Slide in commodity prices causes banks and investors to cut back on financing
Hong Kong/Sydney – Asia’s small mining companies are battling capital flight, as banks and investors pull funds amid a collapse in commodity prices.
A once-in-a-generation resources boom, driven by China’s seemingly unlimited appetite, caused a proliferation of mining outfits, fueled by easy credit. But after a sharp drop in prices for everything from copper to coal, the industry’s junior miners—those valued at US$1 billion or less—are fighting for survival.
In Australia alone, there were 240 insolvencies in the mining sector in the year through June, up 64% from the previous 12 months, according to the country’s corporate regulator. “The vast majority of junior miners are facing ongoing cash constraints, continuing falls in share prices, volatile commodity prices and disgruntled shareholders, which are all taking their toll,” said Holly Stiles, Australian head of energy and resources at Grant Thornton.
Three-quarters of Australia’s junior miners that sought fresh capital in the 12 months through June reported having “moderate or significant” challenges doing so, according to a recent Grant Thornton survey.
Only 15% said overseas investors had approached them regarding debt finance last fiscal year, half the level reported two years earlier.
Junior miners have in the past been the lifeblood of the mining industry, responsible for about 80% of mineral discoveries in countries such as Australia and Canada, according to MinEx Consulting, an Australian research company.
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