Consolidation: Less Is More

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A view on the global mining and metals market suggesting a bias towards conservatism amongst analysts in general which tends to understate reality and leads to distortions in certain key areas of mining financial planning and decision-making.

A view on the global mining and metals market suggesting a bias towards conservatism amongst analysts in general which tends to understate reality and leads to distortions in certain key areas of mining financial planning and decision-making.

Ernst & Young in London compiles the Mining EYe index of the top mining stocks listed on the AIM market of the London Stock Exchange. The index reflects the share prices of twenty largest AIM listed mining companies, ranked by their total market values, and is adjusted for new constituents every quarter, when usually about three or four companies enter or leave the index, with departures normally being on promotion to the Main Market of the LSE or on successful acquisition of the company. The index has tracked the performance of the AIM mining sector since January 2004, since when the Mining EYe has grown by 106%, compared with a rise of 34% for the AIM market as a whole. Over this period the aggregate market value of the index has increased by 194%, and currently represents about 50% of the total value of the AIM-listed mining stocks. Typically the threshold market value for inclusion in the index is around 200m.

The United Kingdom itself has merely the remnants of a domestic mining industry, and so both the LSE and its AIM division host mining stocks representing the mining industry globally, with operations spread in all areas of the world. This is in marked contrast to the other important mining stock markets, in Canada, Australia and South Africa, where the markets are dominated by domestic producers. Thus, one of the most valuable aspects of the Mining EYe index is its relevance to the state of the worldwide mining industry. At the end of 2007 the universe of eligible AIM-listed mining companies had 200 constituents with an aggregate market value of 15.3bn (US$30.9bn). Mining listings accounted for 15% of the total AIM market capitalisation, rather lower than usual as so many of the large companies had moved to the Main Market or been taken over. Only two of the ten largest companies on AIM were miners, again, an unusual situation.

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