Base metal miners may be ‘forced’ into dilutive equity issues – FINANCIAL
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Base metal miners may be ‘forced’ into dilutive equity issues

The plunge in commodity prices has forced many mining companies to market assets or metal streams to enhance their liquidity. But their jobs are not even close to finished.

TD Securities analysts Greg Barnes and Craig Hutchison studied the liquidity of base metal miners and found when prices remain low, liquidity will become “extremely tight” for a lot of of them after 2017, otherwise sooner.

“We are increasingly concerned that companies will be forced into equity issues at really low share prices in order to support their balance sheets,” the analysts said inside a note.

Of course, miners will try to cut capital spending then sell more assets and streams before they consider dilutive equity offerings. However the TD analysts said a few of these measures will hurt their operating efficiency.

They downgraded shares of First Quantum Minerals Ltd. and HudBay Minerals Inc. to hold from buy. They said both of these firms have in all probability enough liquidity to get to no more 2017 at current commodity prices, but could run into problems next when they don’t take action.

“First Quantum also faces risks to its electricity supply in Zambia that may further delay the ramp-up of its new Sentinel copper mine,” the analysts said.

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