Ernst & Young’s Mining Eye index monitors the performance of AIM mining companies on a weekly basis and can be viewed at www.ey.com/uk/miningeye. Movements and analysis of the index are reported in this quarterly publication. Ernst & Young also produces a similar index for the oil and gas sector, which can be viewed at www.ey.com/uk/oilandgaseye. To receive copies of the Mining Eye, please contact Olivia Russell on +44 (0)20 7951 5559 or email [email protected]. To receive copies of the Oil and Gas Eye, please contact Rebecca Hanifin on +44 (0)20 7951 6682 or email rhanifi[email protected]. Area Contact: Lee Downham Global Mining & Metals Transactions Leader Ernst & Young, UKI +44 (0)207 951 2178 [email protected]The Mining Eye is written by: Emily Colborne +44 (0)121 535 2086 [email protected]Mining Eye Q3 2012 Q3 2012: the funding challenge ► The Mining Eye index fell 3% over Q3 2012 — an encouragingly flat performance compared with the dramatic 30% fall since January 2012. Strengthening metals prices and signs of improved growth in North America and China provided some support, although the mining sector continues to underperform the wider AIM market. ► However, financing conditions on equity markets remain challenging for juniors miners, with quarterly equity proceeds raised by the sector on AIM at their lowest since Q3 2004 (at £84m). Risk aversion among investors is being met with reluctance from companies to further dilute holdings of existing shareholders at current share prices. ► Q3 2012 saw the early signs of distress that became widespread in the aftermath of the 2008 financial crisis, with a small but symptomatic number of companies reporting distressed asset disposals, strategic reviews and last-resort financing. ► But creative cost and capital management is so far helping to sustain the majority through these turbulent times — cost-cutting, non-core asset sales, fast-tracked cash generation options, and the attraction of strategic, long-term investment partners. Mines & Money 2012 The Ernst & Young Mining & Metals group is a proud sponsor of Mines and Money London. Come and meet Ernst & Young’s Mining team on 4–5 December at the Business Design Centre, Islington, London to hear about our latest insights in the sector.
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Ernst & Young’s Mining Eye index monitors the performance of AIM mining companies on a weekly basis and can be viewed at www.ey.com/uk/miningeye. Movements and analysis of the index are reported in this quarterly publication.
Ernst & Young also produces a similar index for the oil and gas sector, which can be viewed at www.ey.com/uk/oilandgaseye.
To receive copies of the Mining Eye, please contact Olivia Russell on +44 (0)20 7951 5559 or email [email protected]. To receive copies of the Oil and Gas Eye, please contact Rebecca Hanifin on +44 (0)20 7951 6682 or email [email protected].
Mitigating risk and optimizing capitalDespiteconstrainedaccesstocapital,weareseeingajuniorindustryin2012thatissmarter and leaner than it was in 2008–09. Juniorsarerespondingcreativelyandopportunistically,pursuinggrowththroughsuccessfulattractionofalternativefunding;mitigatingriskbybuildinginoptions;andoptimizingcapitalbyfocusinglimitedresourcesoncoreassets.InQ32012, wesawexamplesof:
Forexample,Central Asia Metals announcedanagreementtodisposeofitsEreenandHandgaitMongolianassetstoMongolianResourceCorporation,allowingthecompanytofocusonproductionatitsSX-EWKounradcopperplantinKazakhstan
Sometookadvantageofopportunitiestogenerateinterimcashflowfromsupplementaryassetstofundtheadvancementofcoreassetstowardproduction.Jubilee Platinum, which holds a51%interestinpowergenerationcompany,PowerAlt,receivedapprovalfromtheNationalEnergyRegulatorofSouthAfricatosellsurpluselectricitytoathirdparty,adealexpectedtoincreaseearningspotentialandprofitability.
Hummingbird Resources announced that itisindiscussionswiththeInternationalFinanceCorpoverapossibleUS$5mstrategicequityinvestment.Thecompany’sCEOdescribedthepossibleinvestmentasasignificantendorsementoftheviabilityofitsDugbe1ironoreprojectinLiberia,aswellasadoor-openertopotentialfuturedebtfinancing.
► Botswana Diamonds announced the recoveryoffirstdiamondsfromitssamplingprojectinCameroon.While ofindustrialquality,thegemsconfirmthediamondiferouspotentialofthedeposit.Nextstepsforthecompanyaretoundertakebulksamplingtoidentifygradepertonneandvaluepercarat,alongsideascopingstudytoexploretheproject’sfeasibility.ThecompanyisalsoprogressingexplorationonitsOrapaprospectinBotswana.Itssharepricegained56%overQ32012.
ofpolyhalite,amulti-productpotashore.Drillingisnowunderwaytofurtherdelineate the resource in order to securefinancingfortheproject,whilethecompanyalsolaunchestheplanningapplicationprocess.
► African Consolidated Resources announcedasignificantupgrade toitsresourceestimateatitsPickstone-PeerlessgoldprojectinZimbabwe. Thecompanyreportedanincrease to36.63mtcontaining3.2mouncesofgoldatagradeof2.7g/tgold,ofwhichover50%isintheMeasuredandIndicatedcategory(JORC-compliant).AfricanConsolidatedResourcesisinitiatingabankablefeasibilitystudy,targetingproductionofover100,000ouncesperyear—whichthecompanysays would be more than double the outputofZimbabwe’sexistinglargestmine.ACR’ssharepriceclosedthequarterup17%.
► Coal of Africa’ssharepricesuffered asignificantfalloverthequarter(59%),againstabackdropofaweakthermalcoalmarket.Thecompanyclosedthequarterwithamarketvalueofjust£116m,from£246mayearago,astheglobalthermalcoalpricefell31%overthesameperiod.Strikeactionatthecompany’sSouthAfrican
► Black Mountain ResourcesjoinedAIMviaanintroduction,raisingnonewfunds.Thecompany,whichhasaprimarylistingontheAustralianSecuritiesExchange,isexploringforsilverintheUS,withfirstproductiontargetedforQ42012.BlackMountainundertookthesecondarylistingonAIMin order to broaden its international investorbase.
Changes to the Mining Eye indexInthisedition’squarterlyindexreview,therewerejusttwoindexconstituentchanges.EMEDMiningreplacedBellzoneMining,followingarelativelystrongsharepriceperformancebyEMEDasitadvancestowardsproductionatitsflagshipRioTintoCoppermine.BellzoneMiningdroppedjustoutsidetheindexfollowingthedisappointingperformanceofitssharepriceoverthequarter.
► Touchstone Gold was readmitted toAIMfollowingitsre-domiciliationfromtheBritishVirginIslandstotheProvinceofOntario,Canada.
Chart 9. AIM mining admissions and delistings since 2006Source:Ernst&YounganalysisofAIMmarketstatistics;includesplacings,introductionsandreadmissions;excludestransferstoandfromtheMainMarket
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Chart 8. Value of AIM mining universe and as % of all AIM, 2004–2012Source:Ernst&YounganalysisofAIMmarketstatistics;marketvaluesasatquarter-end
► ►Coal of Africaraisedatotalof£28.9mviatheissueofshareswithinstitutionalinvestors,atadiscountof1.96%tothereferenceprice.Theboardnotedthesupportofitsshareholders,particularlyinlightofthechallengingmarket
conditions in the world coal market. UseofproceedsincludesdevelopmentattheVelecollieryandpart-payment ofacquisitioncostsforChapudi.
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Ernst & Young’s Global Mining & Metals Center Withastrongbutvolatileoutlookforthesector,theglobalminingandmetalsindustryisfocusedonfuturegrowththroughexpandedproduction,withoutlosingsightofoperationalefficiencyandcostoptimization.Thesectorisalsofacedwiththeincreasedchallengesofchangingexpectationsinthemaintenanceofitssociallicensetooperate,skillsshortages,effectivelyexecutingcapitalprojectsandmeetinggovernmentrevenueexpectations.