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State of the Market Snapshot June Quarter 2015

An expert review on all aspects of the industry, recent performance and quarterly outlook

EXPLORATION: Project Drilling Q1: 380 Q2: 363 (DOWN)

INITIAL RESOURCES: Ascribed Value Q1: US$33.0B Q2: US$48.1B (UP)

PIPELINE ACTIVITY INDEX: Q1: 48.2 Q2: 44.3 (DOWN)

METALS PRODUCTION OUTLOOK: Increase in mined output

MERGERS & ACQUISITIONS: Deal Value Q1: US$2.93B Q2: US$6.59B (UP)

FUNDS RAISED: Q1: US$10.03B Q2: US$11.25B (UP)

Apart from exploration drilling, this was a better quarter. In the previous State of the Market (SOTM) publication, covering the three months to end-March, SNL Metals & Mining reported on a decline in metals prices and production, but an improvement in projects reporting drilling activity. There has been something of a reversal in the June quarter, with a decline in drilling activity but an increase in the production of gold, copper and iron ore.

The June quarter also saw an increase in the value of initial resources, a significant rise in the level of mergers and acquisitions, and a small improvement in financing. The latter, however, has not led to an increase in aggregate cash holdings, which appear to have fallen between the end of March and end-June.

Market for Mining: Last year was probably the worst for mined commodities since 2008, and the trend has continued. The three months to end-June was another challenging quarter, with an overall fall in the price of five of the eight constituents of the SNL metals-price index (gold, molybdenum, nickel, platinum and silver) but an improvement in the price of three (cobalt, copper and zinc). As a result, the SNL index fell to 103, compared with 107 at the end of March.

Exploration: The falling metals prices were reflected in the lower level of global drilling activity in the June quarter, with 363 projects reporting results, compared with 380 in the March quarter and 418 in the December 2014 quarter. However, total drilling activity during the second quarter of 2015 was 8% higher than for the corresponding period in 2014.

Pipeline Activity Index: A valuable measure of exploration and development activity in the international mining industry is SNL's Pipeline Activity Index. The PAI slumped to 40.8 in April, approaching the all-time monthly low of 40.2 that was suffered a year previously. However, in spite of the weakness in metals prices, the PAI jumped in June. Nevertheless, this improvement was insufficient to offset the low numbers in April and May, leaving the PAI for the quarter as a whole at 44.3.

Metals Production Outlook: By early August, SNL had captured production announcements for the June quarter from over 200 companies, including 104 gold producers, 74 copper producers and 18 iron ore producers. If the announcements by these companies turn out to be representative of all producers, then there has been an increase in production for all three metals in the June quarter, compared with both the three months to end-March and the year-ago quarter.

Mergers and Acquisitions: The number of deals registered on the SNL Metals & Mining database increased to 35 in the June quarter, compared with 23 in the March. The value of these transactions for precious and base metals more than doubled from the previous quarter's US$2.93 billion to US$6.59 billion. This is comfortably ahead of the US$1.89 billion recorded in the September quarter last year but is still short of the US$11.11 billion achieved in the June quarter 2014.

Mining Finance: The number of financings of over US$5 million recorded so far on the SNL database for the June quarter is 732, compared with 586 in the March quarter. The amount raised, as reported by early August, increased to US$11.25 billion, compared with US$10.03 billion in the March quarter. The funding is still low, however, compared with the US$15.45 billion raised in the December quarter and the (restated) US$25.44 billion in the September quarter.