Cautious optimism from AIM’s miners, after a ‘value destructive’ year – EY's Mining Eye Index

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London Monday 27 February: 2011 ended on a high for AIM’s junior mining and exploration companies. After a volatile year, which saw 24% knocked off the value of EY’s Mining Eye Index, a stabilization of commodity prices in the last quarter has helped to restore levels of optimism and led to a partial recovery.

The index clawed back a 6% recovery in the last quarter of the year and an additional 9% in January. However, the AIM mining universe lost £8.7bn of its value over 2011, which was driven by combination of depressed equity values and the exit of some of the sector’s largest companies through takeover and graduation to London’s Main Market.

Total equity proceeds raised in the fourth quarter were marginally up on the previous year, totalling £154m compared to £134m in Q4 2010. However, full year proceeds were down 65%, year on year.

New year brings tentative recovery

Lee Downham, EY’s global head of mining transactions commented: “Mining and exploration companies had a very tough time during 2011 and share prices were badly hit.

“Yet, despite the negative market sentiment, we are starting to see a degree of cautious optimism returning, particularly now that commodity prices have begun to stabilise. Company updates from Q4 suggest that a number of companies are well funded, meeting their key milestones and, for many, it’s business as usual.”

2012 will be about spotting opportunities

EY’s Mining Eye Index shows that nearly two thirds of companies suffered share price falls over the last quarter of 2011, losing an average of 20%. Share prices continue to be depressed, with many mining companies considering themselves to be significantly undervalued by the market.

However, according to Downham, this may lead to an increase in corporate activity in the sector this year, particularly amongst juniors. “With the economic uncertainty set to continue, prices and valuations are likely to remain depressed in the short term and funding will remain a challenge.

“2012 will be about spotting the opportunities in the market and companies need to be prepared for that with a thorough understanding of the options available to them.”
We aren’t going to see a repeat of 2008, says Downham

Concluding Downham added: “This is a very different situation from late 2008, when companies were struggling to raise enough capital to pay their overheads, let alone invest in project development. In the short term, we think capital is still going to be available for the right projects and for management teams with a proven track record of success, although it will be on a highly selective basis. Successful companies will be those that can distinguish themselves from the wider masses and demonstrate competitive differentiators.”