The Australian Mining Industry Analysis

Subject: Industry
Pages: 2
Words: 606
Reading time:
3 min
Study level: College

OZ Minerals Limited is the third largest Australian mining company and the second largest zinc producer globally. The company mines zinc, copper, lead, gold, and silver. It was founded in 2008 by merging the multinational companies Oxiana Limited and Zinifex Limited. According to the company’s management, the merger was carried out on an equal basis. The new name should emphasize the appearance of an entirely new company. OZ Minerals is a public company listed on the ASX. It is headquartered in Melbourne, Victoria. OZ Minerals is engaged in mining in Australia and Asia and is also involved in exploration worldwide. I have chosen the Australian mining companies Newcrest Mining Limited and Rio Tinto Limited as companies for comparison.

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In order to analyze the market as all three companies have been represented over the past five years, it is necessary to refer to Michael Porter’s Five Competitive Forces model. The creator of the theory argues that each of these factors puts some pressure on the business. In his model of 5 competitive forces, Michael Porter describes three parameters that must be taken into account when analyzing competition in the market. They are the level of threat from substitute products, the level of intra-industry competition, and the threat of new players that can redefine the market. Regarding the first point, the market is very clearly divided between the leading companies in the mining industry. Therefore, the threat of new competitors is very low. Therefore, this excludes the threat of substitute products appearing in the near future and the threat of new players appearing in the market accordingly.

Within the industry, between the leading companies, the level of competition is higher. However, it is somewhat leveled by the fact that each company occupies a specific niche in the market. Thus, within the industry, competition is evenly distributed over all areas of the market. Next, it is necessary to estimate the market power of customers in the market. This step shows how attached customers are to the company’s product and how high the risk of losing the current customer base is. Because particular niche markets in the mining industry are assigned to specific companies, the risk of losing the current customer base is highly minimal. Finally, it is necessary to assess the pressure of suppliers, namely how dependent the business is on them. In the case of the mining industry, companies often do not use suppliers because they extract raw materials themselves. Therefore, the pressure of this point is also extremely minimal.

Having analyzed the market, it is necessary to analyze and discuss the industry’s forecasts for the next three years. Regarding the ratio, the asset recovery percentage increased from 5.0% to 8.5% in the last year, and the capital recovery percentage increased from 5.9% to 10% (S&P Capital IQ, n.d., a). This speaks to the active development of the company, as well as the projected growth of its stock price. The company’s total asset turnover remains stable and is currently at its top value of 0.4x. Over the past few years, OZ Minerals Limited’s asset turnover ratio has dipped to 3x several times but has steadily leveled off after that. By comparison, Newcrest Mining Limited’s asset turnover ratio has consistently been 3x (S&P Capital IQ, n.d., b). On the one hand, this indicates a stable development of the industry, and on the other hand – the presence of free competition. Predictably, both OZ Minerals Limited and Newcrest Mining Limited will develop steadily in the next three years. This is supported by the overall stability of the market and the consistency of the level of turnover of the companies’ assets.

References

S&P Capital IQ. (n.d). OZ Minerals Limited. S&P Capital IQ. Web.

S&P Capital IQ. (n.d). Newcrest Mining Limited. S&P Capital IQ. Web.