June 10, 2008 Tuesday
First Edition
Juniors expected to slash spending
BYLINE: Jamie Freed
SECTION: BUSINESS; Pg. 3
LENGTH: 267 words
THE amount of money junior miners spend on exploration could drop
sharply because of difficulties in raising funds in a tough equity
market.
Citi analyst Julian Bu has noted financing of initial public offering
was down 90% on the Australian Securities Exchange through May compared
with the same period last year. The Toronto Stock Exchange was down
72%.
"With such large and consistent falls in financing volume, we are hard
pressed to believe junior miners will not be affected," he said.
"Therefore, unless things improve quickly, juniors will have less to
spend and the exploration drilling cycle could turn."
From 2002 to 2007, exploration spending by junior miners rose 900%,
meaning they were responsible for just over half of global spending on
minerals exploration. In 2001, juniors had accounted for just a
quarter.
Mr Bu's report, focused on drilling contractor Boart Longyear, said
there was anecdotal evidence that juniors were finding it hard to get
finance.
The ASX website yesterday showed six potential exploration floats had
no proposed listing date, meaning the expected offer close date had
passed without enough funds being raised.
Mr Bu said a slowdown in exploration spending by junior miners could
force down the cost of drilling, affecting contractors such as Boart
Longyear.
Drillers now dedicated to these juniors would have to turn to the
majors.
A year's lag between metals prices and exploration spending meant Boart
Longyear's earnings could be shielded for a year.
But he said the lag offered little protection if metal prices fell.
Citi has a "sell" recommendation on Boart Longyear.
