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Weekly Mining Market Summary – Financial Focus

In a research note, Investec said the recent rally in commodity prices effectively means that the mining industry has passed "go," and that companies are "now in better shape, and hence better placed for any pitfalls to come." Nevertheless, credit ratings downgrades continue to dominate the mining industry. A report last week by Carrie MacDonald, Senior Analyst for the SNL Metals & Mining platform, noted that 57 metals and mining companies have seen their long-term credit rating downgraded so far this year by Moody's, S&P Global Ratings (formerly Standard & Poor's) and Fitch Ratings.

In a sector that is heavily dependent on Chinese demand, Moody's cited slowing growth in China as a key factor behind the higher credit risk surrounding metals and mining companies. The rating agency noted that although many commodity prices have strengthened recently, several years of price declines and oversupply have stressed companies' credit profiles. This has prompted a widespread review by the rating agencies, and both Anglo American Plc and Freeport-McMoRan Inc. have lost their "investment grade" status.

Another report from S&P Global Market Intelligence last week touched on the impact that the shortage of finance is having on mineral exploration. Paul Manalo commented "a multi-year drought in financing for explorers has curbed early stage exploration, and led to declining annual totals of both new resource announcements and the in situ value of metals contained in the new resources."

the recent improvement in debt buybacks by the mining industry has sparked optimism that the mining sector is recovering
Initial resource announcements are one of the metrics the SNL Metals & Mining platform uses in its monthly Industry Monitor to track exploration activity. Manalo calculates that over the past five years the number of annual initial resource announcements has declined 60% — from 111 in 2011 to 44 in 2015. The total in situ value of all metals in these new resources fell 42%, from US$179 billion in 2011 to US$103 billion in 2015.

There was better news from SNL Metals & Mining writer Luis Nonito Pasuelo, who reported that the recent improvement in debt buybacks by the mining industry has sparked optimism that the mining sector is recovering.

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Several companies have announced debt buybacks in the past week. Evraz Plc bought back notes worth US$184.4 million, ArcelorMittal said it will redeem all of its outstanding 4.5% notes due February 2017, worth US$1.4 billion, and Detour Gold Corp. paid US$76.9 million to notes held by Paulson & Co. Meanwhile, Fortescue Metals Group Ltd. has issued a voluntary redemption notice to holders of its 8.25% senior unsecured notes due 2019, paying down debt worth a further US$577 million.

In another example, Rio Tinto agreed to buy back US$1.36 billion in debt under a planned buyback program. The company also seeks to buy back Dutch auction securities, which include its 6.50% US$1.75 billion notes and 2.25% US$1.25 billion notes, due 2018.

Financing in Canada during the past week included a C$2 million brokered private placement of 4.0 million units by Viscount Mining Corp. Each unit consists of one common share and one non-transferable share purchase warrant. Gravitas Securities Inc. will receive an agency fee of 7% of the proceeds, which are intended for Viscount's wholly owned Silver Cliff silver property in Colorado.

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