PwC yesterday released its 8th annual analysis of the 50 largest miners with a market capitalisation under $A5 billion.

Aussie mine: standing out from the crowd found that after a 33% slump in market caps in the 2012 financial year, market values grew by 5% or $1.9 billion to $38.6 billion – but still only around half of the March 2011 peak of $75.3 billion.

But it was 10 new entrants to the list that largely drove the increase.

The mid-50 increase compared to a 12% rise in the S&P/ASX 200 and an 11% increase in the ASX 300 Mining and Minerals index.

“Although investors haven’t deserted the mid-50 sector altogether nor has it won back their confidence,” PwC energy, utilities and mining leader Jock O’Callaghan said.

“However, key commodity prices are now trading more or less in line with marginal production costs, and impairment charges, while still uncomfortably high at $2.5 billion, are nevertheless an improvement on last year’s $3.5 billion.

“Those miners able to boost their performance are now placing greater emphasis on how quickly they can move down the cost curve.”

The largest company on the mid-50 list was Alumina with a market cap of $3.8 billion down to the smallest company, Grange Resources, with a market cap of $185 million.

However, FY14’s gains have already been wiped out, with market caps of the top 50 dropping a collective 10% between June 30 and October 31, with the fall in the iron ore price largely to blame.

Despite gold performing poorly this year, gold miners in the mid-50 added a combined 33% value.

“The gold miners in this cohort have mounted a comeback this year despite the gold price sinking further over the year,” O’Callaghan said.

“As a sector, gold is the one that’s really standing out from the crowd.

“After years of adversity they’ve collectively increased volumes 24% and made some very canny acquisitions from the majors.”

O’Callaghan said iron ore was the standout contender for the emerging story for this year.

“The iron ore price defied gravity during 2013-14 but has since been smashed.”

He said falling commodity prices put the focus on marginal costs of production.

Despite a combined 10% rise in revenue to $24.5 billion, collective reported losses were $1.6 billion in FY14.

Costs rose 13%, offsetting the increase in revenue and operating margins fell 1% to 19%.

The report found that the value of mergers and acquisitions jumped to $3.5 billion from $900 million with the re-emergence of $1 billion deals for the first time since 2012.

“The strong pick up in deal activity is a good indication that many in the industry believe the market’s hit rock bottom,” O’Callaghan said.

“Not only are we seeing more deals and bigger deals but the buyers from the mid-50 were funding their deals out of sheer balance sheet strength.”

O’Callaghan said the absence of debt and equity raisings to fund deals was notable.

“The austerity of recent years may not have led to higher productivity, but it has helped restore balance sheets,” he said.

“Also of interest is the way the big miners’ unloved assets have fed the mid-tier’s appetite for growth.”

But the lack of exploration was again a concern, with spend down 20-30% to around $800 million, exceeding the 10% fall a year earlier.

O’Callaghan said this would have a material impact in the future if not reversed, though it was an issue for the entire sector.

“Broadly speaking we maintain that the critical long-term trends like global resource scarcity, urbanisation and shifts in economic power should continue to underwrite the mid-50s future – but with one critical caveat – this continued decline in exploration,” he said.

“The mid-tier is the traditional source of the industry’s most valuable projects, but it will lose that mantle without significant change.”

Overall, the outlook remained clouded after the recent falls in the iron ore price, but O’Callaghan said miners which could control costs and productivity stood out from the crowd.

“Since PwC started this research in 2007 net assets have grown almost 4.5 times on the back of some $30 billion in capital investment. In contrast, revenue has grown just 2.8 times, or less than $16 billion,” he said.

“These are the numbers that show why boosting capital and operating productivity have become the number one pre-occupation for investors and the industry.

“Unfortunately, when looked at as a whole that focus has yet to reap any discernible bottom-line benefit, and we expect the year ahead to be another punctuated with red ink.

“In fact, the worst may be yet to come, at least for iron ore and coal miners.”