FT picked up the story on Junior Miners: time is to follow the money - in this difficult market we need additional safety of insiders' money flow into their own stories or deep pocket consumers like Chinese. We are monitoring here M&A activity and believe these companies will be the first beneficiaries of returned interest into the sector. Latest stories on M&A Juniors from our top picks:
Junior miners seek silver lining amid gloom
By Tom Burgis in Cape Town and William MacNamara in London
Published: February 16 2009 18:01 Last updated: February 16 2009 18:01
Instead, the thinned ranks of delegates were talking about the struggle for survival among junior mining and exploration companies.
Consolidation seems inevitable, executives and analysts agreed. But they have been saying so for months. For now, sector reorganisation is largely happening among the smaller companies on the peripheries of the industry.
Many stricken juniors have scaled back operations and are living off their cash piles – if they are fortunate enough to have them – and postponing a day of reckoning that will come if metals prices remain low for long.
Only a few major mining companies outside of China are bargain-hunting among the juniors. Their shareholders are all too aware of the majors’ cash flow problems.
But at the Indaba last week, courting began in earnest, bankers and executives said. Precious metals will lead the way, many expect.
“The whole ground on which we sit has shifted dramatically,” said David Russell, joint acting chief executive of Braemore Resources, a platinum mining and smelting company in South Africa.
“Some of [the juniors] have a mental block, but the penny has dropped,” he said. Braemore hopes to be able to pick up miners desperate to refine their ore. “We are seeing overtures – even to ourselves.”
Gold is faring better than any other metal in the downturn, turning some stricken juniors into targets.
As the Indaba convened, a takeover battle heated up over Minera Andes, a cash-strapped junior gold and silver miner in Argentina. As the company came close to breaching debt covenants Hochschild Mining, its joint venture partner in Argentina, offered to either buy out the company’s joint-venture stake for $70m, or buy the company outright in an all-paper transaction.
But instead Minera Andes turned to its largest shareholder, Canadian mining entrepreneur Rob McEwan, in a C$40m (US$32m) private placement that would put Mr McEwan in control of the company.
The unresolved battle highlights both the attractiveness of gold assets and the importance of private money to the nascent revival in corporate activity.
Hochschild’s controlling shareholder, Eduardo Hochschild, and Mr McEwan can afford to make bets that traditional public companies cannot.
With more than $100m in cash, Hochschild is approaching 2009 as “a logical time to try and consolidate some properties” in South American silver and gold mining, said Robert Danino, deputy chairman.
Several junior mining executives have expressed a desire to have a single, savvy investor come in and solve their problems through a private placement.
They know that with debt scarce, they cannot all be snapped up.
Fiddling agitatedly with BlackBerrys at the Cape Town conference, executives repeatedly said that countless juniors would go to the wall – except, of course, their own.
Yet according to Mark Bristow, chief executive of FTSE 100 gold miner Randgold Resources, many of the juniors do not deserve to be saved.
The easy-money environment during the commodities boom produced a slew of companies that have stopped production and may never be viable again, Mr Bristow said.
Many of these companies are dependent on high metals prices supporting their low-grade, expensive projects. “Everyone trusted their own PR,” Mr Bristow said. While he is “hunting, big time”, potential targets are few.
“A lot more [small miners] will go bust,” he predicted.
According to Ernst & Young, the top 20 mining companies on London’s Aim board lost 46 per cent of their value in the fourth quarter of 2008, compared with the previous quarter, and 75 per cent compared with the fourth quarter of 2007.
Ernst & Young expects to see “an increase in the number of unsolicited, potentially opportunistic takeover bids in 2009”.
But potential buyers know, too, that fire-sale terms will only grow more attractive as juniors’ troubles deepen. For now, this is prolonging the freeze in corporate activity.