Starved of cash, nearly 150 mining companies listed on the Australian Stock Exchange went into bankruptcy during the fiscal year that ended June 30, and another 23 have gone under since then. Richard Karn, managing editor of the Emerging Trends Report, believes a fresh wave of failures is expected when the quarter ends September 30, and a major shakeout at some point appears likely. But the situation isn't grim for all the specialty metal companies down under. In this interview with The Gold Report, Karn shares a handful of names with the wherewithal to survive the onslaught.
As managing editor of The Emerging Trends Report, Richard Karn has a broad, multidisciplinary background and a working knowledge of precious and specialty metals, as well as considerable research, analytical and writing experience. The first nine Emerging Trends Reports have been reevaluated and updated published in e-book form, as Credit & Credibility. He has written for publications ranging from Barron's, Kitco and Fullermoney to Financial Sense Online.
The Gold Report: When we interviewed you in April, you said the pending demise of zombie companies on the Australian Stock Exchange (ASX) was a good thing because there were too many deadbeats in the specialty metal sector. Has that process worked its way through the system or are there still some "walking dead" making it difficult for investors to pick out the promising companies.
Richard Karn: Unfortunately, the latter is still the case. According to the Australian Securities & Investment Commission (ASIC), 146 companies in the mining sector went into administration (bankruptcy) during the fiscal year ending June 30, 2014. As Luke Smith pointed out last month in your publication, yet another 226 resource companies did not have sufficient cash to meet their anticipated expenditures for this quarter. Since then, another 23 resource companies have failed, and as of Aug. 25, 2014, 17 more had not paid their listing fees and were suspended from trading on the ASX. So, no, we do not think the process is over.
TGR: How are companies accessing capital today?
RK: By and large, they're not. We've been picking up on some positive activity in the base and precious metal sectors, but that mostly has yet to trickle through to the specialty metal sector. In the case of specialty metal companies, most are unable to raise money either from the capital markets or from their shareholders. Failed or abysmal uptake of rights issues and the like continue to be common. Many companies are literally being starved of cash.
TGR: Can companies sell some of their assets to cover costs on other projects?
RK: Asset sales are difficult in the current environment because so many companies are now so desperate to sell that it has become a buyers' market. That being said, the Chinese have been stepping in to snap up the occasional bargain.