Commodities | May 17 2013
– Tough climate for explorers
– Investers shying away from IPOs
– Funding difficult to come by
By Andrew Nelson
It’s been a tough 2013 the world over so far for miners. Costs are rising, commodity prices are falling, ore grades are reducing and extra funds are increasingly hard to come by.
Funding positions started to look a little better towards the end of 2012 after a difficult year and a half or so. This was helped by a firming gold price, but just like precious metals prices and metals price more generally, company valuations have come under pressure sector-wide this year.
The latest State of the Market report from IntierraRMG notes the prices of most metals have come off significantly over the past couple of months and this is now really starting to take a toll on the valuations of the smaller miners. Thus despite the optimism leading into the year, 2013 is shaping up to be a very difficult year for raising exploration funds.
It used to be that a company could generate cash for mining projects via an IPO, but there just isn’t enough confidence to offset the current backdrop of volatile markets, political economic messes and what is still tentative to negative economic news.
The report from IntierraRMG points out that neither retail nor professional investors have the ability or desire to fund equity raisings, which means equity markets remain constrained. The problem is, with share prices so low, most explorers just can’t get enough money to be able bring work to a point where they can create some new cash flow from metal production.
IntierraRMG maintains a database of around 3,500 listed companies and notes that the funds raised by the mining sector in the January to March quarter fell below US$5.2 billion from almost US$6.8 billion in the last three months of 2012. Exploration companies are wearing the bulk of the tough times, the report showing a particularly sharp fall in the funds raised by exploration companies.
The first quarter of this year saw the amount of funds raised by explorers drop to only US$1.5b, down from US$3.4bn in the December quarter. Meanwhile, mining companies raised only US$0.2bn during the quarter on the London Stock Exchange, a fall of almost 80% from the previous quarter.
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