Mining companies like Teck Resources (TSX:TCK.B) and Thompson Creek Metals (TSX:TCM) may need to make some hard decisions in 2016 if they are to avoid solvency problems in 2017, warns the Bank of Merrill Lynch.
In a recent outlook, Merrill Lynch singled out these two B.C. miners for solvency issues in 2017, and flagged First Quantum Minerals Ltd. (TSX:FQM) for solvency problems in 2018, based on commodity price projections and the companies’ cash burn rate.
Cannacord Genuity has also red-flagged Teck. Of 11 mining companies it covers, Teck was the only one given a sell rating.
The concerns being raised by investment banks over B.C.’s largest, most diversified and most successful mining company is a barometer for just how bad things have become for the mining world.
But Andrew Kaip, managing director of mining equity research at BMO Capital Markets, said the same dire predictions were made about Teck in the wake of the 2008-2009 financial crisis and turned out to be wrong. He added that similar red flags were raised with large gold companies like Barrick Gold Corp. (TSX:ABX).
“We saw companies with what was perceived to be outsized debt and in dire positions, and yet those companies were able to reel in their cost structure, cut their capital spending – through attrition of employees and through asset sales – to be able to move themselves into a stronger position,” Kaip said. “I think you’re going to see the base metal companies move in the same direction.
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