Mining Eye Q4 2015

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Another tough quarter for junior miners

AIM miners affected by wider volatility within commodities

  • The Mining Eye lost 14% during Q4, reflecting deteriorating sentiment within the sector, undoing Q2 gains and culminating in an annual loss of 13%.
  • The UK Mining Eye underperformed the Canadian Mining Eye, which rose 2% during Q4 (13% down in 2015), though it fared better than the FTSE Miners Index, which fell 15% during Q4 and 48% in 2015.
  • Iron ore, copper and gold fell by 21%, 9% and 5%, respectively during Q4, highlighting wider difficulties within metals over this period.
  • Within our mining top 20, China Nonferrous Gold recorded a 62% price gain in Q4, following the commissioning of its process plant and entering into trial gold production.

Mining Eye performance relative to peers (last 12 months)

EY - Mining Eye performance relative to peers (last 12 months)

Source: EY, Thomson Datastream

Net performance of key commodities and equities over Q4 2015

EY - Net performance of key commodities and equities over Q3 2015

Source: EY, Thomson Datastream

Fund-raising on AIM remains difficult

  • Q4 represented another subdued quarter, with £67m raised through equity placements, representing 4% of total funds raised from AIM.
  • Besides share placements by Dalradian Resources, Bacanara Minerals and Metals Exploration, funds raised were typically less than £2m.
  • European Metals Holding was admitted on to AIM (a dual-listing with ASX), though offset by IMIC and Paragon Diamonds being delisted.

Q4 was summed up by a “dash for cash”

  • The quarter saw several major producers either downgraded or placed on negative watch by credit rating agencies, concerned with the impact of deteriorating prices.
  • This led to sustained pressure on equity values, with companies encouraged to accelerate portfolio adjustments to help improve capital structure.
  • Several announcements were made involving either prepayment, streaming or debt refinancing deals, in conjunction with assets being made available for disposal.

This year could spell further trouble unless demand improves significantly

  • Mining is still afflicted by excess production and lackluster demand, raising the prospect of subdued prices lasting into the foreseeable future.
  • With access to capital becoming increasingly constrained, firms may struggle to either refinance existing liabilities or recapitalize.
  • Banks may increasingly need to reassess their exposure to commodities, with the risk of impairments rising, which could impact their ability to support producers.
  • This may subsequently see an increase in either distressed sales or corporate restructuring, which may prove a strong catalyst to facilitate consolidation.