In its latest edition of the Canadian Mining Eye report published Tuesday, EY notes only four companies out of its 100 Canadian Mining Eye Index constituents realized a net share price gain amid overall negative sentiment and tough market conditions during the second quarter.
Rainy River Resources’ share price gained 36% in the second quarter in the wake of the news that New Gold would buy the junior company for $310 million. The proposed acquisition would help Rainy River mitigate financing challenges for its sole asset the Rainy River Gold Project, EY observed.
A series of discoveries at Lucara Diamond’s Karowe diamond mine in Botswana and strong revenue from the company’s first large diamond sale tender caused Lucara’s share price to close up by 21% during the second quarter. The company also announced a higher than anticipated diamond sale guidance of 420,000 carat in 2013.
Mountain Province Diamond’s stock increased 19% over the second quarter and the price underwent a substantial increase after CEO Patrick Evans discussed the prospects of its Gahcho Kue joint venture with De Beers Canada in the Northwest Territories. Production is expected to commence at the end of 2013 with an eleven-year mine life anticipated.
Molybdenum miner Thompson Creek Metals’ share price gained 4% in the second quarter due to improved operating performance in the first quarter, according to E&Y’s analysis. The company reported a 74% year-over-year increase in moly production to 7.7 million pounds, leading to an 18.5% sales increase to 8.8 million pounds. Thompson Creek also reported strong cash flow due to higher than anticipated sales, along with lower operating expenses. The Mt. Milligan mine is expected to commence commercial production of copper and gold in the fourth quarter.
In its analysis, however, E&Y observed that 96 companies in its 100 Canadian Mining Eye Index suffered share price falls over the second quarter “due to a combination of declining metal prices, poor operational performance, asset write-downs and the resultant wider negative market sentiment.”
Gold miner Perseus Mining experienced the most significant plunge in share price (down 75%) in the second quarter, “battered by disappointing gold production guidance for the Edikan project, a lower-grade resource update for the Sissingue project and operational challenges.”
The share price of junior silver producer Aurcana Corporation fell by 74% during the quarter “despite demonstrating consistent operational improvements at its La Negra silver-base metal project,” said E&Y. “However, declining silver prices and operational challenges faced in the commencement of its Shafter plant impaired investor confidence.”
Gold miner, Golden Star lost 68% in share value over the second quarter, following its lower-than-expected operating results. “The company witnessed an increase in pit pushback costs at Chujan and the Bogoso North pit and increased operating expenses due to the extended maintenance on the SAG mill at the Bogoso plant,” said E&Y. “In addition to these, insufficient supply of ore from the Pampe pit resulted in the suspension of the Bogoso/Prestea non-refractory operations, which is expected to cause a production loss of 35,000 gold oz. in 2013.”
OPPORTUNITIES STILL AVAILABLE TO MINERS
Despite a decline in gold price and base metals prices resulting in significant write-downs of mining company assets, Canadian mining companies raised debt proceeds of US$12.2 billion in the second quarter, compared to $8.9 billion in the first quarter, indicating the extent of liquidity still available in the debt market.
E&Y Global Mining & Metals analysts noted Barrick raised US$3 billion in the bond market during the second quarter to partially refinance existing debt. Kinross Gold was able to extend the maturities of its US$2.5 billion credit facilities and loans.
North American Palladium announced a debt raising of US$130 million from Brookfield Capital Partners for the operation of its Lac Des Illes Mine in Ontario. The company raised an additional $20 million in flow-through shares.
Junior gold explorer Banro Corp. raised US$100 million by issuing a mix of preferred and common shares during the second quarter.
In spite of the current turbulence in the global mining industry, as majors managed costs and disposed of non-core assets, mid-tiers and juniors “are focusing on acquisition opportunities to gain critical mass, diversify their risk profile, and benefit from synergies,” said the report.
“We saw examples of companies with some flexibility in cash using this downturn as a strategic opportunity for growth through acquisitions,” E&Y observed. For instance, Agnico-Eagle Mines leveraged its strong cash position to acquire five properties with a total value of $66 million. Teranga Gold, which held 13.6% in Oromin Explorations, acquired the remaining stake in the company to strengthen its control over the OJVG gold project adjacent to Teranga’s Sabodala gold mine in Senegal.
OUTLOOK
E&Y forecasts that metals prices “are like to remain subdued but volatile in the near term. Investors with a long-term perspective will enter the market, as they become confident that metal prices have bottomed out and that potential for upside exists.”
“However, some positive catalysts from the global economy should drive growth in the sector –but with moderation given the uncertainty around gold prices impacting many Canadian mining companies,” said the analysts.
Attracting long-term sources of funding will continue to be a major challenge for the mining sector, E&Y predicts. “But opportunities exist for those willing to take a long-term view of the sector. Alignment of the long-term nature of mining projects with shareholder expectations will remain critical as the sector continues to face volatility in equity prices.”
As a number of mining projects are becoming marginal or uneconomical, E&Y suggests, “…We believe majors should consider the option of sharing asset ownership to mitigate their operational risk and increase overall upside opportunities. Although the cost structures of mid-tier companies and majors are different, managing costs will be challenge for both. However, in terms of growth, we believe mid-tier companies have the potential to grow via acquisition as their major counterparts look to rationalize their portfolios.”
没有评论:
发表评论