The full impact of the global economic slowdown is yet to hit AIM-traded mining companies despite glimmers of a recovery in the first quarter, Ernst & Young’s Mining eye report said.
According to Ines Schumacher of miningmx.com, the Mining eye index made a 29% gain over the first quarter of 2009, but Ernst & Young warned that further distress for junior mining companies could lie ahead.
The index tracks the top 20 mining companies on AIM by market value. The index's first-quarter gain of 29% is “a remarkable reversal of fortune” after it lost 46% during the previous quarter, and 75% over 2008.
“This tentative rebound is a signal, perhaps, that share and metal prices have reached the floor and that positive sentiment is cautiously returning to the sector,” the Mining eye report said.
Mining, oil and gas stocks led the AIM performance decline in the fourth quarter of 2008, the report said. This quarter, the same stocks helped AIM to a 5% recovery.
“Despite these cautiously optimistic signals, it would be premature to suggest that the depression is over for AIM’s junior miners," said Tim Williams, director of mining and metals at Ernst & Young. The index still lies 71% below its 2008 high.
"The number of delistings both this quarter and going into Q2 2009, combined with the number of companies warning of critical working capital restraints, is evidence that the impact of the global economic slowdown has yet to be fully realised," Williams said.
"Many companies remain unable to ensure the security of tenure of their projects beyond the next few months."
The report said Petra Diamonds had recorded one of the biggest declines in the first quarter of 2009. Petra’s plunging share price caused it to fall out of the Mining eye index during the second quarter of this year. Shares closed 69% down from its year-end 2008 levels.
Ernst & Young pointed to a shrinking mining universe. Nine companies left AIM during the first quarter of 2009, and for the second consecutive quarter no new mining firms have joined. Ernst & Young predicts a continuation of this trend.
The report on the first quarter performance of the Mining eye index did, however, provide a glimmer of light for AIM-traded mining companies.
Although there were no mining or metals initial public offerings on AIM for the third consecutive quarter, “secondary fundraising in the sector totalled a healthy ₤239m, compared with ₤147m last quarter and ₤295m in Q1 2008, indicating that funding is available for the right projects,” Ernst & Young said.
Over half of the indexed companies ended the quarter with a higher share price. Three new companies joined the Mining eye index in the second quarter: African Minerals, Greystar Resources and Platmin replace Petra Diamonds, Petmin and Cape Lambert Iron Ore.
Ernst & Young said market conditions presented an opportunity for companies to achieve an edge over their competitors. “This means identifying assets that are no longer core to the company’s future, preparing them adequately for sale, and realising the best price for them,” the report said.
