GENERIC CASH FLOW CRUNCHES NOW EXACERBATED BY GLOBAL CREDIT CRUNCH
“Whether a start-up business looking to list; a hapless explorer completing its final drill programme; a company that has been fortunate enough to strike it lucky and turning towards development; or a producer with a depleting ore body, it is critical for a company to move forward or face certain extinction.
To do so, a company needs to be adequately financed,particularly in an industry as capital-intensive as mining – few “people would argue otherwise.”( Sam Jordan Jones, The Global Mining Finance Guide 2014
Globally the credit and equity markets that have traditionally financed mining explorations development and operation have changed dramatically in recent years. Expectations that have kept miners afloat and moving forward for decades all of a sudden are not supported by equity and credit markets Capital just isn’t there the way it always was. According to The Global Mining & Finance Guide (op cit link above) a major contraction clicked in in 2012 after a steady and significant decline from 2009. which of course would affect all mining companies globally whose development plans and operations relied on continued access to these markets at the same terms and conditions and in accordance with need. As noted in the introductory quote above, a sudden and apparently long term change in finance availability and access is especially challenging in an industry that is as capital intensive as mining.
And that of course puts additional pressure on the chronic and inevitable conflict between TSF safety in design and management and the allocation of scarce available resources to production.
Imperial/MPMC was clearly caught in this unexpected crunch in global capital markets when it realized in 2013 that it was now completely dependent on those capital markets to meet its development and production goals promised to investors.
With that capital crunch, of course generating as much revenue as possible through aggressive production goals moves front and center and doing whatever it takes to achieve those goals takes priority. Surely the profile of the capital crunch since 2010 is a principal driver pushing the 20 fold increase in risk profile Dr. Robertson mapped at his key note 2011 Tailngs Conference even higher. (http://www.infomine.com/library/publications/docs/Robertson2011c.pdf) .
Miners have to work what they have invested in and committed to developing. They have to make lower grade ores that once seemed financially viable, produce more and more and they have to push existing infrastructure, including TSF’s as far as possible. What other choices are there? Where else can a company find the revenue it needs to survive.
That is where Imperia/MPMC is hanging.
They are desperately counting on the permit at Red Chris to plug the holes in its leaking financial vessel and trying to convince the public that will spare them the cost of the Mt. Polley TSF failure cleanup. But how can that be a good deal in terms of public liabilities and environmental risks when we know the TSF at Red Chris has been designed to keep costs at a bare minimum. The capital crunch is driving completely against the public interest. Can we make that bargain when the public risk hasn’t been measured and Imperial MPMC’s financial capacity to fund its public liabilities and environmental loss exposures has not been fully examined.
As Sam Jones says in the opening quote it is move forward or perish.
Of course a business that has accumulated almost $1 billion in mineralized assets, survived for half a century and invested so much for so long will go for survival and of course the other end of that is inevitably a higher risk and loss profile overall and a greater probability of higher unfundable unmanageable public liabilities and environmental liabilities.
This is the tailspin Imperial /MPMC was caught in at the time of this enormous record breaking TSF failure.
Here are just a few quotes from the Global Mining Finance Guide that flesh out the severity of the current global capital crunch.
“.. in the current environment, where investors are concerned about the level of new supply coming to market and have a smaller appetite for risk, there is less capital available to finance such programmes.Geological expertise is key and those with a successful track record will find iteasier to gain investor confidence. However, even those promising to repeat past performance and offer the highest returns are struggling to raise capital and consequently, we have witnessed a contraction of early stage investors.(emphasis added “
“Historically, exploration activities have been financed by the public equity markets. However, over the past 18 months, capital in its traditional form has all but dried up.Only 17 initial public offerings (IPOs) occurred in the sector globally during the
nine months to September 30, 2013, raising just US$626 million”
“The sell off over the past two years has been severe as shown by EY’s Mining Eye and Canadian Mining Eye indices, which track the performance of junior mining stocks on London’s secondary stock exchange, AIM and Canada’s Toronto Stock
Exchange (TSX) and TSX Venture Exchange (TSX-V), respectively. With share prices depressed, and investors looking to protect investment positions, it is little surprise that new equity is not being attracted into the sector.”
“It has been a difficult year for miners. Metals prices are down significantly, equity values remain under pressure and shareholders have grown increasingly vocal in their demands for fiscal restraint.”
“Growth at the expense of shareholder returns has led to lower investor confidence and areduced appetite for mining equities,” BMOCapital Markets’ Co-Head of Mining Research,Tony Robson, said”