http://www.theaustralian.com.au/business
The way veteran minerals economist Richard Schodde from MinEx Consulting sees it, the junior explorers are the cockroaches of the market in that they seem to be able to survive nuclear winters.
Which is just as well, given that there has been no joy for the sector on the commodity price front of late.
The economist in Schodde backs up his assessment that the juniors are supreme survivalists with some hard numbers from an in-depth study, all of which is posted on MinEx’s website (http://www.minexconsulting.com/publications.html).
Basically, Schodde says that most junior companies will weather the current downturn. Shareholders might not be enjoying the experience but at least their bits of paper will continue to be worth something. Pick the right juniors, and they could even make serious money.
In the study, Schodde compiled data on the cash position and market capitalisation status of no fewer than 1980 junior companies in Australia, Canada and other mining market jurisdictions. It showed that one in five Australian junior explorers have less than $200,000 in the bank. The good news in that for ASX-listed players is that the story in Canada is worse, with 50 per cent of the juniors there having less than $200,000 in the till.
Schodde says that while bank balances may be depleted, a more important metric for assessing ongoing viability is to look at a company’s market cap.
That is because the market cap can be used as “collateral” to raise fresh money from shareholders by doing a rights issue/special placement. But while it is relatively easy to raise $1 million where the market cap is $20m, it is effectively impossible if the particular company is worth $1m to start with.
It is on that point that there are some serious issues for some ASX-listed juniors, albeit not as bad as is the case with their Canadian counterparts.
Schodde’s work shows 1 per cent of the ASX-listed juniors have a market cap of less than $500,000, which is real danger territory. But in Canada it is about 12 per cent.
He makes the point that unless the company directors put their hand in their pocket and make a cash injection into the company, the micro-cap companies are ¬effectively dead in the water.
Schodde’s overall assessment is that depending on the jurisdiction, somewhere between 5 per cent and 30 per cent of all juniors are at risk of going out of business, with ASX-listed companies again better positioned to survive.
For the rest of this article, click here: http://www.theaustralian.com.au/business/opinion/junior-exporers-find-way-to-survive/story-fnciil7d-1227081690046?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+TheAustralianBusWealth+(The+Australian+%7C+Business+%7C+Wealth)