LONDON Mergers of junior miners may grow increasingly
common in 2013 and beyond as traditional financing avenues
remain difficult to access, according to an industry analyst at
London-based Ernst & Young LLP.
Weve not seen much of it yet, but we may start to
see junior-to-junior mergers to create scale, to create more
liquidity and to gain leverage from management expertise,
Lee Downham, global leader for transaction advisory services in
the mining and metals sector at Ernst & Young, said.
They could benefit from the classic 2+2=5
Securing financing will likely remain a tall order for juniors
and explorers as investor sentiment is firmly risk-off, Downham
Traditional sources of finance have fallen away for
juniors. The equity markets have been very soft, and
historically, thats been their key source of
finance, he said.
Theres risk aversion from the banks because of
their increasing capital requirements, and project financ(ing)
has been much harder to obtain, Downham added.
Nontraditional forms of financing have become increasingly
prevalent since 2012, a year in which successful initial public
offerings were few and far between. Private-equity funds and
state-owned enterprisesmostly from Asiahave become
common sources of capital, Downham said.
Last year was very much defined by an increase in private
capital being used to fund junior miners, he said.
Even with the emergence of private capital, though,
financing is incredibly hard to secure. The junior sector is
The situation is unlikely to change significantly moving
forward, although equity may grow slightly more available,
Equity markets will be improving, but its all
relativelast year was very poor, he said. The
global economic situation has improved, though. Events in
Cyprus have pushed us back, but the U.S. market is looking more
Fears of a Chinese slowdown have been overblown, Downham
asserted, and the global market will likely become less
volatile this year.
Although things are not back to pre-2009 levels, that
will help in terms of the equity markets. Less volatility is
always good, Downham said.
Fundamentals are difficult to pin down, as such wide gaps have
opened up even among the base metals markets, he added.
You cant make any generalizations across
commodities now, he said. One thing weve
really learned is that theyre very different. You
cant talk about the mining sector now in terms of whether
its doing well or badly (as a whole), he added.
In terms of supply and demand, the amount of metal entering the
market is declining more or less across the board, Downham
The number of capital projects has also fallen as many have
been put on indefinite hold, Downham said. Meanwhile,
additional projects have been scaled back.
The demand side doesnt seem to be slowing down
quite as much as people thought. Overall, in the next three to
five years, we expect to see commodity prices strengthening
(because of that), he added.
Projects that were invested in three to five years ago
are also coming online in the next 12 months, Downham
said, So the supply-demand balance isnt being
disrupted by the capital-constrained market in 2012. I think
thats where we will see benefit in the medium
A version of this article
was first published by AMM sister publication Metal