Quarterly IPO report reveals credit crunch hitting the exploration-stage
companies the hardest
VANCOUVER, July 2 /CNW/ - Although we've seen roughly the same number of
mining initial public offerings (IPOs) this year as we did in 2007, the total
proceeds raised is significantly lower, Ernst & Young says.
"That means the credit crunch is hitting the mining sector's
exploration-stage companies," says Tom Whelan, Ernst & Young partner and
Canadian mining industry leader.
Although the appetite for exploration-stage IPOs is shrinking, Whelan
foresees continued IPO demand for mining companies at or near production
stage. Senior mining companies do very little exploration these days, so they
are more than willing to buy juniors who've found an appealing resource. "The
credit crunch has really hit the grassroots exploration phase of the IPO
market hard, and so many are ripe for takeovers. We're anticipating many more
mining mergers and acquisitions in the second half of this year."
Despite the fact that cash raised is on the decline, Canadian IPO
activity on the whole continues to be dominated by mining. This year, more
than 80% IPOs in Canada have been in the mining sector. "Although the
continued activity is good for mining, this finding means we're not seeing
very much action in other sectors at all," Whelan says.
In a recent global mining transactions survey, The year of the hunters
and the hunted, Ernst & Young found 90% of mining companies expect to complete
a transaction in the next two years. A further 40% will have to make
acquisitions in order to meet the market's growth expectations.
"At the end of the day, this is about supply and demand," Whelan
concludes. "Booming economies like China and India have infrastructure demands
that far exceed resource supplies, and the mining sector will need to work
hard to meet those demands."
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