HomeBase MetalsFull impact of global economic downturn still to come

Full impact of global economic downturn still to come

Ernst & Young report
warns of more
negative news
London, England — MININGREVIEW.COM — 29 May 2009 – Global leader in assurance, tax, transaction and advisory services Ernst & Young says in its Mining Eye report that the full impact of the global economic slowdown is yet to hit AIM-traded mining companies, despite glimmers of a recovery in the first quarter.

Fin24.com reports that the Mining Eye index made a 29% gain over the first quarter of 2009, but Ernst & Young warned that further distress for junior mining companies could lie ahead.

The index tracks the top 20 mining companies on AIM by market value. The index’s first-quarter gain of 29% is a remarkable reversal of fortune after it lost 46% during the previous quarter, and 75% over 2008, said Ernst & Young.

“This tentative rebound is a signal, perhaps, that share and metal prices have reached the floor and that positive sentiment is cautiously returning to the sector,” the Mining Eye report said.

Mining, oil and gas stocks led the AIM performance decline in the fourth quarter of 2008, the report added. This quarter, the same stocks helped AIM to a 5% recovery.

“Despite these cautiously optimistic signals, it would be premature to suggest that the depression is over for AIM’s junior miners,” said Tim Williams, director of mining and metals at Ernst & Young. “The index still lies 71% below its 2008 high.”

"The number of de-listings both this quarter and going into Q2 of 2009 – combined with the number of companies warning of critical working capital restraints – is evidence that the impact of the global economic slowdown has yet to be fully realised,” Williams said. “Many companies remain unable to ensure the security of tenure of their projects beyond the next few months.”

The report on the first quarter performance of the Mining Eye index did, however, provides a glimmer of light for AIM-traded mining companies.

Although there were no mining or metals initial public offerings on AIM for the third consecutive quarter, secondary fundraising in the sector totalled a healthy ₤239 million, compared with ₤147 million last quarter and ₤295 million in Q1 of 2008, indicating that funding is available for the right projects,” Ernst & Young said.