Market capitalizations fell by more than 50% for Canadian mining sector in the 12 months ended June 2009
TORONTO, Feb. 25 /CNW/ - Despite higher gold prices, market conditions for the junior mining sector deteriorated in 2009. Towards the end of 2009 gold companies and companies with projects in advanced development benefited from a significant revival of interest. This, according to the annual PricewaterhouseCoopers (PwC) Junior Mine, a review of trends in the TSX Venture Exchange (TSX-V) mining industry released today.
For the twelve months ended June 30, 2009:
- Market capitalizations for both the TSX-V mining sector and the
entire TSX-V dropped by more than 50% from 2008 levels.
- The total market capitalization for the top 100 mining companies on
the TSX-V fell to $8.6 billion, less than half the level for the same
group in 2008 ($18.1 billion).
- Even the top five companies on the list were not immune to the global
financial collapse - their total market capitalization fell from $5.3
billion to $2.7 billion.
"In the 12 months ending June 30, 2009, the global financial crisis eroded the share prices of most junior mining companies and made it nearly impossible for many of them to raise money to finance their projects," says Paul Murphy, partner & west cluster mining industry leader for PwC. "While some investors were prepared to take a chance on production and development companies, exploration companies, or any company perceived to carry a higher investment risk, were left out in the cold."
As the top 100 TSX-V companies tried to conserve cash, exploration spending declined. The top 100 group wrote down a total of $644 million on mineral properties and exploration as projects were either abandoned or put on hold. Stock-based compensation fell in tandem with share prices and was 30% lower than the prior year.
Smaller mining companies merged in order to survive, resulting in a 129% increase in acquisitions by exploration companies in the top 100 in 2009.
Cash available to the junior mining sector was beginning to dry up in 2008 and financing became even more challenging for the top 100 in the first half of 2009. For the year ended June 30, cash provided by financing activities (both debt and equity) dropped 21% to $1.5 billion. Expenses also declined as companies found ways to economize.
Of the top 100 companies in 2008, only 48 remain in the 2009 top 100 list. Most of the remainder dropped off the list as their market capitalizations fell, while eight - five of them gold companies - graduated to the TSX and another seven were acquired. The 100th company on the 2009 list had a market capitalization of $25.7 million in 2009, compared to $72 million in 2008, reflecting the serious deterioration in market conditions for the junior mining sector.
Nevertheless, mining remained the dominant sector on the TSX-V in 2009, with the number of listed mining companies increasing to 1,084, or 48% of TSX-V listed companies, up from 44% in 2008.
"Despite a difficult year, there were signs in late 2009 that the market was beginning to open to the junior mining sector," says Murphy. "Prices of metals and other commodities are slowly reconsolidating as demand for raw materials to build infrastructure in the developing world increases. Furthermore, precious metals are expected to remain strong under a declining U.S. dollar and a threat of higher inflation."
Murphy concludes, "It will be the junior sector that qualifies the next generation of mineral deposits. The Chinese, in particular, are making strategic investments in Canadian juniors and their projects in order to decrease their reliance on Australia and Africa for raw materials. Several multi-million dollar acquisitions of Canadian mineral assets by the Chinese took place in the latter half of 2009."
For more information, please visit www.pwc.com/ca/mining;
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