As one base metals mining executive after another took the stage last week at the TD Securities Mining Conference in Toronto, they knew almost everyone in the audience had the same question: What are you going to do about the balance sheet?
Right now, it’s the only topic that matters. The crash in copper, nickel and zinc prices, which began in 2011 but picked up steam in the past eight months, has torn into miners’ revenues and raised serious concerns about their ability to repay debt.
Canada’s biggest base metal miners assumed they would enjoy long-term metal prices far above current levels when they borrowed hundreds of millions (in some cases, billions) of dollars to build and acquire mines. Now the grim reality of the situation is taking hold, and companies need to take action to avoid disaster.
They have already cut capital spending, laid off employees, slashed production and taken many other measures to preserve liquidity. But more needs to be done, and debt-reduction plans will be the focus when miners start reporting year-end earnings this month.
Some of them could start to trip their debt covenants this year. And, looking ahead, they have large repayments coming due over the next several years that look impossible to meet at current metal prices without a major refinancing or restructuring.
Of course, not all debt is created equal.
For the rest of this article, click here: http://business.financialpost.com/news/mining/debt-risks-mount-as-canadas-base-metal-miners-sink-deep-in-the-hole