Small-cap miners see Q3 shares hike

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Junior mining stocks jumped by more than a third in the third quarter, but the sector is still more than 40 per cent below March 2008’s record high.

From July to September last year, mining companies listed on the Alternative Investment Market (AIM) were already plummeting towards the autumn’s all-time lows. In comparison, the top 20 by market value gained 36 per cent in the same quarter this year, outperforming the index by 14 per cent, Ernst & Young will say today.

From a very low base, miners and their counterparts in the oil and gas sector have led this year’s AIM recovery, according to Tim Williams, Ernst & Young’s director of mining. “The recovery in equity and metals prices has been surprisingly swift, a rapid counteraction to the speed and gravity of 2008’s falls.”

Notwithstanding signs of life in economies across the world, a continuing torpor in the world’s financial markets is still a cause for concern. “Capital markets have been much slower to recover, especially for the most junior miners and crucially this means the junior mining sector is not out of the woods just yet,” Mr Williams said.

And although the third quarter of the year saw a marked upturn in deals negotiations of almost every type – from early discussions to off-take agreements to full-blown mergers and acquisitions – the pure explorers are still facing great difficulty attracting funds.

“For many investors the risks are just too high and the alternatives too attractive,” Mr Williams said. “These alternatives are the majors, which are still trading on relatively low price/earnings ratios; and the larger juniors with advanced projects that offer the prospect of near-term upside to the share price, either as potential acquisition targets, or through the start of production and subsequent cash flow and earnings.”