A national resources development fund paid for by a modest levy on established and profitable mining operations has been proposed by the head of one of Australia’s most successful explorers – to fend off an emerging crisis threatening the long-term sustainability of the country’s so called “mining boom”. At the heart of the proposal is providing an innovative source of access to capital exclusively for the backbone of Australia’s mining future – the cash starved junior end of the resources spectrum housing those exploration companies responsible for the majority of mineral discoveries leading to new mine developments.The national resources development fund proposal has been floated by Andrew Woskett, the Managing Director of Adelaide-based Minotaur Exploration – the explorer responsible for the Prominent Hill discovery in SA’s Gawler Craton and now home to Oz Mineral’s billion dollar plus producing copper-gold mine.
He says most juniors now have limited access to venture capital and debt funding. The full 100% levy proceeds would go direct to the fund.
His proposal comes as the global economic crisis squeezes the lifeblood out of capital access for Australia’s junior explorers and mine developers, leaving many, he says, facing extinction or merger, despite the quality of their exploration tenements and prospectivity.
“There is nothing more serious right now confronting those in the junior space of the equities market than the complete absence of risk capital available for explorers and small cap project developers,” Woskett told a South Australian Chamber of Mines and Energy function in Adelaide last week.
“The consequences of capital starvation to the overall well being of our so called booming resources sector is intensely serious and with negative global equities sentiment as it is, we need to be more unconventional in resolving how we alleviate this funding gap,” Woskett said.
“A national resources development fund can fill that gap.”
He warned that there was a reality disconnect between the media hype about the ‘mining boom’ – and the facts.
“What we are experiencing is a CLAYTON’S BOOM where junior explorers and small mine operators are facing extended financial pain, if not obliteration, as, simply put, for most in the resources sector, there is no boom.
“The mining boom is anything but a boom as the valuations of small to mid cap resource stocks are being trashed by declining share volumes and prices against a softening growth outlook from China and continuing uncertainty in Europe.
“There is a preoccupation with the hype and sentiment of a mining boom despite the reality being that the benefit of this so called ‘boom’ is pretty much confined to those well funded, operating producers in the bulks of iron ore and coal.
“This has left the junior end of the market struggling for investor recognition and starved for working capital.”
Woskett warned that the implications of such an imbalance were that the junior end of the resources sector was facing a cash and credit access crisis harking back to the dark days of the late 1990s when the ASX removed the resources index completely from its board.
“As then, the juniors now in need of financing going into the new 2012-2013 financial year are confronting survival against a backdrop of easing prices for bulk, precious and base metals,” he said.
“This in turn is, and will impact thereof, the availability of risk capital to fund speculative exploration and therefore and primarily, new mine development – as it is the juniors who are generally on the ground exploring and discovering, not the big end of town.
“A large number of junior explorers and small to mid tier mine developers or owners, are down to their last million dollars or so in the bank.
“As they seek to bolster cash reserves with assets sales, they will come up against a pool of buyers which has shrunk. Buyers will be looking for a bargain, not necessarily a fair priced acquisition.
“Those explorers and junior project developers in this tight cash position will have simple but tough options through 2012-2013 but if they are ASX listed, will still face the cash burn associated with retaining an ASX listing and meeting ongoing tenement obligations.
“These are two non discretionary sets of costs which must be met regardless of commodity cycles, project viability or cash in bank. But the big challenge for most juniors will now be -access to working capital and, as a direct consequence of that, sustaining exploration momentum and therefore future discoveries.
“The fundamental outcome, without a national resources development fund, is that new mine development in Australia – boom or no boom – will not eventuate without continuing greenfields exploration investment.”
He said resource replacement from near mine proximity brownfields exploration would not deliver Australia sustainable mining boom conditions.
Woskett welcomed the recent decision by Australian resources ministers meeting in Darwin, to develop a national strategy to address greenfields exploration Issues.
“We need a fresh solution to break the discovery drought so that Australian explorers can continue to do vigorously what they do best; generate the resource growth opportunities that Australia needs to maintain the sector’s contribution to our social and economic wealth.”
Woskett said the national resources sector should accept that the mining resource rent tax is now fact and look to a levy scheme for base and precious metals where 100% of the revenue is made available for investment back into meritorious projects in those commodities.
“A new national resources investment fund for base and precious metals would also counter any inevitable push by the Greens to expand the MRRT to those metals,” Woskett said.
“The whole idea is simply to ensure our juniors get reasonable access to critical capital over an immensely challenging time ahead.
“Such a fund provides the medium by which the profitable and operating segment of Australia’s mining industry can provide tangible support to its junior segment in the expectation that the bigger end will also stand to benefit as the more nimble juniors continue to deliver exploration benefits and future mine opportunities.”
Woskett urged, that, with the absence of speculative risk investors, the sector needs an alternative mechanism to finance exploration and development – yet failure to do so could see Australia slip as a leading resource nation.