A report released by business-intelligence provider IntierraRMG emphasises an improvement in funds raised for mineral exploration during the three months ended December 2012, while financings by junior exploration companies themselves also saw growth during the period under review.
According to Intierra’s State of the Market Exploration Report, financing for exploration reached US$1.49 billion (R13.19 billion) in the last quarter, compared to only US$0.65 billion during the three months ended September 2012, with the Toronto Stock Exchange being the largest source of exploration funds (US$586 million), followed by the Australian Stock Exchange (US$519 million).
Interestingly, the report found that there are almost 3 500 listed companies in the international mining industry, with the sector having a combined market capitalisation of just over US$2.5 trillion at the end of the December quarter.
The top 681 companies accounted for 98% of the industry’s overall market capitalisation and 84% of the combined financing during the same period.
The majority of companies in the industry are extremely small. At the end of December 2012, we estimated that there were 1 756 companies, with a market capitalisation of under US$10 million. There were a further 817 companies with a year-end market capitalisation between US$10 million to US$49 million, explained IntierraRMG‘s MD, Peter Rossdeutscher.
However, the report found that companies representing the smallest 50% of the industry raised less than 3% of the total financing in the past quarter, amounting to just US$102 000 for each company. With funding scarce, many of these smaller companies remain in a period of dormancy at they ride out the current weakness in debt and equity markets, while the situation remains especially difficult for companies that have little prospect of early cash flow.
With the lacklustre commodity prices, valuations for smaller companies have remained depressed. As the IntierraRMG exploration report indicates, this has made it difficult to finance projects by raising equity through public offerings.
With their large cash holdings, we expect bids from the majors for some of the struggling juniors that have attractive projects, Rossdeutscher concludes.