Yesterday we had a quick squiz at the profitability of the Australian mining industry compared to both other domestic industries as well as the world’s largest 40 mining companies. Today, it’s worth a taking a closer look at how mining industry profitability in Australia plays out on the basis of business size as well as a look at the proportion of all mining firms that are actually profitable.
The ABS “Australian Industry” report released last month not only provides data on Sales and Service Revenue and Operating Profit Before Tax (OPBT) for the mining industry as a whole in Australia – with the ABS dividing the latter by the former to give us its definition of profit margin – but also provides that data broken down into business size cohorts within the Australian mining industry.
The ABS uses three business size categories here:
- Small – businesses which employ less than 20 people
- Medium – business which employ between 20 and 199 people
- Large – businesses which employ 200 people or more.
If we look at the profit margins of the mining industry broken down by those business sizes, as well as the share of sales and service revenue and share of OPBT that each cohort experienced, this is what we get:
For some context, we’ll repost the chart from yesterday that compares how other industries are performing on the identical measure of “profit margin”:
As we can see, the small and medium sized mining firms are experiencing profits comparable to other Australian industries (albeit with medium sized firms at the top of the rest of the pack) – but large sized mining firms come in at a massive 46.1% aggregate profit margin.
Keep that in your thought orbit while we take a quick detour. The ABS also reports in that publication the proportion of all firms in a given industry classification that are profitable. If we look at the proportion of profitable firms across Australian industries, this is what we get:
This is where it gets particularly interesting. Only 51.2% of all mining firms were actually profitable in 2008/9 – the lowest of all industry classifications – even though the industry wide aggregate profit margin for mining was the highest for any industry classification in Australia, coming in at a whopping 37.1%, and where the aggregate profit margin for large mining firms was an even larger 46.1%
So what we are seeing is an odd distribution of profits in the mining industry where a relatively small number of mostly large firms attracted massive profit margins (pushing the industry aggregate up substantially), while a large number of firms attracted only moderate profits, and a very large number of firms – 46.9% – made a loss.
It would be accurate to say here that a majority of firms – and probably a very large majority of firms at that – would actually be better off under the proposed RSPT than the existing regime.
The design of the RSPT is such that it won’t make any currently profitable firm unprofitable (the larger a firms profit, the larger the slice of that profit the government ultimately takes) – but what it will do as part of its design is make some currently unprofitable firms profitable as a result of not charging firms for exploiting Australian minerals until they are profitable on the one hand, and the way the new Resource Exploration Rebate operates on the other.
Unless the collective management of the entire mining industry were dropped on their head when they were babies and its causing them to operate on the basis of something other than economic self interest in this debate, the hysteria coming from those purporting to represent the mining industry would appear to only be representative of a very, very small collection of mostly large and extraordinarily profitable firms – firms that have pushed the industry aggregate profit margin up to 37.1% and the profit margin of firms employing more than 200 people up to 46.1%, even though an astonishing 46.9% of all mining firms were actually unprofitable at the time!
When Mitch Hooke, Twiggy Forrest, Clive Palmer and the gaggle of usual suspects start whinging about the RSPT – remember exactly who they are representing, because it certainly isn’t the economic interests of the majority of mining firms in Australia.