Mining Eye Q4 2013

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Momentum for small-scale M&A gathers, but financing pressures remain high for AIM’s junior miners as the Mining Eye closes its 10th year with a 34% loss.

EY - Mining Eye performance relative to peers 2013

A 7% slide by our Mining Eye index over the final quarter of 2013 closed another profoundly challenging year for AIM’s junior miners. A slight improvement in base metals prices over Q4 2013 (+3%) failed to offset a 6% decline in the price of gold and a widespread loss of confidence in global mining equities.


EY - Mining Eye and commodity price performance

Over the full year, AIM’s top 20 largest mining companies lost 34% and severely underperformed the growth market’s all-sector index1, illustrating the extent to which the mining sector in particular has been out of favor. The Mining Eye’s sister index, Canadian Mining Eye, lost 9% over Q4 and 45% over the year. In its 10th anniversary year, the Mining Eye index is back to where it started.


EY - FTSE AIM sector index performance 2013

Equity funding reaches lowest levels in a decade

Fundraising conditions remain extremely challenging. Only one new company, Kodal Minerals, joined the market, raising £1m and bringing the total number of 2013 new listings to just three ̶ the lowest number since 2009.

Total equity fundraising by the mining sector saw a quarterly increase of 148% to £113m, boosted by issues by Sable Mining Africa and Metals Exploration. However, it closed the year with an annual decline of 53% to just £280m, the lowest annual amount since 2004.

Accessing traditional equity funding remains a critical challenge for junior miners, with a number of companies facing working capital shortfalls. Continental Coal and Scotgold Resources were among those pursuing “rescue” funding due to difficulty in raising finances to pay creditors and to fund development programs.

Private capital and alternative finance provide support

It has not been all bad news, however. Some with precious cash were able to progress drilling activities, with a healthy number of resource upgrades and maiden resources announced during the quarter.

Some exceptional financings also demonstrated the selective confidence residing with strategic investors and private funds. Firestone Diamonds announced that Absa Bank would be providing up to US$82.4m of project finance for the development of its Liqhobong project in Lesotho, with subsequent news of a further proposed US$140m of bridge and equity financing by strategic investors Pacific Road Resource Funds and Resource Capital Fund VI.2

A new form of finance emerged this quarter: a two-year £0.5m secured bond offered by Red Rock Resources. It was the first to be arranged by the UK Secured Bond Network, a new peer-to-peer bond and loans platform that connects institutional investors, wealth managers and high-net-worth individuals with UK small and medium enterprises (SMEs).

The bond pays an eye-watering annual coupon of 14%, but in an environment of limited choices, it represents a valuable opportunity for small companies to diversify sources of funding and debt maturities.

Looking ahead: joined-up thinking

Two key themes dominated the closing months of 2013. Along with the survival and adaptation strategies we have discussed throughout the year, these are likely to remain prevalent in 2014. Not surprisingly, they all aim to sustainably share or reduce costs and incrementally add value.

1. Partnerships - Q4 2013 saw announcements of strategic partnerships and joint ventures with governments, state-owned entities and senior miners seeking to benefit from juniors’ local knowledge and exploration expertise, as well as to access promising projects and future production. For the juniors, aside from financial support, such partnerships typically bring:

  • Reduced expenditure
  • A vote of confidence in the project and its management
  • Reduced political or operational risk
  • Strengthened social license to operate
  • Future options, such as further financing, routes to market or exit

Sierra Rutile and Oracle Coalfields signed power supply agreements with the Sierra Leone Government and China’s SEPCO, respectively; Berkeley Mineral Resources and Ferrex agreed exploration cooperation with Hunan Nuclear Geological Bureau and Anglo American, respectively; and Sable Mining Africa and Bushveld Minerals signed infrastructure agreements with government and Chinese investors.

2. Mergers and acquisitions - The logic of opportunistic M&A in an environment of depressed equity valuations is difficult to dispute, but 2013 has been a challenging environment for getting deals done. Market volatility and lack of consensus over the near-term direction of commodity prices have contributed to a stalemate between buyers and sellers. One example was the swift abandonment of discussions between Minera IRL and Liongold Corp due to share-price volatility.

EY - deals involving AIM-listed mining companies

However, small-scale share-funded acquisitions by AIM-listed miners were prominent in Q4 2013 as companies sought to opportunistically add value or broaden growth options. While these were primarily small-scale bolt-on acquisitions, we may finally see the long-anticipated gathering of momentum for consolidation in the junior mining space in 2014.



Despite the annual loss experienced by the Mining Eye, some comfort can be taken from the index’s plateauing over the second half of the year. The near-term outlook remains depressed for juniors, with risk aversion still high and short-term oversupply maintaining pressure on metal prices.

We anticipate a gradual return of confidence in 2014 as the industry’s efforts to sustainably reduce costs and improve profitability (through productivity improvements) begin to yield results and the enhanced prospect of capital returns.

This confidence will be critical for the junior sector, which relies on sentiment-driven equity markets. However, the recovery is likely to be slow and unpredictable, and competition for scarce capital high, with the possibility that the rapid revival of share prices seen in previous cycles may not occur.

Such a reality may necessitate a new way of approaching project development and funding requirements. Juniors who succeed in this environment will be those with realistic, achievable development plans, who most effectively demonstrate their potential to secure sufficient non-dilutive future finance to fund these plans.

1As represented by the FTSE AIM All-Share index

2“US$222.4 million Project Funding for Liqhobong,” Firestone Diamonds press release,, 15 January 2014.

Mining Eye performance relative to peers (last 12 months)

EY - Mining Eye performance relative to peers 2013×

Source: EY, Thomson Datastream


Mining Eye and commodity price performance (Q4 2013)

EY - Mining Eye and commodity price performance×

Source: EY, Thomson Datastream


FTSE AIM sector index performance over 2013

EY - FTSE AIM sector index performance 2013×

Source: EY, Thomson Datastream


Selected recently-announced or completed deals involving AIM-listed mining companies

Target Acquirer Stake Rationale
Amlib (cash, exploration licences, drilling assets) Amara Mining 100% Broaden growth portfolio; reduced drilling costs; partnership with strategic investor RDV Corp.
Lemur Resources Bushveld Minerals 100% Create a diversified African junior; enhance capital markets access.
FinnAust Mining Centurion Resources (RTO) 100% Participation of experienced major shareholder, Western Areas; transformation into well-funded advanced exploration company.
Afferro Mining International Mining and Infrastructure Corp (RTO) 100% To unlock value in African iron ore space and accelerate Afferro's projects through infrastructure investment.
Tulu Kapi Gold project (Nyota Minerals) Kefi Minerals 75% Opportunistic purchase; ability to add value, reduce capex, and increase ROI via alternative development plan.
Andiamo Exploration Ortac Resources <26.7% Broaden and diversify portfolio - "additional margin of investment safety" for shareholders.
Little Deer Rambler Metals and Mining 50% Build scale in Atlantic Canada through bringing dormant mines into commercial production; close proximity to existing port facility.
Portage Minerals Tri-Star Resources 100% Addition to existing antimony exploration asset base; further step toward becoming an integrated producer.
Southern African Nickel URU Metals 100% Increases holding in Zebediala nickel project for minimal consideration.

Source: company announcements. RTO = reverse takeover