Heemskirk Consolidated $18.4 million $50.11 million 36.72%
Iluka Resources $598 million $1.68 billion 35.60%
Intrepid Mines $15.6 million $44.93 million 34.72%
Sino Gold $32.6 million $1.05 billion 31.05%
Resolute Mining $38 million $134.9 million 28.17% Suspended trading
Norton Gold Fields $8.7 million $33.38 million 26.06%
Terramin $14.9 million $59.99 million 24.84%
Focus Minerals $6.9 million $28.66 million 24.08%
Avoca Resources $82.8 million $343.99 million 24.07%
Equinox Minerals $230.5 million $996.17 million 23.14%
Ausdril $46.9 million $211.75 million 22.15%
St Barbara $65.4 million $318.19 million 20.55%
OZ Minerals $174.7 million $849.99 million 20.55% Suspended trading
Jabiru Metals $11.2 million $59.90 million 18.70%
Western Areas $95.2 million $586.99 million 16.22%
Beaconsfield Gold $5.9 million $46.42 million 12.71%
Allied Gold $11.1 million $110.97 million 10.00%
Macarthur Coal $61.7 million $787.10 million 7.84%
White Energy $12.4 million $192.30 million 6.45%
Aquarius Platinum $40.4 million $864.77 million 4.67%
Citigold Corporation $5.2 million $152.70 million 3.41%
Newcrest Mining $291.1 million $11.13 billion 2.62%
Allstate Exploration $31.7 million N/A N/A Linked to Beaconsfield Gold
* Based on prices at November 30.
With big question marks over the financial viablilty of some of Australia's best-known miners, the ASX is actively considering whether investors are fully informed about the financial condition of listed companies.
Quarterly cash reports by exploration and mining companies, which include a column covering borrowings, only tell part of the story. What's missing (and unavoidably missing from the table above) is the dates by which debts need to be rolled-over, or replaced. It's the timing of the debt that has stunned OZ shareholders, what other companies will stun us in the coming weeks?
At a time when some banks are abandoning the mining sector, knowing when debts fall due can be as critical as knowing how much cash is in the bank.
This means that as well as watching commodity prices, cash flows and share prices, investors have to watch debt levels, while still possibly not having all the facts available to them.
The two giants of Australian mining – BHP and Rio – are not featured in our tables due to the complications of dual listings. For the record, Rio has an ASX market capitalisation of $63 billion and debts of $44 billion; BHP has an ASX market capitalisation of $172 billion and net debts of about $12 billion.
The next 48 companies are carrying a collective $4.7 billion in debt.
Rio Tinto, arguably the miner with the biggest debt load in the world, is not on the Fitch list, but is a star player in the debt game.
A few days before OZ lodged its “mea culpa” at the ASX, the debt bogey was used by BHP Billiton as one of the reasons for not proceeding with its year-long attempt to acquire Rio Tinto.
But, further from the limelight of a failed mega-mining-merger there is far greater pressure as banks review their relationships with smaller exploration and mining companies, which face enormous difficulty in producing minerals for a profit.
OZ Minerals has been struggling with its “club” of banks, a much more difficult exercise than if it had a syndicate with a chosen bank leader. A month ago another small copper miner, Sydney-based Tamaya Resources, suffered the same fate, falling into receivership. Tamaya had been high enough on the Fitch list to have warranted special attention from any investors familiar with the danger of high debt at this time.
Mining companies that flank Tamaya in the category, where debts are more than 100% of market capitalisation, include copper company CopperCo (now in receivership), gold companies Oceana Gold, Haoma Mining (suspended). Among the names found in the next rung of the debt ladder, where the debt to market cap ratio is 50%-plus, include zinc player Kagara, Pan Australia and Alumina.
Copper miner Tamaya’s explanation was a warning to all other miners, and to investors worried about debt traps triggered when banks refuse to rollover lines of credit, or demand revised terms, or just delay the process until satisfied that the company to which they are lending can survive a prolonged period of low commodity prices.
“The unprecedented collapse in copper prices in the past two months has resulted in copper prices reaching levels where it is not possible for Tamaya to repay debt to lenders and operate in an orderly fashion,” said Gordon Smith, of accounting firm Ernest & Young, when appointed Tamaya’s voluntary administrator. He was replaced within days by receivers and managers from another accounting firm, Taylor Woodings.
In a nutshell, Tamaya and CopperCo were creations of the boom and a belief held by management, shareholders and banks, that the copper price would stay above $US3 a pound for a long time as Chinese demand remained strong.
It was, as we have all discovered, a false belief. The copper price has fallen to about $US1.65 and cash flows at that level are insufficient to support mining operations.
Tamaya and CopperCo are not alone. Other companies, especially those mining zinc and nickel (which have fallen as sharply as copper) are exposed to the same pincer effect.
Long-term iron ore prices are yet to fall sharply, but ultimately they will because the spot (short term) market has collapsed by an estimated 40% putting pressure on all iron ore miners, especially those with relatively high debt levels.
CUO Price at posting:
5.0¢ Sentiment: None Disclosure: Held
