simply cannot be funded. Decreasing commodity prices translate into operating cashflow strain, which also starts to impact underlying asset values.

For those able to navigate through challenges like these, I expect there will be plenty of opportunities in the long term.

AM: What do you think will distinguish the performance of mining companies relative to their peers in the current economic environment?

Milan: I believe we will ultimately end up with a case of the ‘haves’ and ‘have-nots’. The haves will be distinguished by their renewed focus on marginal costs and their disciplined approach to generating return on capital. This is a return to the focus areas from the pre-boom period. Companies that can successfully upgrade the class of their assets during these difficult times will be well positioned for future growth.

The have-nots will struggle with financing and have difficulty de-leveraging debt laden balance sheets. China is not the only solution for those struggling with debt, but other means of accessing funding are becoming harder to come by.

While there must be renewed focus to deal with the current economic environment, foregoing a strategic outlook (e.g. a five year outlook) would be a mistake.

AM: What are you hearing from other CEOs and board members at the moment, particularly in relation to M&A activity?

Milan: I’m seeing and hearing from others that M&A activity in terms of due diligence has increased significantly as companies look for opportunities. However, while most companies are gathering information about opportunities, this is not translating into action as many companies are employing a ‘wait and see’ mentality in the short term.

I also do not believe we’ll see a lot of aggressive takeover actions – it is more likely we will see friendly tie-ups take place.

While there must be renewed focus to deal with the current economic environment, foregoing a strategic outlook (e.g. a five year outlook) would be a mistake.

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The way I see it – Milan Jerkovic Straits Resources Limited

AM: If you were the Minister for Resources – what key changes would you make to laws affecting the mining industry?

Milan: Let me first say that there are a number of strengths to the system that we have in place! However there are two key areas that I would like to see improved:

�) The regulatory environment – the different levels of the regulatory environment are not always aligned and I think we have one layer of government too many, impacting mining laws and regulations. This results in a compliance cost on mining businesses that are not in place in other countries. If we want to attract investment in the industry, there should be better alignment in policies and regulations.

2) Support for the emerging mining sector – I would utilise the levers that exist, particularly in relation to local banks, to promote investment in the emerging mining sector. There is still under-investment in the industry relative to its contribution towards generating wealth for Australians (e.g. in terms of employment created and royalties and taxes earned). I would like to see local banks fill the void left by the large foreign institutional investors that are leaving our shores.

AM: You can’t open a newspaper without reading stories relating to foreign interest in Australian mining operations. In your view, what is driving this interest and why are we not seeing Australian companies investing at home?

Milan: A significant driver of foreign interest in Australia is the current position of the exchange rate, making assets more affordable. Australian mining assets are also of good quality. We still have a higher regulatory burden compared to other countries; however, on the plus side we have a more stable financial environment along with transparency in relation to the regulatory environment.

I don’t see a lot of Australian-backed investment as currently the liquidity of our internally generated capital has diminished. Simply put, the pool of funds is too small to support some of the large investments required. With the foreign banks pulling out of shareholdings in Australian mining companies, and a lack of available funds within Australia, there is a real vacuum effect on capital. This is where foreign investors, such as the Chinese, are stepping in.

AM: What will Straits be focusing on during this tough time? What sort of adjustments have you made to your strategic outlook?

Milan: Success for Straits will occur when we have altered our capital structure and we position ourselves for future growth. It is extremely difficult to take forward-pricing decisions at the moment, and I expect this to continue for the next 8-�2 months.

We are focused on altering our structure, which is unsuitable given the majority of the company’s balance sheet resides in our Asian subsidiary (Straits Asia Resources Limited, which is listed on the Singapore exchange). We face the odd situation whereby the market capitalisation of the Australian listed group is at a lower level than that of our Asian subsidiary, which is unacceptable for our Australian shareholders. This implies a negative value on the assets we have outside our Asian subsidiary, such as our Australian copper mines, which we firmly believe is incorrect.

We continue to position ourselves for future growth. Regretfully, we had to shed �7% of Australian staff due to the impact of the decreasing copper price on our operations. We are focused on getting our costs down to competitive levels. Of late we have successfully re-financed our Singapore Straits Asia Resources debt which was a pleasing outcome. We think the outlook for coal is strong and that we are well positioned with our Indonesian coal business. Furthermore, we like the outlook for copper and think demand will be stronger for this metal compared to other metals, such as nickel, where demand is driven predominantly by industrial use.

AM: What are the primary concerns of your shareholders at present?

Milan: Our shareholders are disappointed that the proposed demerger of the Asian business did not take place, arguing that they did not receive the dividend they would have received. Unlocking the value in our business for the benefit of shareholders will allay these concerns. For example, this will be achieved by ensuring our mines such as Tritton and Hillgrove are producing economically.

The disparity in market capitalisation between the Australian and Asian business is another concern of shareholders. We feel that the Australian business is trading well below its underlying value. Unlike some other diverse mid-tier mining companies, we have not seen an appreciation in the value associated with our precious metal interests either.

We continue to work towards altering our structure to maximise shareholder returns and look for the best ways to unlock value. As a company, we don’t fall in love with our assets and have a track record of making fundamental changes to drive shareholder value, such as when we sold the Nifty copper operation in 200�. I’m not foreshadowing any similar announcements at present, but we continue to look at different ways to best position Straits for future growth.

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A key competitive factor for a mining operation is its ability to not only contain costs, but also to maintain or improve its position on the industry or sector cost curve. Cost management directly impacts strategic decision-making as it permits understanding of market prices, the viability of new capacity increments, and understanding of industry profitability. Successful cost management is directly related to the profitability of the operation and low cost operations have a greater ability to survive commodity cycle downturns and competitor actions.

Individual mining assets typically aim for 2-5% improvements on both production and cost each year. Success is dependent on tight operational control and focuses not only on cost but also production volume levers.

Cost management is about developing a plan, insightful reporting on performance against that plan, the ability to identify variances against plan, and the ability to analyse the causes of those variances. It goes further into acting on that insight at all levels within the operation.

Our experience is that any cost management approach needs to deliver on a number of objectives:

clear understanding of performance versus plan; especially the understanding of significant variances and major causes of variances from plan

understanding overall trends for specific cost drivers and whether corrective actions taken are having the desired effect

the ability to not only identify cost variances but also to understand what is driving those variances (i.e. physical drivers) and the dollar impact of those drivers on overall business performance

the ability to manage costs with insight at all levels in the organisation

a culture that supports cost management: identification of variances, understanding of their drivers, identification of corrective actions and implementation of actions.

Some of these issues are expanded on as follows.

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Physical drivers of cost variancesCost variances can be linked to physical performance drivers such as metres drilled, asset reliability, asset utilisation, plant yield and even to extremely detailed drivers such as temperature and flows in process plants. Cost driver tree-models can be used to achieve this objective and are also useful as they can be disaggregated at multiple levels (at times >�0) and typically are disaggregated far beyond financial measures into the physical drivers of performance. Once high priority variances from plan have been identified, the models can be used to analyse the detailed reasons underlying the variances. This is achieved by drilling down the driver-trees to identify critical KPIs impacting on performance for that month.

Cost Management throughout the organisationCost management has different features at different levels of the organisation:

Senior management

Manage by exception; identify the most significant performance variances (usually those with the most impact on the financial results).

Understand non-financial drivers of financial outcomes. This is essential in order to be able to influence outcomes and improve performance.

Ensure that appropriate actions are developed.

Middle management

Explain exceptions in a timely and insightful manner.

Sift ’noise’ from real drivers of performance.

Front-line staff

Understand profit impact of technical issues.

Assist in prioritisation of mitigation resource.

It is important to share cost management responsibility throughout mining companies in a meaningful way. For middle management and front-line staff it is important to help them understand the impact of their actions on the cost performance of the organisation. This is also where corrective action takes place. Being able to translate costs into the physical drivers which are within their control is critical.

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Performance improvement cycleIt is essential that the organisation implements a formal cost management process with the following features:

Target setting – develop a clear plan and set targets for improving performance.

Measurement – measure performance versus plan and ensure the ability to prioritise and understand physical drivers of variances in a meaningful way.

Action planning – develop corrective actions to ensure that material variances are rectified at the right level of the organisation.

Execution – execute those plans and measure their outcomes. Integrate the results into the target setting and planning process.

In summary:Cost management needs to take place at all levels in a mining operation.

The ability to understand physical drivers of cost variances is critical; as is the ability to link physical drivers to profitability in a way that works for operations staff and engineers.

Implementing a formal cost management process that tracks execution of rectification plans is key to effective cost management.

For further information contact:

Robert Radley – Partner Tel: +6� (8) 92�8 �2�7 Email: robert.radley@au.pwc.com

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Cost containment – a guide to how and who

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6.� Income statement

2008 A$m

2007 A$m

Change %

Revenue from ordinary activities

– Operating revenue ��,�6� ��,6�� (2%)

– Non-operating revenue 768 �7� ��9%

Total Revenue 12,231 11,814 4%

Less expenses from ordinary activities (7,767) (7,9�7) (2%)

Exploration expenses (���) (�59) ��0%

Impairment (2,72�) (69) �,86�%

EBITDA 1,407 3,669 (62%)

Depreciation and amortisation (�,22�) (8�7) ��%

EBIT 186 2,822 (93%)

Net interest expense (�25) (��8) 6%

Profit from ordinary activities before tax 61 2,704 (98%)

Income tax expense (7�2) (5�6) �8%

Net profit (681) 2,168 n/a

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RevenueRevenue of the Mid-tier 50 has stalled. Sinking commodity prices severely impacted top line growth compared to performance in recent years. Copper and nickel producers were hit particularly hard with spot prices retreating 58% and 59% respectively. Zinc and lead also continued their downward trend. Combined with the Australian dollar reaching rare highs during 2008, this had an adverse affect on revenue.

The shining light may well prove to be the performance of gold. One of the hardest commodities to predict, gold has seemingly returned to its historical supply/demand role as a store of wealth in difficult times. The results of gold-producing companies in the Mid-tier 50 do not yet reflect improved profit margins, but with this price increase arriving in more recent months, along with the AUD/USD foreign exchange rate falling back from near parity in the middle of the 2008 calendar year, gold could provide a real fillip for the mid-tier industry. Those in gold will enjoy their time in time in the sun, as gold did not reach the dizzying heights of other metals during the recent boom years.

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Aggregated industry financial statements

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

1/01

/200

8

1/02

/200

8

1/03

/200

8

1/04

/200

8

1/05

/200

8

1/06

/200

8

1/07

/200

8

1/08

/200

8

1/09

/200

8

1/10

/200

8

1/11

/200

8

1/12

/200

8

1/01

/200

9

1/02

/200

9

1/03

/200

9

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

1/01

/200

8

1/02

/200

8

1/03

/200

8

1/04

/200

8

1/05

/200

8

1/06

/200

8

1/07

/200

8

1/08

/200

8

1/09

/200

8

1/10

/200

8

1/11

/200

8

1/12

/200

8

1/01

/200

9

1/02

/200

9

1/03

/200

9

Table �: Copper prices fell 58 per cent during 2008

Source: Bloomberg

Nickel price (AUD/tonne) Jan 2008 – March 2009

Copper price (AUD/tonne) Jan 2008 – March 2009

Table 2: Nickel prices fell 59 per cent during 2008

Source: Bloomberg

20

600

700

800

900

1,000

1,100

1,200

1,300

1,400

1,500

1,600

1/01

/200

8

1/02

/200

8

1/03

/200

8

1/04

/200

8

1/05

/200

8

1/06

/200

8

1/07

/200

8

1/08

/200

8

1/09

/200

8

1/10

/200

8

1/11

/200

8

1/12

/200

8

1/01

/200

9

1/02

/200

9

1/03

/200

9

0.55

0.6

0.65

0.7

0.75

0.8

0.85

0.9

0.951.0

1/01

/200

8

1/02

/200

8

1/03

/200

8

1/04

/200

8

1/05

/200

8

1/06

/200

8

1/07

/200

8

1/08

/200

8

1/09

/200

8

1/10

/200

8

1/11

/200

8

1/12

/200

8

1/01

/200

9

1/02

/200

9

1/03

/200

9

Table �: Gold appears to be enjoying a return to favour as a relatively secure store of wealth

Source: Bloomberg

Foreign exchange – the saviour?The recent movements in the AUD/USD exchange rate have helped to stave off worsening commodity prices, and provided hope for the future. As can be seen below, the significant drop coincided with the onset of the global financial crisis, providing a buffer to the local industry.

AUD/USD exchange rate Jan 2008 – March 2009

Source: Bloomberg

Gold price (AUD/ounce) Jan 2008 – March 2009

2�

The impact on key commodity prices is well illustrated when comparing AUD and USD spot prices. Movements between � January 2008 until the end of March 2009 were as follows:

Commodity AUD spot price movement

USD spot price movement

Gold ��% ��%

Copper (2�%) (�0%)

Nickel (5�%) (6�%)

Key earnings ratios

Ratio 2008 2007

EBITDA margin �2% ��%

Return on equity (�%) �7%

Interest cover (% EBITDA)

9% �%

Operating costsOperating costs have also flattened out in the current year as the Mid-tier 50 brace themselves for the impact of depressed metal prices and reduced demand. Approximately �0% of the companies on our list have either put mines on care and maintenance or discontinued some operations.

Impairment For the first time in a number of years, impairment has returned as a significant charge impacting the Mid-tier 50. This number is significantly impacted by OZ Minerals $2.5bn impairment of a number of assets in their portfolio. Eight other entities recorded impairment charges, but with �� of our Mid-tier 50 having a June financial year-end, we anticipate this will have an impact when the next set of annual results are released. To assess the extent of the downturn on these companies, we have prepared a separate half-year update in section 8 of this publication.

Income tax expense in 2008 increased significantly as the benefits from the good times made their way to government coffers.

Removal of outliersAfter excluding outliers on the revenue side (Straits Resources with their metals trading business) and operating cost side (OZ Minerals with their impairment), the EBITDA margin was relatively flat, moving down from ��% in 2007 to �2% in 2008.

With these outliers removed, operating costs increased ��% year-on-year. We would clearly not anticipate this scale of increase in future years, as suppliers and contractors come under pressure to re-base their fee arrangements, and miners slash operating expenditures in an effort to see themselves through the difficult times.

The effort to arrest operating cost increases will be front of mind for all in the industry, as we move towards a return to the fundamentals of disciplined cost management. Those who lived this mantra during the years when the industry was seen as underperforming in the �990s, will need to bring those old skills to bear.

Return on equity was still poor for investors after removing outliers, only achieving 6% in 2008 versus �7% in the prior year. And interest cover remained substantially unchanged, moving from �% in 2007 to 2% in 2008.

22

The journey – from explorer to producerThis year’s results include companies at the different stages in becoming a producer. Our observations of the impacts of the global financial crisis on each stage are outlined below.

Mining stage Current impact

Explorer Results will mean everything in the near future. Impairment is likely to have impacted carried-forward exploration balances and costs of exploration are still high. Gold still appears to be attracting activity.

Confirmed discovery Accessing capital after making a new significant discovery is critical. Discoveries made last year may not be economically feasible under present market conditions. Selling the undeveloped potential may be preferable to taking the next step of attempting to raise funding.

Developing mine Being at the development stage now would have been built on economic assumptions valid pre-GFC. Pricing and lead times for assets and services should have improved a little, but cost blow-outs are still a risk.

Producer Exchange rate impacts are helping, but cost reduction will be the key focus. Companies at this stage are assessing strategies to manage commodity price risk, and focus on the efficiency of operations.

The journey from explorer to producer can take many years. Before this year’s downturn, the Australian mining industry had seen continued growth for approximately five years. The location of the companies on this continuum at the point when the global financial crisis took place is likely to have a significant impact on the viability of that entity.

Top five Mid-tier 50 companies by revenue

Company name 2008 A$m

2007 A$m

Change %

Straits Resources Limited 2,26� �,69� (�9%)

OZ Minerals Limited �,��� �,�77 ��%

Iluka Resources Limited �,062 92� �5%

Aquarius Platinum Limited �,0�2 878 �5%

Centennial Coal Limited 769 725 6%

The top five by revenue provide 52% of the total of the Mid-tier 50’s revenue. Four of these companies were in our top five by revenue in last year’s publication, with OZ Minerals joining the list this year.

Top five Mid-tier 50 companies by profit

Company name 2008 A$m

2007 A$m

Change %

Aquarius Platinum Limited �06 �7� 9%

Centennial Coal Limited 287 7 �000%

Energy Resources of Australia Limited 222 66 2�6%

Felix Resources Limited �88 �7 �00%

Alumina Limited �68 ��6 (6�%)

Unlike the top five by revenue, only one company (Aquarius Platinum) has retained its spot on this list. This reflects the varying fortunes of different metals at different points in time. Large-scale producers consistently dominate the revenue list due to sheer volume, whereas profitability in any given year swings largely off the back of commodity prices and the impact of divestments. Centennial Coal is a case in point, with the impact of asset sales to Xstrata (at a profit of $222.9 million) driving overall net profit for the year.

2�

6.2 Balance sheet

2008 A$m

2007 A$m

Change %

CURRENT ASSETS

Cash �,689 �,28� ��%

Debtors �,70� �,�9� ��%

Inventories �,679 �,�76 ��%

Other �,095 �,020 7%

Total current assets 9,167 6,970 32%

NON CURRENT ASSETS

Investments in associates and joint ventures �,250 2,8�0 5�%

Deferred taxation assets 5�6 �2� 6�%

Property, plant and equipment and capitalised exploration �9,0�9 ��,��5 �5%

Intangible assets 500 509 (2%)

Other �,��9 �,067 �5%

Total non-current assets 25,744 18,822 37%

TOTAl ASSETS 34,911 25,792 35%

CURRENT lIABIlITIES

Accounts payable and accrued liabilities 2,�0� �,6�� 7�%

Taxes payable �70 ��5 �9%

Borrowings 2,�56 �,77� ��%

Other 609 659 (5%)

Total current liabilities 5,538 4,391 26%

NON-CURRENT lIABIlITIES

Borrowings �,080 �,005 2%

Deferred taxation liability �,6�2 �,��� �2%

Provision for environmental rehabilitation 658 �87 70%

Other 98� 928 6%

Total non-current liabilities 6,334 5,761 10%

TOTAl lIABIlITIES 11,872 10,152 17%

NET ASSETS 23,039 15,640 47%

2�

Total assets for the Mid-tier 50 have increased �5% since 2007 to $��.9 billion. This is primarily driven by further investment in property, plant and equipment and capitalised exploration funded by operating cash flows and equity injections during the recent boom times. Business acquisitions and mergers have also had a significant impact, with OZ Minerals’ annual results showing an increase in total assets of $2.9 billion.

Key balance sheet ratios

Ratio 2008 2007

Debt-to-equity ratio �9.�% 2�.�%

Net debt-to-equity ratio �.�% 8.7%

Current ratio �.66 �.59

Quick ratio �.�5 �.�2

Net debt (borrowings less cash) 7�7 �,�97

Gearing ratiosGearing ratios, already at low levels, have surprisingly reduced further to a debt-to-equity ratio of �9.�%. We believe this has arisen for a few distinct reasons. Firstly, the profits from the last few years have been applied to reduce debt obligations as companies utilise surplus funds. Secondly, the tightening of credit has extended to the Mid-tier 50. Accessing debt is no longer a matter of simply rolling-over existing facilities and this has triggered a decrease in gearing levels as the industry looks to alternative funding arrangements. Lastly, equity raisings have put significant cash balances in the hands of a number of companies, such as Riversdale Mining, Lynas Corporation and Coal of Africa.

Equity raisingsOf the equity issued during 2008, 58% was accounted for by OZ Minerals Limited (primarily as a consequence of the merger of Oxiana/Zinifex) and Alumina Limited. Further, during 2008, �6% of the Mid-tier 50 raised in excess of $�00m in share capital. Producing companies increased share capital by approximately $6.2 billion over the year. Exploration and non-producing companies increased their share capital by around $2.� billion. Given the lack of available debt funding, the Mid-tier 50 turned to equity raisings as its preferred source of raising capital.

Capital expenditure and status of fundingThe Mid-tier 50 have invested a large proportion of the capital raised during the year. This is reflected in the $�.9 billion increase in property, plant and equipment and capitalised exploration costs over the year.

Of the $5.� billion in debt held by the Mid-tier 50, $2.� billion is classified as current and will need to be refinanced in the next �2 months. The recent global downturn has increased the cost of capital so refinancing of short-term borrowings will be a key focus for management.

25

6.� Cash flow statement2008 A$m

2007 A$m

Change %

CASh FlOWS GENERATED FROM OPERATIONS

Cash generated from operations 2,�9� 2,909 (��%)

Net borrowing costs (68) (79) (��%)

Other 5�2 �2� 28%

Income taxes (paid)/refunded (6�8) (57�) 8%

Net operating cash flows 2,347 2,680 (12%)

CASh FlOWS RElATING TO INVESTING ACTIVITIES

Purchases of property, plant and equipment (�,060) (2,��5) 66%

Exploration expenditure (78�) (562) �9%

Purchases of investments and intangibles (266) (�,222) (78%)

Other � (85) n/a

Proceeds from sale of property, plant and equipment 720 �8� 292%

Proceeds from sale of investments �,2�� 5�� �29%

Net investing cash flows (3,140) (3,586) (12%)

CASh FlOWS RElATING TO FINANCING ACTIVITIES

Proceeds from ordinary share issues �,75� �,�62 2�9%

Net borrowings (2) �,�95 (99%)

Distributions to shareholders (2,��2) (�,��6) 77%

Total other (��6) 282 n/a

Net financing cash flows 2,273 1,521 49%

Net increase/(decrease) in cash and cash equivalents 1,480 615 140%

Operating cash flowsNet operating cash flows declined from $2.7 billion in 2007 to $2.� billion in 2008, representing a reduction of �2%. This decline puts an end to the robust growth achieved in previous years, with falling demand, weaker commodity prices, and higher operating costs impacting significantly on the operational performance of the Mid-tier 50.

26

Investing cash flowsDespite the economic downturn, the mining industry has continued to invest in new mine developments and exploration. In fact, investing cash flows grew from $2.� billion in 2007 to $�.0 billion in 2008, representing an increase of 66%. Exploration activity also continued to grow from $562 million in 2007 to $78� million in 2008.

The high level of capital expenditure and exploration over the period reflects the expenditure commitments entered into prior to the downturn, when commodity prices were higher and the outlook for the industry was more positive. The most notable impacts on capital expenditure were OZ Minerals’ relative capital expenditure increase of $700m year-on-year and also the result of increasing investments being made by the gold companies included in the Mid-tier 50. Capital expenditure in the gold sector increased by over $�00m when comparing 2008 to 2007 annual results.

Looking forward, whilst most commodity prices have weakened significantly over the period, the gold sector has benefited from the current economic climate, with continued high capital expenditure and exploration investment expected well into 2009. For most other commodities, however, cuts to development and exploration expenditure are expected in the short term, as companies re-evaluate their large-scale capital projects.

This will have a negative impact on overall exploration activity, which has only just reached similar levels of activity achieved in �998, in terms of metres drilled.

Metres drilled

Source: ABS, Mineral and Petroleum Exploration, 8��2.0, December Quarter 2008.

While investment and exploration has continued to grow, looking ahead, companies in the Mid-tier 50 will seek to divest their under-performing assets in order to position themselves to withstand market volatility. This stands in contrast to results for those in the Mid-tier 50 that were able to sell assets at the height of the boom. Proceeds from the sale of property, plant and equipment rose sharply with a 292% increase on 2007 figures alluding to this point. Similarly, proceeds from the sale of investments increased to $�.2 billion, up �29% on 2007 figures. $�77m of this was as a result of Centennial Coal selling former subsidiary Austral Coal to Xstrata.

0

2,000

4,000

6,000

8,000

10,000

12,000

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Year

'000

27

Financing cash flowsCash flows from financing activities increased by �9% to a net inflow of $2.� billion as companies sought to strengthen their financial positions through the economic downturn. This increase was primarily the result of a sharp increase in equity to finance activities.

Proceeds from issuing ordinary shares increased by 2�9%, as the availability of debt dried up. As a result, cash and cash equivalents were significantly higher at the end of 2008 than in 2007, as mining companies cashed in off the back of the boom and the rush for mining stocks.

Top five Mid-tier 50 companies – proceeds from share issuances

Company Name 2008 A$m

Alumina Limited �,006

Aquarius Platinum Limited �0�

Iluka Resources Limited ��0

Coal of Australia Limited �22

Sino Gold Limited �07

Distributions to shareholders were up 77% from $�.� billion in 2007 to $2.� billion in 2008. In contrast to 2007, distributions to shareholders were dominated by non-dividend methods, such as share buy-back schemes, as companies looked for alternative ways of providing returns to shareholders outside of paying dividends. Dividends paid decreased �7% from $�.068 billion to $885 million in the current year, while share buy-backs and other distributions to shareholders increased significantly from $25�m in 2007 to $�.�5 billion in 2008.

28

7For the five years prior to 2008, mining companies in Australia emphasised cost effectiveness over cost efficiency, particularly in the areas of maintenance and transportation. Mining the largest possible quantities of minerals, as quickly as possible, was more important than minimising the cost of key maintenance or production activities due to the high prices available.

Operational efficiency had fallen by the wayside in the quest to cash in on soaring commodity prices. Historically, this change in focus has led to unsustainably high operating and capital costs. However, given the current economic climate, the focus on cost efficiency in Australian mining operations has quickly returned.

Large capital projects have the potential to destroy substantial shareholder value during extended periods of low prices. Anticipating an extended price slump, almost all of the major mining companies around the world took a critical look at their major capital expenditure plans towards the end of 2008. By March 2009, the lead times for many categories of major capital items had reduced by over 50% from their peak in early 2008.

Figure 1: Asset lead times over the past 12 months

Source: The Australian Financial Review and PricewaterhouseCoopers

Crushers

Grinding mills

0 5 10 15 20 25 30 35 40 45 50

Average delivery time Jan 2009

Average delivery time Jan 2008

Tyres

Wagons

Locomotives

Draglines

Power generators

29

From cost effectiveness to cost efficiency

This renewed focus on maintaining lean operations and generating acceptable return on investment (ROI) per individual mining asset is beginning to take hold across the sector, but it is those early movers who are now best placed to weather the storm of the current economic crisis.

While market prices will fluctuate considerably across the different commodities over the next twelve months, the general sector consensus is that a continuation of lower commodity prices and increased costs of capital will continue to slow growth in the Australian mining industry.

Historically, under tightening operating conditions, mining industry executives shift their focus to cost control and cost efficient operations, to ensure the continued profitability of their existing mining assets and to shore-up cash for future investments. We expect this trend to repeat itself over the coming months as the Australian mining industry continues to adapt to these changed, but not unfamiliar, operating conditions.

For further information contact:

Brian Gillespie – Partner

Tel: + 6� (7) �257 5656 Email: brian.gillespie@au.pwc.com

Many of Australia’s miners have already deferred major development projects, particularly those with marginal profitability. Many more have announced plans to scale back capital expenditure for the foreseeable future. This scale back is a sobering recognition of a changed economic landscape, where cost efficiency and capital investment prudence takes preference over maximising mine output.

As commodity prices continue to slump and demand contracts from the growth markets of India and China, many Australian mining companies have recently responded via an aggressive pursuit of cost cutting operating strategies. This has included:

laying off contractors

reducing support staff roles

mothballing uneconomical mines

limiting non-essential expenditures.

These measures, which have formed the backbone of the initial responses to changed market conditions, have been prevalent in troubled commodities such as nickel, copper, iron ore and coking coal, where reductions in total labour and contractor costs of up to 20% have been sought.

This response is an unfortunate but obvious short-term reaction to deteriorating market fundamentals, including an uncertain outlook and the expected lag period between commodity price drops and falls in the input cost of production. After this initial response period, however, it is expected that many mining companies will turn their attention to active operations and look to achieve profit growth via incremental efficiencies in addition to input cost reduction.

Although the recent market turmoil seems to have taken many miners by surprise, some of the more forward-thinking Australian mining companies were quietly preparing for an expected change in market conditions as early as Q� 2008. This preparation involved a change in emphasis at the mine site level, towards maximising the profitability per tonne of product through a mix of targeted cost reduction initiatives. These initiatives primarily focused on eliminating operational inefficiencies that had surfaced, and often been overlooked, during the period of high commodity prices.

•

•

•

•

�0

8

��

Aggregated industry half-year update

The onset of the global financial crisis has had a sudden and dramatic impact on all companies with one of the most alarming features of the downturn being how rapidly the market sank. This year, the Mid-tier 50 has forty companies with a June year-end and while there were clearly warning signs of an impending change at �0 June 2008, it is fair to say the impact of the global financial crisis had not been fully reflected in the year-end results of the majority of companies on our list.

In this year’s publication, we have obtained half-year financial reports for all forty companies with a June year-end, and analysed the impact of the downturn to provide some insight into what’s in store for the next six to twelve months.

8.� Income statements – companies with a June year end

Dec 2008* A$m

Jun 2008 A$m

Change %

Revenue from ordinary activities

– Operating revenue 7,696 7,6�� �%

– Non-operating revenue �7� �89 (55%)

Total Revenue 7,870 8,020 (2%)

Less expenses from ordinary activities (5,�8�) (5,070) 8%

Exploration expenses (286) (2�9) 20%

Impairment (2,606) (�7�) �,�2�%

EBITDA (506) 2,540 n/a

Depreciation and amortisation (906) (696) �0%

EBIT (1,412) 1,844 n/a

Net interest expense (96) �7 n/a

(Loss)/profit from ordinary activities before tax (�,508) �,86� n/a

Income tax expense 29� (5��) n/a

Net (loss)/profit (1,214) 1,350 n/a

* December 2008 numbers have been extrapolated to �2 months for comparability purposes.

Key earnings ratiosRatio Dec 2008 Jun 2008

EBITDA margin (6%) �2%

Return on equity (�0%) ��%

The figures above show dismal financial results and it would appear the worst may be yet to come. While revenue is relatively flat, these figures benefit from some sales being locked in under annual pricing arrangements that are in the process of being re-negotiated now for coal and iron-ore. Already negotiated coal prices have plummeted in 2009 under slackening demand with iron ore contract prices expected to follow suit. Some decreases have already been experienced in this half-year for realised commodity sales subject to provisional pricing arrangements, although recent foreign exchange movements have been favourable. Conversely, these half-year figures benefit from gains made on the sale of assets and investments as companies shed unprofitable and non-core assets.

The single largest impact is clearly the impairment charges recorded in the six-month period from June to December. Fifteen of the forty companies with a June year-end recorded an impairment charge, with five already making moves to either close mines or put operations on care and maintenance programs.

The key ratios indicate a challenging outlook for the foreseeable future, with negative EBITDA margins and ROE (return on equity) for the June reporters. This is a remarkable decrease given that it has taken place over such a short period of time; although it is worth bearing in mind that these results are being compared to the outstanding results achieved in recent years.

�2

8.2 Balance sheets – companies with a June year-end

Dec 2008 A$m

Jun 2008 A$m

Change %

CURRENT ASSETS

Cash �,�26 �,826 (��%)

Debtors �,222 �,2�� (�%)

Inventories 909 6�7 ��%

Other 7�2 7�9 �%

Total current assets 6,199 6,423 (3%)

NON CURRENT ASSETS

Investments in associates and joint ventures �70 �7� 0%

Deferred taxation assets �27 �85 ���%

Property, plant and equipment and capitalised exploration ��,578 �0,�6� ��%

Intangible assets 506 ��5 ��%

Other 68� 6�6 6%

Total non-current assets 13,666 11,911 15%

TOTAl ASSETS 19,864 18,334 8%

CURRENT lIABIlITIES

Accounts payable and accrued liabilities �,�87 �,280 8%

Taxes payable 297 �99 �9%

Borrowings 9�6 77� 2�%

Other 752 288 �62%

Total current liabilities 3,382 2,538 33%

NON-CURRENT lIABIlITIES

Borrowings 2,587 �,8�7 ��%

Deferred taxation liability 92� �,�75 (2�%)

Provision for environmental rehabilitation ��8 ��6 �9%

Other 6�7 �79 29%

Total non-current liabilities 4,266 3,606 18%

TOTAl lIABIlITIES 7,648 6,144 24%

NET ASSETS 12,217 12,191 0%

Over the six months to December 2008, the net assets of Mid-tier 50 companies with a June annual reporting period have remained steady. With the tightening of debt and equity markets, further investment in property, plant and equipment, and capitalised exploration, has been funded by operating cash flows and cash reserves.

Key balance sheet ratios

Ratio Dec 2008 Jun 2008

Debt to equity ratio 22.�% �7.6%

Net debt to equity ratio �.7% (��.�%)

Current ratio �.8� 2.5�

Quick ratio �.56 2.28

Net debt (borrowings less cash) 207 (�,2�8)

Liquidity and gearing ratios have deteriorated due to the combined effect of falling commodity prices and uncertainty in global capital markets. Investment in the June reporters has dried up: only about $�00 million of equity was issued in the half-year as compared to about $2.7 billion for the 2008 fiscal year.

��

8.� Cash flow statement – companies with a June year-end

Dec 2008* A$m

Jun 2008 A$m

Change %

CASh FlOWS GENERATED FROM OPERATIONS

Cash generated from operations 2,050 �,7�9 �8%

Net borrowing costs (��) �7 n/a

Other �80 (�8) n/a

Income taxes (paid)/refunded (�22) (�72) ��%

Net operating cash flows 1,774 1,336 33%

CASh FlOWS RElATING TO INVESTING ACTIVITIES

Purchases of property, plant and equipment (2,6��) (�,9�0) �6%

Exploration expenditure (�,020) (70�) �6%

Purchases of investments and intangibles (�06) (��7) (�2%)

Other (�20) 88 n/a

Proceeds from sale of property, plant and equipment �58 709 (78%)

Proceeds from sale of investments 5�8 �,�7� (56%)

Net investing cash flows (3,614) (1,118) 223%

CASh FlOWS RElATING TO FINANCING ACTIVITIES

Proceeds from ordinary share issues ��2 2,870 (85%)

Net borrowings 69� ��� 5��%

Distributions to shareholders (67�) (�,67�) (60%)

Total other (22) (�0) �20%

Net financing cash flows 440 1,300 (66%)

Net increase/(decrease) in cash and cash equivalents (1,400) 1,518 n/a* December 2008 numbers have been extrapolated to �2 months for comparability purposes.

Cash flows from operating activitiesThe increase in cash flows from operations was driven significantly by the presence of coal companies in this analysis. Felix Resources Limited, Gloucester Coal Limited and Macarthur Coal Limited collectively recorded a comparative increase of $8�� million when comparing annualised December half-year results to June full-year results. These significant gains were underscored by high coking and thermal coal prices, favourable impacts from the weakening AUD/USD exchange rate, and the impact of annual pricing arrangements. Re-pricing these contracts in 2009 is likely to have a significant impact on cash flows from future operations.

If you exclude these three companies from the analysis, cash flows from operations would have decreased by ��% for the remaining June year-end miners.

Cash flows used for investing activitiesProperty, plant and equipment spending increased in the comparative period, largely as a result of committed mine expansions. Two entities with USD functional currency (Paladin Energy Limited and CGA Mining Limited) recorded a collective increase of $��6m in the period, a large portion of which could be attributed to exchange rate movements.

Western Areas NL and Whitehaven Coal Limited also recorded comparative increases of greater than $�00m as they continued to build production capacity. This type of spending will only be rewarded if companies can construct facilities that will be able to operate at low cost during this time of lower metal prices.

Exploration expenditure also increased in this comparative analysis, most notably in gold and iron ore.

Purchases of investments and intangibles decreased both in dollar value and activity. 29% of companies reported purchases of investments and intangibles in the half-year period to December 2008, versus �9% for the period up until June 2008. This has also continued to the sale of assets, with these figures dipping significantly in the period to December 2008.

Cash flows from financing activitiesCapital raisings were clearly difficult to achieve in the last six months. Only seven entities had proceeds from issuing ordinary shares of greater than $5 million, versus twenty-nine entities in the period up until June 2008. In the absence of raising equity, net borrowings have increased; however, on the whole, there is a decrease in finance provided to the sector. Distributions to shareholders also decreased significantly as companies invest for the future, rather than return funds to shareholders.

��

9Indirect TaxesAs the Australian mining sector battens down the hatches to ride out the impacts of the global financial crisis, companies are looking harder to reduce cost leakages, and run leaner than during the recent boom times. With some companies making fundamental changes to their operating model, such as slashing planned expenditures and being forced to make staff redundant, clearly every dollar counts.

Tax authorities will also feel the pinch as government revenue from the mining industry diminishes. Against this backdrop of downturn, recent modifications to some indirect tax laws and the changing financial circumstances present miners with real opportunities for cost savings.

Outlined below are several opportunities mining companies can explore to maximise their tax effectiveness.

Fuel Tax CreditsThe law relating to fuel tax credits has been updated in the last �2 months and is more expansive than previous legislation. It is anticipated these rules will continue changing until 20�2.

“Off-road” usage offers potential savings, specifically on items such as solvents and coolants used in mining machinery, as these were previously excluded from eligibility as a taxable fuel.

Companies should assess their equipment needs and site configuration to ensure equipment used meets the definition of a “mining activity” as per the legislation. Appropriate set-up ensures eligibility for claims. At the �00% credit rate this translates to �8.��� cents per litre. Other use is eligible at a 50% credit rate from � July 2008.

Supplier contracts relating to transportation commitments should be reviewed. Companies should assess:

if they or their supplier are eligible to claim fuel tax credits

the potential extent of their “on-road” credits under the revised rules.

Companies should consider working with the ATO on estimates of the credits that go into the BAS. An estimated claim rate can be used for the year, which may save time and effort in filing forms.

Familiarity with the latest changes along with careful structuring of equipment, transport fleets and associated contracts will maximise eligibility to claims. This knowledge needs to be shared beyond the tax department, particularly with those who have procurement responsibilities.

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Indirect taxes – changes and opportunities

GSTA key point of focus with GST is maximising returns from credits. Companies should assess how they claim input tax credits, and a focus on accruals provides an opportunity to access credits earlier.

For companies with significant capital and operating expenditures, there are advantages in relation to delays and disputes on accruals. Additional deductions may be available on such “enhanced accruals”.

For mid-tier mining companies selling commodities within Australia, bad debts greater than �2 months can be claimed for GST. In the current economic environment, this type of claim is certainly worth being aware of.

Mining companies that own houses and provide accommodation to staff, should examine whether these costs can be included in the definition of “mining operations” and therefore be claimable.

Customs dutyThe Enhanced Project By-law Scheme (EPBS) offers relief from customs duty for significant projects above $�0 million where companies import supplies from outside of Australia.

With applicable import duties being 5% to �0%, savings on eligible projects can be significant. A FAQ document on the ATO website notes that savings are typically in the order of $0.5 – $�m.

There are two key areas of focus to maximise opportunities in this area:

Project definition – the first step is ensuring a work program meets the eligibility rules. It is also worth noting this is not solely for development expenditures, i.e. maintenance programs may be eligible as well.

Analysis of imports – Australia’s decreasing manufacturing capability has produced an unexpected benefit for mining companies. If mining companies have no choice but to buy critical supplies from international manufacturers, as the same product can no longer be made locally, tax concessions may be available. An assessment should be performed of supplier arrangements to look for opportunities in this area.

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Other indirect taxesEmployment taxes differ from state to state for payroll, superannuation and workers compensation. Companies may be able to obtain tax refunds or reductions in taxes in connection with redundancies they may be forced to make.

With a number of recent lay-offs in mining, the talent-pool of skilled workers is increasing, and bargaining power is moving back towards the company rather than the individual. It is therefore timely for companies to consider decisions relating to filling positions with permanent employees, versus contractors, given the different tax implications.

Related to the point above, more cost-effective salary packaging could help reduce FBT obligations. Including benefits such as housing in salary packages could produce better FBT outcomes.

With acquisitions proceeding at a rapid pace, structuring deals to ensure land-rich provisions are not triggered in relation to stamp duty can offer significant savings.

Companies that apply a ‘steady state’ mentality in the current environment will lose out. Policies and practices relevant to indirect taxes �2 months ago are likely to be out of date given the sweeping changes we are seeing in the industry.

For further information contact:

Ross Thorpe – Partner Tel: + 6� (�) 860� �822 Email: ross.thorpe@au.pwc.com

Kevin Griffiths – Partner Tel: + 6� (7) �257 8��2 Email: kevin.griffiths@au.pwc.com

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Climate change – what’s changed?

An overviewWith the July 20�0 deadline for the introduction of Australia’s Carbon Pollution Reduction Scheme (CPRS) approaching quickly, the Australian mining sector must immediately turn its attention to the legal and financial issues raised by the impending climate change legislation.

Climate change has been on the agenda for some time, but is becoming an increasingly higher priority for companies, given the unwavering commitment the Australian Government is showing to implementation, despite pressure to delay from the wider business community. For some companies, emissions reporting commences in calendar 2009. Companies must re-think their operations so they can be compliant under the CPRS by 20�0.

What you need to knowAustralian law now requires mining companies that are large energy users, producers and/or greenhouse gas emitters to record their emissions, reductions, removals, offsets and energy consumption to a regulator from � July 2008, and to report to it by �� October 2009.

Corporations with operational control over key mining activities, which have actual annual direct (scope �) emissions in excess of 25,000 tonnes of CO2 equivalent, will be liable to reduce those emissions under Australia’s foreshadowed emissions trading scheme. All six classes of greenhouse gases (carbon dioxide, methane, nitrous oxide, sulphur hexafluoride, hydrofluorocarbons and perfluorocarbons), are included in this scheme.

In addition to the impacts on asset impairment, pass through costs, and investment decision making, businesses will need to understand the liability and compliance implications of the Australian Government’s regulatory regime to address climate change.

What is the liability and who is caught by it?In the medium-term, the Government’s aim is to reduce national greenhouse gas emissions by between five and �5 per cent of 2000 levels by 2020. A five per cent reduction in emissions (of 2000 levels) by 2020 means a cut of 250 million tonnes of CO2-e from business-as-usual projections. This is greater than the total amount of emissions generated by Australia’s electricity sector of approximately 200 million tonnes of CO2.

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The five per cent target is a given, with the larger target to be pursued if the major global emitters, such as China (a major customer for Australia’s raw materials) and the United States, also commit to a larger target. The emissions cap is important as it determines the amount of scarcity in the market, and so determines the price of carbon.

Although industry consultation about the new scheme is still to be finalised, as well as the complete legislative details, there is already considerable information in the public domain about what the new system will look like and what many of the legal, technical and financial implications will be for the mining industry.

When it is enacted, the CPRS will have a profound effect on the Australian economy. Importantly, the CPRS will establish a new market for carbon, which will be a tradable commodity. Some companies could also be seriously and materially affected by the new scheme and will experience a decline in asset values, as well as a shift in the fundamental drivers of their businesses.

The implications for the mining sector – action is required nowThe Minerals Council of Australia has recently noted that an average mining firm, emitting one million tonnes of CO2 per year, may bear costs in the order of $�00m over four years. With greater familiarity of the climate change landscape, the potential financial impacts are starting to become clearer. Up until now, it appears some companies have considered this as an issue in the distant horizon, but time is running short.

At a minimum, mining companies should now be:

reviewing internal systems and whether they are adequate to capture and report required emissions data

incorporating emissions data and potential costs into investment decisions and business modelling

assessing the definition of their business as it pertains to the legislation: some parts of the business may qualify as Emissions-Intensive Trade-Exposed (EITE), in which case they may be eligible for free permits under the CPRS.

With the onset of the global financial crisis, not only do some companies need to worry about their future viability, they have to contend with the most significant piece of environmental legislation to affect businesses in Australia.

For further information contact:

Andrew Petersen – Partner Tel: +6� (2) 8266 668� Email: andrew.petersen@au.pwc.com

Liza Maimone – Partner Tel: + 6� (�) 860� ��50 Email: liza.maimone@au.pwc.com

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Glossary

AIFRS Australian equivalent to International

Financial Reporting Standards

Current ratioCurrent assets

Current liabilities

CPRS Carbon Pollution Reduction Scheme

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 number of 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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12Symbol Entity Name Year end Market

Capitalisation as at 31/12/08

A$m

Rank by Market Cap

Producer (P)/ Non-Producer (N)

ALD Allied Gold Limited �0-Jun-08 �72.6 �2 P

AWC Alumina Limited ��-Dec-08 2029.2 � N

AND Andean Resources Limited �0-Jun-08 ���.2 �8 N

AXM Apex Minerals NL �0-Jun-08 �67.9 �� N

AQP Aquarius Platinum Limited �0-Jun-08 570.8 �� P

AQA Aquila Resources Limited �0-Jun-08 8�6.6 �� P

AGO Atlas Iron Limited �0-Jun-08 255.5 �� N

AVO Avoca Resources Limited �0-Jun-08 �67.7 22 N

BMN Bannerman Resources Limited �0-Jun-08 �29.� �8 N

CNT Centamin Egypt Limited �0-Jun-08 8�8.0 �0 N

CEY Centennial Coal Company Limited �0-Jun-08 �2��.0 9 P

CGX CGA Mining Limited �0-Jun-08 ��5.7 29 N

CTO Citigold Corp. Limited �0-Jun-08 228.2 �5 P

CZA Coal Of Africa Limited �0-Jun-08 ���.2 26 P

COK Cockatoo Coal Limited �0-Jun-08 ��8.� �6 N

CRT Consolidated Rutile Limited ��-Dec-08 ��2.0 �7 P

CDU Cudeco Limited �0-Jun-08 2��.9 �6 N

DYL Deep Yellow Limited �0-Jun-08 �28.9 �9 N

DOM Dominion Mining Limited �0-Jun-08 �70.� 2� P

ERA Energy Resources Of Australia Limited ��-Dec-08 �62�.0 � P

EXT Extract Resources Limited �0-Jun-08 280.8 �� N

FLX Felix Resources Limited �0-Jun-08 �727.7 5 P

GBG Gindalbie Metals Limited �0-Jun-08 �0�.� �0 N

GCL Gloucester Coal Limited �0-Jun-08 ��9.� 28 P

GNM Gujarat NRE Minerals Limited ��-Mar-08 �79.5 �� P

ILU Iluka Resources Limited ��-Dec-08 �766.5 � P

IGO Independence Group NL �0-Jun-08 2��.5 �� P

KCN Kingsgate Consolidated Limited �0-Jun-08 �29.� 27 P

LYC Lynas Corporation Limited �0-Jun-08 �8�.� �0 N

MCC Macarthur Coal Limited �0-Jun-08 6�2.8 �2 P

MRE Minara Resources Limited ��-Dec-08 ��2.8 25 P

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Mid-tier 50 companies analysed

Symbol Entity Name Year end Market Capitalisation as at 31/12/08

A$m

Rank by Market Cap

Producer (P)/ Non-Producer (N)

MCR Mincor Resources NL �0-Jun-08 ���.2 �5 P

MDL Mineral Deposits Limited �0-Jun-08 ��9.2 2� N

MGX Mount Gibson Iron Limited �0-Jun-08 �29.5 �9 P

MMX Murchison Metals Limited �0-Jun-08 262.� �2 N

NHC New Hope Corp. Limited ��-Jul-08 279�.0 2 P

OZL OZ Minerals Limited ��-Dec-08 �7�6.7 6 P

PDN Paladin Energy Limited �0-Jun-08 �522.7 7 P

PAN Panoramic Resources Limited �0-Jun-08 �86.2 �9 P

PLA Platinum Australia Limited �0-Jun-08 �26.6 50 N

RSG Resolute Mining Limited �0-Jun-08 �96.5 �8 P

RIV Riversdale Mining Limited �0-Jun-08 �5�.� �7 P

SGX Sino Gold Mining Limited ��-Dec-08 ��59.� 8 P

SBM St Barbara Limited �0-Jun-08 �09.� 20 P

SRL Straits Resources Limited �0-Jun-08 2��.� �7 P

SMM Summit Resources Limited �0-Jun-08 �55.8 2� N

SDL Sundance Resources Limited �0-Jun-08 �5�.8 �� N

WSA Western Areas NL �0-Jun-08 555.2 �5 P

WHC Whitehaven Coal Limited �0-Jun-08 58�.� �� P

ZIM Zimplats Holdings Limited �0-Jun-08 5�8.2 �6 P

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13 Explanatory notes

We have analysed the largest 50 mining companies listed on the ASX with a market capitalisation of less than $5 billion at �� December 2008.

The results aggregated in this report have been sourced from publicly available information, primarily annual reports and financial reports available to shareholders. Companies have different year-ends and report under different accounting regimes.

Information has been aggregated for the financial years of individual companies and no adjustments have been made to take into account different reporting requirements and year-ends. As such, the financial information shown for 2008 covers periods between �0 June 2007 and �� December 2008, with each company’s results included for the �2-month financial reporting period that falls into this timeframe. The half-year section aggregates all companies that published six-month results up until �� December 2008.

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

Some diversified companies undertake part of their activities outside of the mining industry. No attempt has been made to exclude such non-mining activities from the aggregated financial information.

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Explanatory notes 14 Contacting PwC

PricewaterhouseCoopers provides industry-focused assurance, tax and advisory services to build public trust and enhance value for its clients and their stakeholders. More than ��0,000 people in ��8 countries work collaboratively using connected thinking to develop fresh perspectives and practical advices.

PricewaterhouseCoopers is a leading advisor to the mining industry, working with more explorers, producers and related service providers than any other professional services firm to ensure we meet the challenges of the global mining industry in the future.

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

For more information on this publication or how PricewaterhouseCoopers can assist you in managing value and reporting, please speak to your current PricewaterhouseCoopers contact or telephone/e-mail the individuals below who will put you in contact with the right person.

Australian Mining team

Australian Mining LeaderTim Goldsmith, Melbourne Tel: +6� (�) 860� 20�6 Email: tim.goldsmith@au.pwc.com

New South WalesMarc Upcroft, Sydney Tel: +6� (2) 8266 ���� Email: marc.upcroft@au.pwc.com

QueenslandWayne huf, Brisbane Tel: +6� (7) �257 5600 Email: wayne.huf@au.pwc.com

South AustraliaAndrew Forman, Adelaide Tel: +6� (8) 82�8 7�0� Email: andrew.forman@au.pwc.com

VictoriaTim Goldsmith, Melbourne Tel: +6� (�) 860� 20�6 Email: tim.goldsmith@au.pwc.com

Western AustraliaDoug Craig, Perth Tel: +6� (8) 92�8 �262 Email: doug.craig@au.pwc.com

Global Mining Group Leadership

Global Mining Leader/ Asia-PacificTim Goldsmith Tel: +6� (�) 860� 20�6 Email: tim.goldsmith@au.pwc.com

CanadaPaul Murphy Tel: +� (��6) 9�� 82�2 Email: paul.murphy@ca.pwc.com

ChinaRita li Tel: +86 (�0) 65�� 2�65 Email: rita.li@cn.pwc.com

Derrick Ryley Tel: +86 (�0) 65�� 2207 Email: derrick.ryley@cn.pwc.com

Latin AmericaAnthony Dawes Tel: +56 (2) 9�0 006� Email: anthony.dawes@cl.pwc.com

United KingdomJason Burkitt Tel: +�� 20 72�� 25�5 Email: jason.burkitt@uk.pwc.com

United StatesSteve Ralbovsky Tel: +� (602) �6�8�9� Email: steve.ralbovsky@us.pwc.com

IndiaKameswara Rao Tel: +9� �0 2�� 00 750 Email: kameswara.rao@in.pwc.com

South Africahugh Cameron Tel: +27 �� 797 �292 Email: hugh.cameron@za.pwc.com

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15 Key contributors

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Key contributors to this report

Anthony HodgeDirector

Doug Craig Partner

Wesley GohManager

Wayne HufPartner

Chris MihosSenior Consultant

Jacqui ThurlowSenior Manager

For copies of this report, contact: Frederic Schnell Tel: +6� (2) 8266 298� Email: frederic.a.schnell@au.pwc.com

Key contributors

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Other mining publications16

Visit our website www.pwc.com/au/mining

Other mining publications

Global Mine* Bulletin

Occasional e-newsletter focusing on current issues and emerging trends within the global mining industry.

Monetisation of Coal Assets Briefing Paper

This briefing paper describes the alternative methods for creating value from coal assets, with particular focus on coal bed methane and coal to gas technologies.

Total Tax Contribution Study of the Global Mining Industry March 2009

Study analysing the total taxes of fourteen of the world’s largest mining companies, focusing on their largest operations in a variety of countries.

Improving safety performance in the Australian mining industry through enhanced reporting August 2008

PwC believe that further progress can be achieved by improving the processes involved in capturing, analysing and sharing safety data. This paper outlines how this can be achieved by addressing �2 improvement opportunities in three main areas.

Finding cost efficiencies in mining operations through effective value driver modelling February 2009

This paper highlights Australian mining best practice in both operations cost management and production value maximisation through robust modelling of operational value drivers.

Mining capital projects through effective project stage gating November 2008

This paper highlights Australian coal mining industry best practice in major capital project management.

Financial Reporting in the mining* industry International Financial Reporting Standards June 2007

Description of the financial reporting implications of IFRS across a number of areas selected for their particular relevance to the mining industry.

Mine* As good as it gets? A review of global trends in the mining industry June 2008

Annual review providing a comprehensive analysis of the financial performance and position of the global mining industry.

Mining Deals* 2008 Annual Review

Mining Deals 2008 reviews deal activity in the mining industry including industry trends.

Global Mining Capability Statement 2009

This publication discusses the key challenges mining companies face today and how PwC is helping them identify and implement solutions.

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