 Mining sector remains upbeat about future despite concerns about financing
18 November 2011: The mining industry is preparing to increase investment in exploration and capital expenditure over the next 12 months despite difficulties in obtaining finance, according to a report published today by PKF Accountants & business advisers.
‘Soundings’, which surveyed AIM-listed companies operating in the mining sector across the globe, found that an inability to obtain finance was identified as either the most significant or second most significant concern by 76% of respondents – far outweighing other potential issues such as regulatory and political risk, and falling commodity prices.
Despite these concerns, the sector as a whole remains optimistic about the future: everyone surveyed expected their share price to increase in the next 12 months, with 95% predicting that their share prices will rise by at least 10%.
This bullishness is also evident in the industry’s business plans, with 67% of companies expecting to increase spending over the next 12 months, and the vast majority of these planning to grow expenditure by 10% or more.
The increased spending is expected to be funded by external capital, with 81% of those surveyed planning to raise significant amounts of new finance in the next year. There is a significant swing in the expected sources of finance, perhaps reflecting the increased maturity of the projects: whilst straight equity is expected to remain the largest single source of finance at 47%, an increasing number of companies are expecting debt to play a key role either on its own (12%) or as part of a debt/equity fundraise (41%).
Other key findings from the survey include:
71% of respondents said that the recent economic turbulence and share price volatility had had a negative impact on their company;
Only 10% of respondents had found it very difficult to recruit staff in the past year, and 60% of those with staff in the UK did not believe that the 50% top rate of income tax had had a major negative impact on staff recruitment or retention;
71% of those surveyed expect an increase in mergers & acquisition (M&A) activity over the next 12 months;
75% of those questioned think that they face at least a moderate risk of fraud, yet only 20% have taken professional advice to reduce or minimise the risk of fraud occurring.
Stuart Barnsdall, partner and co head of PKF’s natural resources team, said: "Given that the majority of producing companies are absorbing cash as a result of their ongoing exploration and development programmes, it is no surprise that availability of funds remains the main concern for most companies. What is slightly troubling is that, against the current difficult financial backdrop, the vast majority of companies are looking to increase their capex/exploration spend over the next 12 months. It is unclear how this is going to be financed given that neither the equity nor debt markets are operating at their full potential at the moment."
Jeff Harris, partner and co head of PKF’s natural resources team, said: "There will need to be a significant improvement in market conditions in the coming year if the financing plans of companies in our sample are to be achieved. Our current experience is that it is very difficult for any projects to obtain meaningful amounts of funding."
"Nonetheless, it is heartening to see that the sector remains bullish about the future, with all of our respondents expecting to see their share prices rise in the next year. Even taking into account the fact that companies might be reluctant to seem downbeat, such optimism is an encouraging sign for the future."
Ends
For further information, please contact: Andy Konieczko, 020 7065 0537, andrew.konieczko@uk.pkf.com
Notes to Editors:
1. PKF (UK) LLP is a leading firm of accountants and business advisers with more than 1,500 partners and staff operating in 23 offices in the UK mainland firm, incorporating a wholly-owned financial planning company and associated offshore practices. The firm specialises in advising growing and entrepreneurial/owner-managed businesses, AIM and fully listed companies, and also has extensive experience in the public and not-for-profit sectors. Principal services include assurance and advisory; taxation; consultancy; corporate recovery and insolvency; corporate finance and forensic. The firm has particular expertise in advising sectors such as hotels and leisure; mining and resource; public sector; real estate and construction; professional practices; not-for-profit; and medical. The firm’s web site is www.pkf.co.uk
2. PKF (UK) LLP also offers financial services through its FSA authorised company, PKF Financial Planning Limited. PKF (Isle of Man) LLC is a limited liability company registered in the Isle of Man. PKF (Channel Islands) Limited is incorporated in Guernsey.
3. PKF (UK) LLP is a member firm of the PKF International Limited (PKFI) network of legally independent member firms. The PKFI member firms have around 2,200 partners and more than 21,000 staff in around 125 countries.
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