The newly published Ernst & Young Mining Eye Index sees 2012 yielding a crop of smarter and leaner junior mining companies.
RENO (MINEWEB) – “The outlook for equity markets remains uncertain and unpredictable, with the apparent disconnect between assets and commodity values showing little sign of abatement,” says Ernst & Young.
In the latest edition of its Mining Eye Index, which monitors the performance of AIM-listed mining companies, Ernst & Young’s Mining & Metals Group observed “financing conditions on equity markets remain challenging for junior miners, with quarterly equity proceeds raised by the sector on AIM at their lowest since Q3 2004 (at €84 m).”
Meanwhile, “risk aversion among investors is being met with reluctance from companies to further dilute holdings of existing shareholders at current share prices,” says Ernst & Young.
“The funding challenge is compounded in an environment of high and increasing operating costs, weakness in certain commodities, and unforeseen operational challenges, which can quickly and dramatically impact short-term working capital,” Ernest & Young advised.
“The tightening availability of equity (and absence of available debt) reduces financial headroom and impacts companies’ ability to swiftly address unexpected cash flow shortfalls or capital outlays,” E&Y noted. “We have seen the material impact of these conditions on a small but nonetheless significant number of AIM miners this quarter in the form of distressed asset disposals; high-cost, last-resort financing (such as share subscription agreements); operations being placed on care and maintenance; and strategic reviews.”
In their analysis, Ernest & Young observed that a positive upward movement in commodity prices, “while providing some support, has not been fully reflected in equity prices. This continuing disconnect is leading companies to consider themselves significantly undervalued by the market.”
“The market values of nearly two-thirds of AIM miners were trading at over 30% below their 52-week highs at the end of Q3 2012.”
Another trend revealed in the Mining Eye Index is the global retreat of mining IPO volumes to 2009 levels, “with average proceeds raised by junior IPOs just US$3.3 million. On AIM, there was only one mining IPO (Wishbone Gold) in the third quarter, taking the nine months total to just four IPOs.”
The index also disclosed global equity proceeds from secondary offerings of equity by junior miners have fallen 41% year-on-year, “indicating the extent of negative investor sentiment and the expensive financing option that equity has become.”
Nevertheless, Ernest & Young sees “a junior industry in 2012 that is smarter and leaner than it was in 2008-09.”
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