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interesting mining article - the australian

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    Can AIM long holders be rewarded - Here's some hope and a good read:

    Slow miners may miss out on next violent upswing
    Sarah-Jane Tasker | November 10, 2008 Article from: The Australian

    AUSTRALIA'S mining sector may not have learnt any lessons from the past and could miss the next upswing, predicted to be more acute and violent.

    Ernst & Young's global mining and metals leader Mike Elliott said the long-term fundamentals for the industry still existed, but when the market came out of this downturn, the next boom would be more aggressive.

    "There are indications of pullbacks and delays in the sector, which will make the next upswing more acute and violent than the last."

    He said that on top of the industrialisation and urbanisation of developing countries, there had been globally co-ordinated fiscal stimulus packages, with huge amounts of money for infrastructure projects.

    "When it kicks off again, most countries' (infrastructure projects) will start coming onstream at the same time, which will further add to the demand."

    Credit Suisse's UK mining team has reported that global resources spending is set to collapse, with $US50 billion in planned expenditure at risk of being delayed next year.

    It said the last time the mining industry froze capital expenditure, in 1998, it took five years for it to return with any confidence.

    Credit Suisse metals and mining equity research analyst Jeremy Gray said in a report that the Chinese boom had been under way for three years before miners started raising capital to expand projects and build new mines.

    Mr Elliott said the current downturn was more rapid than that of the late 1990s, when companies had an ability to project what was happening.

    "The suddenness of the drop in metals prices and concerns about global growth has created a greater volatility than what could have been predicted," he said.

    He warned there could be a return of asset-strippers until the market restored itself. It could be the case that some assets were worth more sold individually than as a whole company, creating more cash than the market capitalisation of the miner.

    "True market believers say this creates market efficiency," Mr Elliott added.

    An increase in mergers and acquisitions has also been widely tipped by the industry, as the big cashed-up players swoop on juniors failing to raise capital to develop projects.

    Ernst & Young researched metals and mining companies on the Australian Stock Exchange with a market cap above $50million to identify which companies were in a sound financial position and possibly shopping for new interests. It found that more than one-third had less than $25million in the bank, 3 per cent had more money in the bank than their market capitalisation, 30% of companies had gearing of 10%-plus, and 10% of companies had 50%-plus gearing.

    "The overall perspective was quite clear that there is a dichotomy between the haves and the have-nots in regard to cash," Mr Elliott said. "Looking at the differences between the haves and the have-nots, we see several players less affected, who now have a greater range of acquisition and joint venture opportunities. M&As are happening now and we are probably at a stage where there are a lot of negotiations going on and there will be a list of announcements emerging before Christmas."

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