Mining sector fundraising drops 24 per cent
The first quarter of 2013 has been extremely challenging for the international mining industry, with the problematic combination of rising operating costs, falling metals prices, lower ore grades and a continued scarcity in the availability of funds. After an 18-month decline that started at the end of 2010, the second half of last year saw a gradual recovery in the mining industry’s overall market capitalisation. This improvement was helped by a strengthening gold price, but precious metals, and the industry’s valuation, have gone into reverse this year (see Market Capitalisation chart above).
As indicated in the latest ‘State of the Market’ report from IntierraRMG, the price of most metals fell considerably during the last two months of the quarter, and this has had a particularly damaging effect on the valuations of the smaller companies. After what was a relatively optimistic last three months of 2012, this year looks like being especially difficult for raising exploration finance.
Hitherto, initial public offerings (IPOs) have played an important role in generating cash for mining projects. However, market confidence has been dented against a backdrop of volatile markets, political turbulence and fragile economic news. As a result, there has been little IPO activity in the past quarter for either the Toronto or London stock exchanges. Neither retail nor professional investors have the capacity, or appetite, to fund equity raisings, and so equity markets remain constrained. With their share prices so low, most explorers can’t realistically raise the necessary funds to bring themselves to the stage where they can generate cash flow from metals production.
According to the IntierraRMG database of almost 3,500 listed companies, funds raised by the mining sector in the quarter to end-March dropped to under US$5.2 billion from almost US$6.8 billion in the last three months of 2012. Moreover, there has been a particularly sharp fall in the funds raised by exploration companies; dropping to only US$1.5 billion in the quarter just ended from US$3.4 billion in the December quarter. Mining companies raised only US$0.2 billion during the quarter on the London Stock Exchange (LSE), which represents a slump of almost 80% from the previous quarter.
The Toronto Stock Exchange (TSX) and Australian Stock Exchange (ASX) also saw sharp falls. Almost 80% of funds raised during the quarter was by companies with individual market capitalisations of over US$100 million. IntierraLive data showed that there was also an improvement in the amount raised by the industry’s smallest companies (those valued at under US$10 million), following an especially sparse December quarter, but the amounts raised are still well below the funds secured in the year-ago quarter. This is particularly worrying because companies have typically raised most of the necessary funds for project development during the first quarter of the year. IntierraRMG’s global data suggests that the industry is in for a bleak year.
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State of the Market Reports detail the state and outlook of the mining industry focusing on data-driven trends in exploration, metals production, mining and finance. The report series provides data and opinion on the closed quarter, plus forward views on the upcoming period.