TORONTO, Nov. 8, 2011—Market capitalization for the Top 100 junior mining companies on the TSX Venture Exchange (TSX-V) grew to $20.6 billion in the 12 months ending June 30, 2011. This is a 62% increase from the $12.7 billion achieved for the same period in 2010, according to PwC’s latest study Junior Mine released today.
Market index levels and total market cap are on the rise. Thirty-six mining companies in the Top 100 have a market cap of more than $200 million, triple the number there were in 2010 (12) and establishing a new record high for market cap since PwC’s reporting began in 2006. Furthermore, four of the Top 5 juniors have tripled their market cap between 2010 and 2011.
But volatility has become the new business as usual. Since June 30 2011, total market cap for the Top 5 has dropped 38%. In the past month alone, the TSX-V rose or fell 1% in the same day more than 60% of the time.
“Market volatility is not just a fleeting trend, it is the new business as usual for juniors and more intense than ever. Stability is prevented by fluctuations in currency, the current pace and reliability of earnings growth, aggravated political environments and sovereign debt issues across the globe,” says John Gravelle, PwC’s Canadian Mining Leader. “Juniors need to stay focused on the long-term. Knee-jerk reactions could negatively impact their growth.”
Exploration spending has increased 115% over the previous year and total production costs have more than quintupled since 2006, increasing more than 23% between 2010 and 2011.
But the significant drop in capital raising and level of IPO activity seen during the third quarter of 2011 could spell trouble. “The current decline of IPO activity and capital raises is similar to 2008 conditions. If what happened in 2008 holds true than exploration spending could come to a grinding halt if things don’t pick up by the start of 2012,” says Gravelle.
According to the report, the good news for juniors is that larger mining companies are outsourcing their exploration activity, investing less of their money in exploration and more in acquiring companies who are currently engaged in exploration. Gravelle notes that, “Acquisitions will play a key role in mid-sized and senior mining companies’ expansion plans.”
He continues, “China is buying. North American’s are much more worried about the state of China’s economy than China is. The Chinese are actively engaged in the M&A market and we believe they will continue to show interest well throughout 2012.”
Exploration takes precedence
Junior Mine covers the Top 100 mining companies on the TSX-V, including financial highlights, exploration, production, development, income statements, cash flow and balance sheet highlights, IFRS conversion and geographic and operational considerations. For more information, please visit www.pwc.com/ca/juniormine. A copy of the report is also available from the media contacts.
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