06-06-2013, 07:37 AM
Mining game is over Down Under - stay clear of unknown darlings or concept stocks that are still hoping of big discovery - Blumont, Innopac...
http://www.afr.com/p/business/companies/...OCEespsA3I
Small miners burn up cash
PUBLISHED: 8 HOURS 53 MINUTES AGO | UPDATE: 0 HOUR 0 MINUTES AGO
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The Australian Financial Review has identified numerous base metals and coal companies with just over a month left of cash spending available to them. Firestone Energy, UCL Resources and Cockatoo Coal are among that group. Photo: Rob Homer
MATTHEW CRANSTON AND LUKE FORRESTAL
RELATED QUOTES
• COK
• FSE
• UCL
• DRX
COCKA COAL FPO (COK)
• $0.038
• $0.00
• (0.00%)
Volume 0 Value 0.0
• 5 Year
• 1 Day
as at 16:10 Australia/Sydney 05 JUN 2013
View Full Quote »
Company Profile
The exploration and development of coal projects.
http://www.cockatoocoal.com.au
Oil, Gas & Consumable Fuels (101020)
ASIC 112682158
ASX Announcements
30/05/13 AGREEMENT TO SELL 30% INTEREST IN HUME COAL
03/05/13 Presentation to Investors
30/04/13 Quarterly Activities Report
30/04/13 Quarterly Cashflow Report
23/04/13 Results of Meeting
View All Announcements »
See Also
• People
• Analysis
• Financials
Australian miners are burning through so much cash that they may be forced to merge with rivals, sell assets cheaply and raise money at discounted rates, a new study says.
New analysis from corporate accounting firm Ernst & Young shows that a sample of 354 listed base metals and coal companies with a market capitalisation of $500 million or less have, on average, just under two years left of spending at the current rate. Some risk collapse, the firm says.
“Many of these companies will need to look at deeply discounted asset sales or dilutive capital raisings and although neither option is attractive, as time passes the situation seems to be deteriorating,” Ernst & Young’s Justin Walsh said. “Some of the weaker players will no doubt fail.”
The warning comes as economists and analysts start to chart the decline in Australia’s resources sector.
Respected economist Ross Garnaut recently accused coal companies of “dudding” shareholders by chronically over-investing in projects and failing to acknowledge the decline in global demand.
The dire situation is magnified when the analysis focuses on the 287 companies with a market capitalisation of less than $50 million. They are sitting on an average of just 18 months left of spending, says Ernst & Young.
The analysis, which does not name individual companies, takes cash balances from publicly available financial reports and divides them by the cash spent in the prior 12 months.
ONE MONTH TO GO
Using that simple formula, The Australian Financial Review has identified numerous base metals and coal companies with just over a month left of cash spending available to them. Firestone Energy and UCL Resources – both now subject to takeover bids – and Cockatoo Coal are among that group.
Cockatoo Coal’s announcement last week of its intention to sell its interest in Hume Coal to Korean giant POSCO was viewed poorly by the market. Its share price dropped 17 per cent in the following two days. Ord Minnett senior financial adviser Angus Bligh said Cockatoo Coal, with its market capitalisation of $38 million, was now on the radar of potential suitors. “Cockatoo is a classic example of a small coal company seemingly under cash constraints and I think they will struggle to attract investors as their share price falls.”
Mr Bligh said that before the sale of Cockatoo’s stake in Hume Coal, the company had just $6 million in cash available. “They also have to look at how to fund their Baralaba expansion project as well as refinancing the existing $100 million KEB Australia loan by the end of June 2013. Other small companies are heading in the same direction – the market knows they have to do something soon because they can’t develop these projects themselves.”
Cockatoo Coal chief executive Andrew Lawson said the cash burn was by no means an accurate reflection of the company’s situation. “I think the cash burn figure is a very crude mea¬sure because there is a lot of financial engineering that is not being taken into consideration,” Mr Lawson told The Australian Financial Review.
He said the reduction of a sizable debt facility in December last year from $150 million to $100 million also had the consequence of lowering the amount of cash on hand and such capital measures needed to be taken into consideration. “We have an operating mine that continues to be cash positive,” he said. “With our expansion projects we will obviously tailor our expenditure to match our current financial circumstances.” He declined to give detail on staff reduction or further asset sales.
The Bureau of Resources and Energy Economics recently estimated that $73.5 billion of coal projects have been publicly announced but have not yet started construction.
JOINT VENTURES ARE THE BEST WAY OUT
Diatreme Resources executive chairman Tony Fawdon said that although the company had just $2 million left, it was negotiating with Chinese parties to invest in its mineral sands project in South Australia. “We’re not in a bad position but I’m hearing anecdotally that there are about 300 companies [in the junior sector] that are getting close to closing their doors,” he said.
Mr Fawdon admitted that because of the state of the market, Diatreme had slowed work on its lesser projects and was not exploring those as aggressively as previously planned. He said finding a wealthy joint venture partner was one of the few options left for junior companies to finance their projects.
“But if your projects aren’t of a good quality, you’re going to find it extremely difficult to find a partner,” he warned.
Many of the smaller companies like Cockatoo Coal may have to consider merging or raising capital to see their projects through.
RBS Morgans senior mining and metals analyst Tom Sartor said companies were cutting staff and investment in tenements as the first step in redu¬cing the cash burn problem. “The coal juniors have heavily reduced their spending by cutting back on field programs, reducing their overheads and in some cases rationalising their lower-priority exploration acreage,” he said.
Asset sales, similar to Cockatoo Coal’s, may also need to be added to the bonfire. “What’s really interesting is that many in the market see asset divestment by the majors as a potential signal that we may be approaching the bottom of the market,” he said.
“We hear about billions of dollars in known funds looking to invest in the sector, although none of those players have yet been prepared to make a meaningful move this time around.
“So far there’s been little tension suggesting that sellers need to move in a hurry, unless of course their funding is running short.”
The world’s top mining companies recently expressed concerns that the difficulties faced by junior companies could lead to a dangerously thin pipeline of future growth projects.
READ NEXT:
South Australian mines prepare for drop in investment
Major miners concerned over tight funding market for explorers
Stevens | PwC points to ‘crisis of confidence’ in mining sector
Try but not buy approach jinxing mining takeovers
Besieged Cockatoo examines funding options
The Australian Financial Review
MATTHEW CRANSTON
Matthew covers Queensland property and business issues from our Brisbane bureau.
http://www.afr.com/p/business/companies/...OCEespsA3I
Small miners burn up cash
PUBLISHED: 8 HOURS 53 MINUTES AGO | UPDATE: 0 HOUR 0 MINUTES AGO
SHARE LINKS:email
• inShare2
•
•
•
• submit
print-font+font
Reprints & permissions
The Australian Financial Review has identified numerous base metals and coal companies with just over a month left of cash spending available to them. Firestone Energy, UCL Resources and Cockatoo Coal are among that group. Photo: Rob Homer
MATTHEW CRANSTON AND LUKE FORRESTAL
RELATED QUOTES
• COK
• FSE
• UCL
• DRX
COCKA COAL FPO (COK)
• $0.038
• $0.00
• (0.00%)
Volume 0 Value 0.0
• 5 Year
• 1 Day
as at 16:10 Australia/Sydney 05 JUN 2013
View Full Quote »
Company Profile
The exploration and development of coal projects.
http://www.cockatoocoal.com.au
Oil, Gas & Consumable Fuels (101020)
ASIC 112682158
ASX Announcements
30/05/13 AGREEMENT TO SELL 30% INTEREST IN HUME COAL
03/05/13 Presentation to Investors
30/04/13 Quarterly Activities Report
30/04/13 Quarterly Cashflow Report
23/04/13 Results of Meeting
View All Announcements »
See Also
• People
• Analysis
• Financials
Australian miners are burning through so much cash that they may be forced to merge with rivals, sell assets cheaply and raise money at discounted rates, a new study says.
New analysis from corporate accounting firm Ernst & Young shows that a sample of 354 listed base metals and coal companies with a market capitalisation of $500 million or less have, on average, just under two years left of spending at the current rate. Some risk collapse, the firm says.
“Many of these companies will need to look at deeply discounted asset sales or dilutive capital raisings and although neither option is attractive, as time passes the situation seems to be deteriorating,” Ernst & Young’s Justin Walsh said. “Some of the weaker players will no doubt fail.”
The warning comes as economists and analysts start to chart the decline in Australia’s resources sector.
Respected economist Ross Garnaut recently accused coal companies of “dudding” shareholders by chronically over-investing in projects and failing to acknowledge the decline in global demand.
The dire situation is magnified when the analysis focuses on the 287 companies with a market capitalisation of less than $50 million. They are sitting on an average of just 18 months left of spending, says Ernst & Young.
The analysis, which does not name individual companies, takes cash balances from publicly available financial reports and divides them by the cash spent in the prior 12 months.
ONE MONTH TO GO
Using that simple formula, The Australian Financial Review has identified numerous base metals and coal companies with just over a month left of cash spending available to them. Firestone Energy and UCL Resources – both now subject to takeover bids – and Cockatoo Coal are among that group.
Cockatoo Coal’s announcement last week of its intention to sell its interest in Hume Coal to Korean giant POSCO was viewed poorly by the market. Its share price dropped 17 per cent in the following two days. Ord Minnett senior financial adviser Angus Bligh said Cockatoo Coal, with its market capitalisation of $38 million, was now on the radar of potential suitors. “Cockatoo is a classic example of a small coal company seemingly under cash constraints and I think they will struggle to attract investors as their share price falls.”
Mr Bligh said that before the sale of Cockatoo’s stake in Hume Coal, the company had just $6 million in cash available. “They also have to look at how to fund their Baralaba expansion project as well as refinancing the existing $100 million KEB Australia loan by the end of June 2013. Other small companies are heading in the same direction – the market knows they have to do something soon because they can’t develop these projects themselves.”
Cockatoo Coal chief executive Andrew Lawson said the cash burn was by no means an accurate reflection of the company’s situation. “I think the cash burn figure is a very crude mea¬sure because there is a lot of financial engineering that is not being taken into consideration,” Mr Lawson told The Australian Financial Review.
He said the reduction of a sizable debt facility in December last year from $150 million to $100 million also had the consequence of lowering the amount of cash on hand and such capital measures needed to be taken into consideration. “We have an operating mine that continues to be cash positive,” he said. “With our expansion projects we will obviously tailor our expenditure to match our current financial circumstances.” He declined to give detail on staff reduction or further asset sales.
The Bureau of Resources and Energy Economics recently estimated that $73.5 billion of coal projects have been publicly announced but have not yet started construction.
JOINT VENTURES ARE THE BEST WAY OUT
Diatreme Resources executive chairman Tony Fawdon said that although the company had just $2 million left, it was negotiating with Chinese parties to invest in its mineral sands project in South Australia. “We’re not in a bad position but I’m hearing anecdotally that there are about 300 companies [in the junior sector] that are getting close to closing their doors,” he said.
Mr Fawdon admitted that because of the state of the market, Diatreme had slowed work on its lesser projects and was not exploring those as aggressively as previously planned. He said finding a wealthy joint venture partner was one of the few options left for junior companies to finance their projects.
“But if your projects aren’t of a good quality, you’re going to find it extremely difficult to find a partner,” he warned.
Many of the smaller companies like Cockatoo Coal may have to consider merging or raising capital to see their projects through.
RBS Morgans senior mining and metals analyst Tom Sartor said companies were cutting staff and investment in tenements as the first step in redu¬cing the cash burn problem. “The coal juniors have heavily reduced their spending by cutting back on field programs, reducing their overheads and in some cases rationalising their lower-priority exploration acreage,” he said.
Asset sales, similar to Cockatoo Coal’s, may also need to be added to the bonfire. “What’s really interesting is that many in the market see asset divestment by the majors as a potential signal that we may be approaching the bottom of the market,” he said.
“We hear about billions of dollars in known funds looking to invest in the sector, although none of those players have yet been prepared to make a meaningful move this time around.
“So far there’s been little tension suggesting that sellers need to move in a hurry, unless of course their funding is running short.”
The world’s top mining companies recently expressed concerns that the difficulties faced by junior companies could lead to a dangerously thin pipeline of future growth projects.
READ NEXT:
South Australian mines prepare for drop in investment
Major miners concerned over tight funding market for explorers
Stevens | PwC points to ‘crisis of confidence’ in mining sector
Try but not buy approach jinxing mining takeovers
Besieged Cockatoo examines funding options
The Australian Financial Review
MATTHEW CRANSTON
Matthew covers Queensland property and business issues from our Brisbane bureau.