The Ernst & Young Mining eye index made a gain of 29% over Q1 2009, supported by steady upward momentum in the prices of some key traded metals. This is a remarkable reversal of fortune for an index that lost 46% during the previous quarter and 75% over 2008. However, the Mining eye still remains some 71% below its 2008 (and record) high and 26% below its 2004 base level.

Quarter one showed signs of cautious optimism for AIM's junior miners with secondary fundraising in the sector totalling £239 m, compared with £147 m in the previous quarter, and £295 m in Q1 of 2008, indicating that funding is available for the right projects. However, the full impact of the global economic slowdown has yet to be realised. AIM's miners continued to warn of critical working capital constraints and some entered into voluntary administration arrangements or defaulted on credit payments. The number of mining companies delisting also rose to nine this quarter.

Dr Tim Williams, director of mining and metals at Ernst & Young said: Despite these cautiously optimistic signals, it would be premature to suggest that the depression is over for AIM's junior miners. The number of delistings both this quarter and going into Q2 2009, combined with the number of companies warning of critical working capital restraints, is evidence that the impact of the global economic slowdown has yet to be fully realised. Many companies remain unable to ensure the security of tenure of their projects beyond the next few months.

SECURING THE PRESENT

On the whole, AIM mining companies in 2008 responded to the market conditions with speed and resolve to secure their futures - ranging from drastic cost-cutting, to suspension of activities, capital restructurings and asset disposals. For some, those actions have ensured their ability to continue as going concerns. For others, however, the obstacles to raising cash are becoming insurmountable.

All of this quarter's nine delistings were a direct or indirect result of the difficult trading conditions and a number of companies in Q1 2009 entered into voluntary administration arrangements, to obtain protection from creditors while they attempted to restructure. Others warned of critical working capital deficiencies, default on payments due and the inability to raise sufficient funding to continue operating beyond the immediate future.

Michael Lynch-Bell, head of EMEIA mining and metals commented: Securing the present, through cost reduction and cash preservation, is, and must remain, the number one priority for AIM's miners. While the focus remains on survival, sources of funding are likely to remain scarce over the coming months and the junior miners are likely to face further distress, particularly those without a source of cash flow. Effective management of working capital and cash flow will be critical to surviving the downturn.

LOOKING AHEAD: SURVIVE THEN THRIVE

Although it is likely that delistings will continue to outpace new admissions and the outlook for IPOs remain unfavourable, a number of companies have demonstrated that finance is available for the right projects. A clear strategic focus on investing capital and resources in the right projects at the right time - a strategy that must be well-communicated to existing and prospective shareholders - will enable some companies not only to survive the downturn, but to thrive when the upturn begins.

Williams concludes: While it is too early to talk of recovery, there is a noticeable change of sentiment in the market and an increasing expectation that the long-term fundamentals for the industry will drive prices on an upward trajectory once again.