Written Research on the Australian Financial Market: HA1022, T2 2019

This report provides a comprehensive analysis of the Australian financial market, with a specific focus on the mining and metal sector. It begins with an industry description, highlighting the sector's significance and international competitiveness. The report then delves into a company description of Aspire Mining Limited, examining its business activities, management structure, and funding sources. A key component of the report is the financial instrument analysis, which details the company's financial instruments, including assets, liabilities, and equity. Furthermore, a financial structure analysis is conducted, utilizing various financial ratios such as current ratio, debt-to-equity ratio, return on assets, return on equity, and interest coverage ratio to evaluate the company's financial health and performance over a three-year period. The report also includes additional financial ratios like asset turnover, price-to-book value, and expense ratios, offering a holistic view of the company's financial position. Finally, the report concludes with findings and recommendations based on the financial analysis.

Running head: WRITTEN RESEARCH ON THE AUSTRALIAN FINANCIAL
MARKET
Written research on the Australian financial market
Name of the Student
Name of the University
Author Note

WRITTEN RESEARCH ON THE AUSTRALIAN FINANCIAL MARKET
Table of Contents
1. Industry description:...............................................................................................4
2. Company description:............................................................................................4
3. Financial instrument analysis.................................................................................4
4. Financial structure analysis....................................................................................4
5. Financial market analysis.......................................................................................4
6. Finding, conclusion and recommendation.............................................................4

WRITTEN RESEARCH ON THE AUSTRALIAN FINANCIAL MARKET
1. Industry description:
a. Mining and metal sector of Australia is considered the largest industry as a
significant number of companies are involved in the development, exploration
and production across hundred countries. Some of the largest diversified
resources companies of the world are involved in the sector and the capital
required for the intensive development of the mineral resources are sourced
from the equity markets by the sector. The operation of the mineral industry of
Australia is considered to be profitable for over second century and during the
last 30 years, it has witnessed the greatest growth. The industry is
internationally competitive when it comes to marketing and the production of
most of the industrially important minerals of the world. However, it is
apprehended that the essential degree of competitiveness is not generated by
the Australia mining sector because of intensification of the competition in the
world market (Yakovleva 2017).
b. For the process of mineral extraction, there are three level of government
comprising the regulatory framework. The exploration of petrol and mineral
from offshore in Australia is regulated by the policy designed by the common
wealth government of Australia. This involve federal government of Australia,
state and territories and local government. Each of the state provide primary
mining regulatory authorities (Walters et al. 2016).
c. The mining industry of Australia is also regulated by some other industrial
group’s side from the government regulatory frameworks. Such groups
include corporate service group and strategic business innovation group.
2. Company description:
a. The development and discovery of metallurgical deposits of coal is the main
business activities of Aspire mining limited with its focus on Mongolia as it is
the largest consumer of metallurgical coal. Some of the other sources of
business for the company is undertaking of coking coal projects, coal projects
and investment in rail infrastructure. The main service of the company is to
focus on the development of coking coal deposits of world class premium in
Mongolia. In addition to this, the company has also made investment in the
strategic infrastructure and has significant interest in Nuurstei Coking Coal
Project and in the region of Northern Mongolia, it is the holder of large coal
tenement (aspiremininglimited.com 2019).
b. The management team and board of Aspire mining limited involves a
combination of exploration, project acquisition, resource management,
corporate and financial experience with the capability of development and
identification of resource assets of world class. The structure of the board of
Aspire mining limited comprise of four non-executive director, two executive
director, one managing director and chairman and one company secretary. It
is the responsibility of the board that there is alignment between the risks and
the activities of the company and moreover, the oversight and management of
the management of risk framework is the overall responsibility of the board
(Fuisz 2015).
c. Many of the projects undertaken and the construction of the railway
infrastructure is done by the company by funding from the right issue. The pre
development expenditure of the project such as Erdenet to Ovoot railway was
done by funding received from CGGC. Exercising of the option also results in

WRITTEN RESEARCH ON THE AUSTRALIAN FINANCIAL MARKET
generation of then fund which should meet the rail and coal evaluation
activities (Bekaert and Hodrick 2017).
3. Financial instrument analysis
a. This section provides a description of the financial instruments of the firm and
it has been retrieved from the financial report of the company that the capital
structure comprise of the equity and retained earnings reserves. Earning
maximum amount of interest at low risk is the main objective of the financial
instrument of the group. The principal financial instruments in which the group
deals with short term deposits and cash. Creditors and receivables are some
other financial instruments which arise directly from the operations. Financial
liabilities comprised of borrowings and trade and other creditors and financial
assets comprised of cash and cash equivalents and receivables. Trade and
other payable include accrued expenses, trade payables, corporate credit
card, borrowing fees payable and interest payable. Equity section include
reserve, issued capital and accumulated losses. Assets comprised of current
and non-current assets. Under current assets, trade receivables and cash and
cash equivalents and non-current assets include intangible assets, evaluation
expenditure and intangible assets. The policy of the Aspire mining limited for
the financial year 2016 and 2017 has been not to trade in the financial
instruments. Furthermore, there is a limited credit risk associated with the
derivative financial instruments as the banks are the counterparties that are
assigned with higher credit rating (Zhang et al. 2015).
b. The understanding of off balance sheet financing helps in assessing the
financial position of the entities and include all such items for which the
recognition on the balance sheet is not necessary. These includes debt
guarantees, leasing transaction, contingent obligations and securitization.
From the analysis of the financial report of Aspire mining limited, it is observed
that the organization has engaged in off balance sheet for some items as they
have not been recorded in the balance sheet. The details of the joint venture
has not been recognized in the financial statement and a separate discussion
of the same has been made in the joint venture. In addition to this, the
information about lease has not been recognized in the balance sheet,
however the new lease standard is yet to be adopted by the company. It can
be seen that some of the information related to income tax such as deferred
tax assets in respect to the loss concerning tax in Australia, issuing of shares
and some other costs have not been recognized in the balance sheet and
forms another off balance sheet item (deloitte.com 2019).
4. Financial structure analysis
The evaluation of whether the company should issue new share or borrow for
financing the new project has been done by identifying different financial ratios for
the creditors and investors.
a. The three financial ratios important to creditors include debt to equity ratio,
current ratio and return on assets. Computation of these ratios are shown in
the table below:
2018 2017 2016

WRITTEN RESEARCH ON THE AUSTRALIAN FINANCIAL MARKET
Current ratio 11.67 0.05 1.32
Debt to equity ratio 0.10 0.42 0.21
Return on assets -0.17 -0.12 -0.05
Current ratio is computed to determine the ability of the organization to
meet their short term obligations using their current assets. It is observed that
the current ratio of Aspire Mining limited has reduced in the initial year of
analysis that is from 1.32 in year 2016 to 0.05 in year 2017 and it
subsequently increased to 11.67 in year 2018. The value of current ratio in
year 2019 is not considered desirable and required deep analysis of the
individual assets owned by the company. Higher current ratio implies that the
current assets consist of obsolete and slow moving stocks (Lechner et al.
2016). Now, looking at the figures of debt to equity ratio, it is observed that the
value increased from 0.21 in year 2016 to 0.42 in year 2017 and subsequently
declined to 0.10 in year 2018. The falling debt to equity ratio is considered
favorable as this implies that the investors are funding the operations of the
company. In addition to this, return on assets can be analyzed by looking at
the figures and it is observed that the ratio is declining year on year from 0.05
in year 2016 to 0.17 in year 2018. This is the implication of the fact that the
assets of the company are not effectively utilized to generate income.
b. The three financial ratios important to shareholders of the company are
dividend payout ratio, return on equity and interest coverage ratio.
Computation of the ratios are presented in the table below.
2018 2017 2016
Return on equity -0.21 -0.16 -0.06
Dividend payout ratio 0.00 0.00 0.00
Interest coverage ratio -10.97 -5.32 -2.87
Return on equity helps in measuring the ability of the organization to generate
return from the investment of shareholders. It is observed that return on equity of
Aspire mining limited has reduced consistently from 0.06 in year 2016 to 0.16 and
0.21 in year 2017 and 2018 respectively. This increase in negative return on equity
implies that the funds of investors are not utilized to generate return. In addition to
this, since the start of the financial year in the year of analysis, it is recommended by
the directors not to make payment of dividends and thereby non dividends has been
declared or paid. This makes the value of dividend payout ratio zero. One of the
main concerns of the investors or the shareholder of the company is to determine
whether the company is able to pay its interest without sacrificing its profits
(Hosseinzadeh et al. 2016). It is considered desirable to have higher interest
coverage ratio as this indicate that the interest obligation can be met by the
company. Now, looking at the figures of interest coverage ratio, it is observed that
the negative value of interest coverage is increasing year on year that is from -5.32
in year 2017 to -10.97 in year 2018. This negative value implies that the interest
obligation cannot be easily met by the company and this is attributable to lower or
reduced earnings.

WRITTEN RESEARCH ON THE AUSTRALIAN FINANCIAL MARKET
c. Based on the attached financial statements, some of the ratios that have been
computed include asset turnover ratio, price to book value, debt ratio, equity
ratio, cash return on sales and expense ratio. Computation of these ratios in
depicted in the table below:
2018 2017 2016
Asset turnover ratio 0.0048 0.0001 0.0007
Price to book value 0.21 0.10 0.05
Debt ratio 0.09 0.29 0.17
Equity ratio 0.91 0.71 0.83
Expense ratio 23.37 863.01 90.82
Cash return on sales 0.53 0.30 1.14
Higher asset turnover ratio is considered desirable as it indicates the
efficiency of the assets to generate income. It is observed from the table that
then figures of asset turnover ratio has increased consistently from 0.0007 in
year to 0.0001 and 0.0048 in year 2017 and 2018 respectively. Such increase
have negligible impact on the utilization of assets to generate income. Price to
book ratio on other hand helps in evaluating the valuation of shares of the
company. Any figure which is below than one is not considered favorable as
this implies declining business. It can be observed that although the price to
book value of the company has increased in year 2018, the value cannot be
regarded as favorable. Debt ratio on other hand has increased initially from
0.17 in year 2016 to 0.29 in year 2017 and subsequently declined to the value
of 0.09 in year 2018. It is considered favorable to have lower debt ratio as this
indicates the stability of the business. Furthermore, it is suitable to have
higher equity ratio for the company as higher value would make it worthy for
then investors to invest. Equity ratio has decreased from 0.83 in year 2016 to
0.71 in year 2017 and subsequently decline to 0.91 in year 2018. Now,
looking at the figures of expense ratio, it is observed that the figure increased
significantly from 90.82 in year 2016 to 863.01 in year 2017 and this
subsequently reduced to 23.37 in year 2018. Such considerable increase in
value implies that the expenses of the company is significantly higher that
what they are earning. Cash return on sales implies that the percentage of
sales that is converted into income and higher value is desirable as this
implies that larger amount of money is retained in the form of profit. Looking at
the figures, it is observed that there has been significant reduction in the cash
return on sales from 1.14 in year 2016 to 0.30 in year 2017 and subsequently
increased to 0.53 in year 2018. This implies that the efficiency of company in
using its resources to convert their sales into profits has reduced in the
present year of analysis.
d. Since the company is into the exploration stage, it would not be suitable to
account for any profitability ratio as the company is undergoing losses for few
years. However, it is required to look at the figures of assets and liabilities of
the company to make recommendation. It can be observed that the debt ratio
of company is declining and thereby the financial leverage is low. Moreover,
an increase in equity ratio implies that the business has potential to be
financed by the shareholders (Sarigbasis.pir.sa.gov.au 2019). Therefore, it is

WRITTEN RESEARCH ON THE AUSTRALIAN FINANCIAL MARKET
recommended that for financing the new project, Aspire mining limited can
issue the shares or they borrow the amount. Furthermore, it is noteworthy to
mention the prospects of the current projects undertaken by the company.
The current projects of Aspire mining limited includes Coal projects and
Railway projects seems to be prospective as they would provide an early start
of cash flow and production of material.
5. Financial market analysis
a. As a mineral based economy, a modern level of development has been
achieved by Australia and one of the contributory factors to this is the
innovative strong and profitable financial system. Some large financial
institutions forming the part of financial intermediaries in the industry have
the ability to exercise their market power over their consumers and
competitors (Patz and Goetz 2017). The market power of the financial
players in the industry provides operational efficiency to the companies
and funding advantage. For all the financial lenders in the system, the
single largest expenses incurred is the cost of sourcing funds. Borrowers
rely on the lenders and some financial intermediaries for accessing the
funds and this provided a basis for them to continue competing.
Furthermore the funding cost of the banks have been pressurized due to
changes in the regulatory bodies. This increased cost on the lenders is
difficult to pass on due to prevailing competitive pressure. The scope of
mining companies and the industry as a whole to apply the competitive
pressures on the lenders is reduced due to the poor availability of the
information about the financial product (Bakker and Shepherd 2017).
b. Yes, there is a need of the government to intervene in the industry as the
government helps in enabling the environment supporting the
development and growth of the industry. The government sets the
framework by supporting skills, enabling market process and encouraging
linkages of strong upstream linkages. In addition to this, government plays
a crucial role in reversing then policies that hampers the development and
institute environmental friendly reforms. This results in the development of
specialist supplier firms and results in the new development product
diversification. The government of Queensland introduced the code of
conduct by developing the framework of ethical conduct and is applicable
to all the employees, contractors and suppliers of the mining industry
ensuring ethical decision making (ig.com 2019). In addition to this, the
business dealing should be ensured of the transparency by maintaining
highest level of integrity. The regulatory bodies have developed the policy
that supports ethical behavior and adoption of ethical business practices
by the mining companies. Furthermore, the generic standard introduced by
ISO (International standard organization) takes into account the
environmental management system of the mining companies based on
their ethical conduct and technical capacity (dmp.wa.gov.au 2019).
c. Addressing this question, it has been found that there is no reported
incidence on any unethical behavior or practice by Aspire Mining limited.
As per the information retrieved from the financial report of the company, it
has been observed that the company complies with all the relevant
standard and requirement in carrying out their activities and when it comes

WRITTEN RESEARCH ON THE AUSTRALIAN FINANCIAL MARKET
to the reparation of the financial statements. In respect to the exploration
activities of natural resources, Aspire Mining limited is subjected to
significant monitoring and environmental requirements. Moreover, the
operations of the group has not been impacted by the material matter of
circumstances or impacting the state of affairs in the development of
project (Lechner et al. 2016). The diversified policy is adopted by the
company that outline strategies for maintaining appropriate level of
governance in the company.
6. Finding, conclusion and recommendation
The mining industry of Australia is one of the most established and the financial
market plays a crucial role in sourcing funds for the development and growth of the
industries operating in the sector. Interaction between different players has resulted
in maintaining the competition within the players and contributing the industrial
supplies with the adequate level of funds. Nevertheless, over the last few years, lack
of investment is suffered by the supply side of Aspire Mining limited. Therefore, the
funding of new projects undertaken by the company can be well financed by
accessing funds from different sources and the players in the financial market. It can
be inferred that the financial market of mining industry of Australia is prospective and
healthy. Furthermore, the government of Australia is highly committed to efficient
and effective regulations of the mining sector and mineral exploration. Development
of the mining resources is encouraged by recognizing the importance of the mining
sector through opportunities, regional development and increased business
investment and balanced against social and environmental objectives (Pwc.com.au
2019).
From the analysis of the financial report of Aspire Mining Limited, it is observed
that the company in the current scenario is undergoing loss. However, for financing
the new project, it can opt for both borrowings and issuing of shares along with
evaluating the prosperity of the projects. This recommendation is also supported by
the history where the company is opting for issuing shares to fund its new project.
Some of the recommendations for sustaining the development and health of the
mining industry of Australia are listed below:
 For sustaining the development of the projects, it is recommended that the
mining program of the companies should incorporate proactive approach for
controlling and identification of the hazards. With such program, the
applicability of the output of resulting research can be ensured.
 Mining companies should establish strategic framework which provides
assurance of the fact that regulatory function is timely, clear and focused. This
would also assure the company that the environmental obligations is not
duplicated.
 Some demonstration projects should depict the effectiveness and feasibility of
the interventions by the incorporation of mining program. In light of this, the
regulatory body suggest a more strategic dissemination and proactive
agenda.
 For the environmental regulation by the mining companies, a compliance
methodology and risk based assessment should be implemented by the
industry.

WRITTEN RESEARCH ON THE AUSTRALIAN FINANCIAL MARKET
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Appendix:

WRITTEN RESEARCH ON THE AUSTRALIAN FINANCIAL MARKET