According to Junior Mine, the second annual review of trends in the London AIM-listed mining sector from PricewaterhouseCoopers, it delivered another year of strong performance on the back of high commodity prices and rising production levels. The 50 mining companies included in the analysis, which represent over 80% of the total London AIM-listed miners by market capitalization, almost doubled their revenue to $1,312 million. This extra revenue, which included a significant contribution from the successful commissioning of new mines and expansion of existing operations, enabled the 22 companies with producing mines to deliver a dramatic increase in pre-tax profits – up from only $11million to $205million. Over the same period, the 28 companies with no producing mines reported a three-fold increase in operating expenditure, up from $75 million to $225 million – mainly reflecting a significant rise in exploration and evaluation expenditure.
Investor confidence in the AIM mining sector has continued to strengthen. As a result, the aggregate market capitalization of the sector increased by 73% to $14.6 billion, including a 49% increase resulting from organic growth in share prices. Investors’ strong appetite for the AIM mining sector meant that the 50 companies analysed were able to raise $1,244 million from share issues during 2005 – an increase of 16% on the prior year. This follows a previous 221% increase, and this contributed to total cash inflows from financing activities of $1,546 million – up from $1,232 million.
This extra funding stimulated a 63% increase in the amount spent on investing activities, which rose to $1,205 million. Of this, $760 million was spent on property, plant and equipment – with the remainder being spent mainly on capitalized exploration expenditure and purchases of intangible assets. This is the second year in succession in which the amount spent on investing activities has increased.
Brian Taylor, UK Mining Leader, PricewaterhouseCoopers LLP said: “There are encouraging signs that significant increases in expenditure over the last few years are feeding through into the discovery of additional resources and higher production levels. For example, the 18 gold companies included in the analysis reported a 58% increase in their aggregate mineral resources, to 132.7 Moz.
“However, AIM mining companies must continue to demonstrate to investors that they are spending their funds wisely and we believe that an opportunity exists for manymining companies to capture more shareholder value by providing enhanced disclosures about the key drivers of value – such as exploration successes/failures, movements in resources and political risk.”
Other financial highlights for the companies analysed include the following:Aggregate cash balances rose to $1,222 million during the year, an increase of $466 million (62%) – enough to cover almost the entire amount spent on investing activities during 2005
- The aggregate carrying value of property, plant and equipment rose by 67% during the year, to $2,182 million
- Almost half of the carrying value of non-current assets held by companies with no producing mines ($343million) comprised goodwill and other intangible assets (mainly capitalized exploration expenditure). The challenge for these companies will be to convert these intangible assets into real economic value
- Gearing levels for the sector as a whole remained low at an average ratio of 21%, the same as the prior year
The report also looks at directors’ emoluments, and discloses a 47% increase in the average amount paid to executive directors (excluding share options, long-term incentives and pensions) to $236,000. The average amount paid to the highest paid directors (excluding share options, long-term incentives and pensions) increased by 42%, to $331,000.