Mining pipeline activity declined significantly in the year to February, according to research and analysis firm SNL Metals Economics Group (SNL MEG).

SNL MEG’s pipeline activity index for January to February this year has dropped 43% since October last year, hitting a three-year low.

The total of 80 financings completed in January to February is the lowest two-month total since early 2009, SNL MEG said, and equity financings in February came to less than $300 million—including only $67 million for base metals.

“Poor equity markets have made it extremely difficult for many junior explorers to raise capital,” SNL MEG said.

“The combination of weak financing conditions and budget cuts by major producers has resulted in idle drills, stalled projects, and lower grassroots spending, as companies focus primarily on their tier-one assets.”

In the past, the firm said, there has been room for quick improvement in weak environments such as this, but it is difficult to forecast whether the index will pick up in time for the exploration season during the northern hemisphere summer.

The mining industry’s aggregate market capitalisation was relatively stable in January and February, SNL MEG said, but it is probable that it will slip in the coming months because of the recent fall in the gold price, and the general lack of movement in base metals prices.

“After rebounding in January, the number of significant drill results dropped again in February to match December 2012 as the lowest monthly total since 2010,” the firm added.

“Remaining results from 2012 programmes helped boost January numbers, but the low February totals are likely to be a sign of things to come in 2013.”

Drilling contractors are reporting idle equipment, according to SNL MEG, as a lack of readily available funding hinders junior explorers, and the larger producers cut back on any spending deemed to be non-critical in a bid to mitigate falling profits and rising costs.

Companies with plans for exploration programmes in 2013 are likely to focus on efficiency and on pushing forward their top-tier projects, as these difficult market conditions will have the greatest impact on grassroots spending, the firm said.

Despite an improvement in significant financings, or those of a minimum $2 million, in the final quarter of last year, junior and intermediate mining companies with funding needs for 2013 work programmes are likely to need to scale back or put off plans if they cannot find strategic investors.

Claire Hack
Twitter: @clairehack_mb