Australia’s junior and mid cap explorers and miners have been encouraged to be more realistic and transparent about their cost structures if they are to attract new investors and new investment within the current challenging capital markets for this spectrum of the domestic equities market. Addressing the first day of the two day Paydirt 2013 South Australian Resources and Energy Investment Conference at the Adelaide Convention Centre, Adelaide Equity Partners Senior Analyst, Rohin Muller, said it was critical that players in this spectrum had a strict and sustained focus on managing their capital and operating costs.
Muller said: “There is investment willingness out there but the equities market wants to see juniors and the mid tiers focus on low costs and high margins and if they deliver on that, they will be viewed favourably in this current market cycle. They also need a survival strategy that embraces focusing on those projects the maximise the opportunity to enter production, maintain their exploration activity – and they will maximise their funds availability for that if they focus on better managing costs – and build relationships with a broader range of potential capital providers.”
“It is critical in this capital environment for juniors to keep as many funding options open as possible but parallel that with examining and demonstrate ways of reducing upfront expenditure. Equity markets are open to a sound argument but juniors have to be cleverer about how they access what is open to them.” Muller continued “While exploration companies tend to be reliant on private or public equity, access to a greater range of funding instruments can arise as explorers make the transition to producer – and the players in this segment need to give greater consideration to wider financing solutions such as convertible bonds, prepayments, offtake agreements, high yield bonds, project financing, and corporate loans, but along with costs, survival will also require a strict adherence to project execution.”
Rohin Muller told delegates at Paydirt 2013 that Adelaide Equity did not see the current global or domestic market scenario as a disaster: “It is not doom and gloom but some explorers obviously are finding it more difficult than others to sustain their business because of the current state of the markets. As metal and mining/small resource stocks have subsequently underperformed against declining commodity prices, investors have moved out of that market into more conservative investment areas in search of yield. In that environment, resources companies have tended of late to focus on their Tier 1 assets and that actually creates opportunities for mid tiers and juniors but they need to be prepared to move faster and be acquisitive as expect value seekers to start buying back into the small resources sector when they recognise this upside.”
