PwC’s seventh annual report, Aussie Mine 2013 – Unloved…Survival of the Fittest, showed market caps of the mid-50 were down by more than $17 billion after a similar loss in FY12.

Total market caps were $35 billion, well down on the March 2011 peak of $75.3 billion and last year’s $51.8 billion.

PwC energy, utilities and mining leader Jock O’Callaghan said winning back investor confidence was key.

"We remain convinced that the omnipresent megatrends of global resource scarcity, urbanisation and the eastward shift in global economic power will drive long term prosperity for the mid-tier 50 sector," he said.

"Let's keep this in perspective, we have a resources boom that has eased, not a bubble that has burst.

"Convincing investors to stay on board in light of the losses many have incurred over the past year is critical. Without regaining investor confidence and failing to demonstrate its match-fitness to maximise shareholder returns in these leaner times, many in the sector face a period of uncertainty.

"Those miners who survive and thrive long term will possess the right combination of assets with strong operating performances, projects that are relatively easy to develop and, critically, they will have access to adequate alternatives for funding. Separately, any one of these factors can become a company maker but getting all three working together represents a trifecta for success."

For the first time in the Aussie Mine series, the mid-tier's $39 billion in net asset values exceeded market value, even after a record $3.5 billion in asset write-downs.

O’Callaghan said only two conclusions could be drawn.

"Either the market has oversold the mid-tier 50 or it remains over-valued,” he said.

“Again, the sector needs to make the case and convince the market it's been oversold."

It was also the first time that net assets shrunk, down 3%, or $1 billion, with the previous lowest growth in net assets reported in the Aussie Mine series being 18%.

PwC warned of a further $1 billion in impairment charges in the December reports.

Just 18% of the assets among the companies on the list had assets offshore and 75% of impairments were for Australian assets.

Of the total write-downs, gold miners accounted for nearly $2 billion, though gold producers had the heaviest representation on the list, with 14 companies.

Gold production rose by 24%, but costs increased by 17% and prices declined in the second half of FY13.

Iron ore production grew by 45% and costs only increased by 4%.

Copper production increased by 35% and costs dropped 8%, and PwC highlighted Sandfire Resources as a standout, as the new producer achieved a gross margin of 59% in its first year of production.

Coal production was up 27% and costs dropped 1%, but a steep fall in coal prices wiped off $1 billion in revenue from producers.

The mid-50 raised 65% less equity in FY13 and cash generated from operations dropped 7%.

Dividend payments this year are expected to be $296 million, down heavily on $869 million last year.

"The fact is that dividend payouts are likely to fall further in 2014," O'Callaghan said.

"The main drag on the dividend drop in 2013 was the coal sector, with all other sectors' payouts remaining constant, despite the dive in profits and overall sentiment.

"The dilemma for much of the top 50 will be whether to invest in growth or return funds to unhappy shareholders, especially for gold miners facing a cash squeeze.”

Despite the fall in market caps, completed and pending mergers and acquisitions fell from 22 to 14, with the value down 86% to $2.4 billion, though without the two largest transactions – forced by the Zimbabwean government – the value fell to $900 million.

The total value of announced deals fell from $24.9 billion in 2012 to $6.2 billion, with the number of transactions falling from 25 to 15.

Deal value was just 15% of those in 2011 and the number of deals more than halved.

"The underlying interest remains reasonably strong but the factors needed to get deals across are less than compelling," O'Callaghan said.

He said the lack of deals reflected risk aversion among investors.

"Investors appear especially shy of any targets that have large and variable capital expenditure programs, lengthy project construction periods, are complex operationally and have high running costs,” he said.

“But those with strong balance sheets and, especially for iron ore and coal miners, those with greater access to infrastructure will remain attractive."

PwC said drop in deals could also reflect the weaker cash among the majors and mid-tiers, ruling out potential buyers.

"This leaves open the prospect of mergers or asset exchanges amongst this group, while the jury is still out on whether larger private equity houses will enter the fray,” O’Callaghan said.

The figures also suggested that Asian interest had subsided, with only four deals worth $4 billion announced, which included the scrapped $3.7 billion bid for Arrium.

PwC said there may be renewed interest next year.

"With China bidders showing more restraint, conditions in the first half of 2014 may prove more tempting for Japanese and Korean companies to have a tilt at Australian resources,” O’Callaghan said.

The report focused on the largest 50 miners with market caps of less than $5 billion, starting at $172 million (Bougainville Copper) through to $4.18 billion (Iluka Resources).