Where have all the miners gone? Ernst & Young

(Toronto, March 4, 2008)—Global mining capital markets are being reshaped thanks to the rapid pace of industry consolidation, says a new report from Ernst & Young.

In 2005, for example, the London Stock Exchange (LSE) and the Toronto Stock Exchange (TSX) had roughly the same market capitalization. Since then, however, the mining market cap of the LSE has benefited from more than US$70 billion of acquired market capitalization while the TSX has lost US$129.3 billion in market cap due to takeovers.

Despite the wave of consolidation which has carted off some of Canada’s mining and metals giants, nearly 60 per cent of the world’s public mining companies are listed with TSX Group. And during the past three years, TSX Group has remained the pre-eminent place to raise new equity capital for mining ventures—that’s close to 34 per cent of global mining capital raised in 2007. What’s more, the TSX is home to 48 “billion dollar plus” mining companies with an average market capitalization of US$5.7 billion.

“The trading and investing depth available in Canada is one of the reasons the TSX is still regarded as the best place to raise capital,” says Tom Whelan, Ernst & Young’s Canadian mining leader. “The depth of analyst coverage and the large number of bankers, brokers, and institutional and retail investors continue to make TSX Group an attractive choice for miners, especially those in the exploration and development stages.”

“There’s also the fact that the vast majority of mining financings in Canada come from the private-placement market, which is a very liquid market. This liquidity is highly sought after by mid-caps and development-stage miners,” Whelan adds.

The report does note that though the UK has hardly any domestic mining activity at all, it still hosts the world’s largest mining companies. Four of the six largest mining companies are listed on the LSE. One of the reasons the UK is so attractive to giant mining companies is that if offers the world’s deepest and most efficient debt capital markets.

The report also reveals growing evidence that investors are using capital markets as regional investment centres. TSX investors prefer the Americas and Africa. LSE investors prefer Africa, Eastern Europe and the Middle East. Johannesburg Stock Exchange (JSE) investors prefer Africa, and Australian Securities Exchange (ASX) investors prefer the Asia-Pacific region. Superior valuations generally follow these preferences.

“I think the real story here is not so much about competition between the world’s mining exchanges so much as it is about them playing complementary roles,” Whelan says. “Junior miners can flourish on the TSX or ASX, or anywhere else, while the LSE provides them with an exit strategy when the time comes.”

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