While mining giants like BHP and Rio Tinto dominate much of the public spotlight in Australia, junior and mid-tier players are the often-silent operators working to sure up the industry’s future success.

While there may not be a concrete definition to what makes a company a mid-tier or junior, their essential contribution to the sector couldn’t be clearer, according to industry insiders.

Mid-tiers are generally labelled as businesses with a market capitalisation of less than $5 billion or even $1 billion, while juniors are usually smaller exploration companies who are involved in the nitty gritty of developing projects from the ground up.

According to a PricewaterhouseCoopers report titled Aussie Mine 2018: Healthy, but future fit?, the top 50 mid-tier operators for 2018 recorded a combined market capitalisation of $58.7 billion.

This may seem like a pretty large number, but when you compare it to the combined worth of the ‘big three’ miners, the domination at the top end is apparent.

At time of writing BHP ($109.88 billion), Rio Tinto ($35.49 billion) and Fortescue Metals Group ($20.01 billion) were together worth a whopping $165.38 billion.

However, despite this seemingly endless wealth, junior mining companies are the ones running the majority of exploration projects.

According to AMEC Chief Executive Warren Pearce, around two-thirds of exploration around the world is carried out by the smaller end of town.

With a current lack of new mine discoveries, Mr Pearce said juniors were largely responsible for the success of the mining industry moving forward.

“They take part in most of the exploration and discovery of new deposits and feed bigger companies who can merge into or buy out the project,” he said.

Mr Pearce said big players like BHP tended to capitilise on previously discovered resources they’ve known about for long periods of time.

“They look to purchase a discovery or development of a junior miner which has taken that initial risk and investment,” he said.

“The mining giants pay a premium, but they take the risk out because they know they are getting a prepared project.”

Great Southern Mining Executive Chairman John Terpu agreed it was the junior end of town taking all the risks when it came to exploration.

“It has always been a struggle for the juniors,” he said. “The mindset of the big players is they are more commodity traders than mining explorers.”

The former Conquest Mining Managing Director played a major hand in the discovery and development of the Mt Carlton gold project near Townsville, which last financial year produced 112,479 ounces. Conquest merged with Catalpa Resources in 2011 to form Evolution Mining, the project’s current owner.

Mr Terpu said it was a rollercoaster ride for juniors to take a greenfields discovery all the way to development, and the process tended to put a lot of companies off.

“What I’ve found from the last 12 months is everyone’s mindset is dividends – who’s making money,” he said.

“It’s easier to make money through mergers and acquisitions than finding the ore.”

When the mining industry experienced a downturn, Mr Terpu said juniors were the first to feel the pinch of a declining market.

“Something has to be done to help out juniors when the cycle runs its course,” he said.

“If State Government is going to hike up royalties it should go back into the junior end of the industry to help the small timers survive.”

Great Southern is throwing weight behind its Mon Ami gold project near Laverton in the north-eastern Goldfields region of WA, with 20,000m of RC and diamond drilling in 120 holes planned over the next few months.

Success doesn’t come easy

With roughly one in 100 exploration projects resulting in a working mine, junior operators face significant challenges in attracting investment to fund their projects, according to Mr Pearce.

“What gets very little visibility is exploration companies don’t make money, they spend money,” he said. “They’ve got to go out to the market and convince people to put investment into their project at a significant risk.

“People imagine these guys have a pool of money to draw from, but many are pulling money out of their pocket.

“Greenfields exploration just doesn’t attract private investment, it’s too risky, so you have to find ways of incentivising it.”

Mr Pearce said it was a difficult time for smaller companies to start out in the industry, with easy-to-find deposits possibly a thing of the past.

“We’re looking in new areas and we’re looking deeper, which means more technology needs to be applied and better techniques need to be used to improve our discovery rates,” he said.

“It is really challenging, so for the ones that break through, it’s a real achievement.”

In a highly competitive environment, Mr Pearce said when mid-tiers and juniors had discovered valuable deposits and broken into the producing space, they had to have a constant focus on cost to remain viable.

“Once you’ve got the mine, you need to work tirelessly to get all you can out of it,” he said.

“Operators work really hard to drive efficiencies in their business and try to find better ways to make more marginal projects more profitable.

“In a volatile commodity market, if they don’t find ways to be efficient, they will quickly be out of business.”

Mid-tiers prove their worth

The vast majority of mines in Australia are run by mid-tier operators, and they not only make an important contribution to the production of commodities, but to the regional economies and job opportunities in regional areas.

In addition, mid-tier miners are unlocking some of Australia’s new mineral wealth in commodities such as lithium and rare earth elements, which have not been the investment focus of majors.

To name a few examples, companies like Neometals and Independence Group (IGO) are both local operators looking to break into the downstream processing of battery metals.

Neometals revealed plans last year to build a new lithium refinery 5km outside Kalgoorlie with the capacity to produce an initial 10,000 tonnes of lithium hydroxide annually. A final investment decision is expected in the middle of this year.

IGO is in the middle of a pre-feasibility study for refining its Nova mine product into nickel sulphate and cobalt sulphate for sale to battery manufacturers.

According to Minerals Council of Australia Chief Executive Tania Constable, Australia’s junior and mid- tier gold miners are among the best performing gold companies in the world.

“Australia’s mid-tier mining companies have been a great success story, however, more needs be done by government in Australia to secure the industry’s future,” she said.

Ms Constable warned increasing international competition meant substantial reforms to Australia’s tax and regulatory setting had never been more important.

“Private sector investment in exploration will not occur if the prospects of developing an operational mine are low because of excessive regulation, inflexible workplace relations practices and high tax rates,” she said.

“Federal and state governments must work together to reduce unnecessary duplication, overlap and delays of approval processes for projects by providing clear and consistent environmental regulations that promote efficient and ecologically sustainable development.

“Australia is facing strong competition from emerging mining regions to attract investment. Our reputation as a stable, low-cost place to do business must be restored if we are to become a reliable supplier of critical commodities to the world.”

Image: A Rio Tinto iron ore train in the Pilbara. Copyright (C) 2018 Rio Tinto.