Each quarter the Metals & Mining research team compiles an expert review on all aspects of the global mining industry, its recent performance and the quarterly outlook. The full version of the 12-page State of the Market report is available exclusively to subscribers of the SNL Metals & Mining platform. Below are some highlights from this edition's State of the Market report.
In a quarter of two halves, the three months to end-March illustrated a classic V-shaped market. The first six weeks of the year were turbulent, leaving many markets at multi-year lows. This period was followed by an impressive recovery over the second half of the quarter, with markets buoyed by supportive monetary policy in Europe and Asia.
The combination of acquisition activity, restrained fundraising and low corporate earnings over the past few years has resulted in sharply higher debt for the international mining industry. SNL Metals & Mining estimates that total industry debt is three times the level prevailing in 2006.
Market for Mining
SNL's metals-price index (comprising gold, silver, platinum, copper, cobalt, molybdenum, nickel and zinc) had fallen to 88.9 at the end of 2015 but increased during each of the first three months of this year, reaching 103.5 in March (98.1 for the quarter). The aggregate market capitalization of the industry's 2,600 listed companies improved to US$952 billion at the end of March, compared with barely US$874 billion at the end of 2015.
With finance still tight for junior companies, there was a decline in drilling activity during the March quarter, and the number of distinct properties drilled fell below 300 projects to its lowest level since Q3 2013. The total number of holes drilled fell to its lowest level since 2012, and the announced initial resources also fell (in terms of both the number and value of new resources).
Pipeline Activity Index
A valuable measure of exploration and mine development activity is SNL's Pipeline Activity Index. The PAI slumped in 2012 and the first half of 2013 and has remained depressed for the past three years. The index recovered slightly during the second half of last year but fell sharply in December and January. Despite recovering in March, the index for the first quarter was only 44.3, compared with 54.4 in the previous quarter and 48.1 in the year-earlier period.
Mergers and Acquisitions
The rising metals prices during the March quarter were reflected in increased takeover activity, the value of which jumped more than one-third to US$3.53 billion. As usual, gold transactions dominated, accounting for 15 of the 25 deals valued at over US$5 million during the quarter, and representing fully 47% of the total value.
Unfortunately, financing has not kept pace. Barely 600 financings were announced in the past quarter, compared with over 900 during the December quarter. Funds raised during the first three months of 2016 amounted to US$9.21 billion, which is down from the US$10.01 billion raised in the year-ago period and the US$12.85 billion raised in the December quarter last year. Most of the shortfall in announced financing was in funds earmarked for Latin America.