Investors who invest in small mining companies, likely will bear further losses amid ongoing drawdown on the market of raw materials - Materials AMarkets.
In view of the recent difficult situation with Glencore, whose shares fell 5 times since the IPO in 2011, a significant proportion of market analysts discourages investors to cash in small companies. Even though the apparent rebalancing of supply and demand in favor of the demand, which occurs slowly today and will increase in the long term.
In small companies, as a rule, assets of lower quality and lower margins than the major players. Smaller companies tend to focus more on exploration than on production. And this is just the same that the focus of attention, which is not interested in the market at the moment.
For examples of the failure of mining companies with a small market capitalization do not have to walk far.Thus, the company Lonmin fell by almost 90% in 2015. The company First Quantum Minerals lost almost 2/3 of its value against the background of the flight of investors from the segment. Large companies, for example, Rio Tinto and BHP Billiton sank still lower - minus 20%.
The weakness of the small mining companies is that they often have to deal with one type of raw material and are dense, depending on the loan. Margin of small players to a minimum. According to Thomson Reuters Datastream, the profit margin of European miners slipped to a record low of 11% versus 17% at the beginning of 2015 and to 45% in 2011.