"'Markets are cyclical, to coin a hoary old phrase. What does this mean? One interpretation of recent trends might be to say that when mining is in, other sectors are out. Or to flip it round, when other sectors are in - as they are now, with the FTSE and the Dow Jones still powering ahead - mining is out.
But, as is now beginning to be recognised, mining hasn’t done itself any favours. To coin another hoary old phrase, the miners failed to fix the roof when the sun was shining.
And it has shone a lot over the past decade or so, even allowing for the storms in 2007/8.
Instead, producers across the board went for growth at the expense of returns - from the catastrophic aluminium acquisitions of Rio Tinto and the crazy headlong expansions of Barrick at the top of the scale, down to the mispriced acquisitions of Gem Diamonds and the dubious deals of Cambridge Mineral Resources at the lower end of the market"'.
Instead, producers across the board went for growth at the expense of returns - from the catastrophic aluminium acquisitions of Rio Tinto and the crazy headlong expansions of Barrick at the top of the scale, down to the mispriced acquisitions of Gem Diamonds and the dubious deals of Cambridge Mineral Resources at the lower end of the market"'.
''Meantime, explorers continued to rely on diluting shareholder equity in order to keep the rigs turning, on the premise that markets would continue to go up and wipe out the effects of the dilution.
For a few, like Petra Diamonds and Pan African Resources, the focus on growth has paid off. But for most, it’s now a busted flush, and a large number of Aim listed miners are now trading at a fraction of their listing prices. Who will buy into a gold or an iron ore growth story now, in the full knowledge that heavy dilution will follow, sure as night follows day, before too long? In a flat-to-falling market, it’s a clear “no sale”.
For a few, like Petra Diamonds and Pan African Resources, the focus on growth has paid off. But for most, it’s now a busted flush, and a large number of Aim listed miners are now trading at a fraction of their listing prices. Who will buy into a gold or an iron ore growth story now, in the full knowledge that heavy dilution will follow, sure as night follows day, before too long? In a flat-to-falling market, it’s a clear “no sale”.
As for the producers, they are now scrambling to catch up to reality, desperately presenting themselves as likely dividend payers and deliverers of solid returns, when less than eighteen months ago the familiar refrain from mining company directors was that they, rather than shareholders, knew where company money could best be spent"'.
Minesite Weekly Roundup 7th - 13th May 2013
