Source: http://www.miningweekly.com                           Date: 19 August, 2010

Market volatility and risk aversion in the mining sector resurfaced during the second quarter of the year, but an appetite for mergers and acquisitions (M&A) remained evident, consulting firm Ernst & Young (E&Y) has found. The latest  ‘Ernst & Young Mining Eye' index, which monitors the performance of mining companies listed on the Aim, experienced its first quarterly decline of 16% since the economic crisis first struck in the last quarter of 2008.

E&Y director of mining and metals Tim Williams said that an appetite for doing deals remained strong in the quarter, with a handful of acquisitions at the smaller end of the market, and strategic disposals at the larger end. "Market volatility and the conflicting outlook for metals prices though made pricing and valuation difficult, leading to a number of abandoned bids and merger discussions. Companies are finding it challenging to demonstrate their current and future value in the present market conditions," he explained.

Nevertheless, Mr. Williams said that the strategic and financial drivers for M&A activity remained, and that the company expected consolidation and growth through acquisition to continue in the junior mining sector. "However, with deals difficult to complete in the volatile environment and equity markets seemingly undervaluing elements of the sector we may see further stalled bids in the months ahead," he added. "The process of due diligence and the importance of management's ability to communicate the value of the company and its future prospects remain paramount in such uncertain times," he concluded.