Behind resources downturn, a silver lining by: Paul Garvey From:...

Behind resources downturn, a silver lining

by: Paul Garvey
From: The Australian
June 20, 2013 12:00AM
Mike Young says the disappearance of substandard exploration companies could be a good thing

Mike Young says the disappearance of substandard exploration companies could be a good thing. Picture: Colin Murty

THE weakness in the resources sector will help purge the market of numerous exploration companies that never should have been listed in the first place, mining executive Mike Young says.

Speaking at a breakfast hosted by RBS Morgans in Perth yesterday, Mr Young - who up until recently was the managing director of iron ore miner BC Iron - said the disappearance of numerous substandard exploration companies could prove to be a silver lining from the present market downturn.

"I won't name them, but there's been a lot of companies listed that shouldn't have been listed and who were being run by people who shouldn't have been running them," Mr Young said.

"Times like this help us remove that from the market, and the ones who are left to pick up the pieces really need to be focused on what they're doing."

Falling commodity prices and a flight from investors away from resource stocks have seen equity raisings all but dry up in the resources sector, effectively shutting down what has been the industry's preferred method of raising capital in recent years.

Mr Young established himself as one of the junior resource sector's most prominent voices while guiding BC Iron from a start-up explorer into a profitable dividend-paying miner.

In addition to remaining on the BC board as a director, he has taken up the chairman's role at uranium explorer Energy & Minerals Australia and base metals explorer Cassini Resources.

He said the years of boom conditions had spawned several "lifestyle companies" at the junior end of the resources sector that relied on easy access to new sources of equity funding.

"When the times were good, there were a lot of companies that listed with management that had never managed before, that didn't have focus, and which just thought: 'This is easy,' " he said.

"What's going to happen with this downturn, unfortunately, is it's going to be really tough on a lot of people."

Yesterday Karl Simich, managing director of copper miner Sandfire Resources, said the cooling conditions in the mining sector had seen exploration activity fall to their lowest levels in two years.

He noted that Sandfire's discovery of the DeGrussa copper-gold discovery was the result of the company's willingness to continue exploring, with the find coming when the company - which was an unknown minnow at the time - was down to its last $50,000.

Mr Simich said Sandfire's comparatively strong financial position could throw up some opportunities as other companies with less advanced assets found themselves struggling to secure funding.

"A number of other people in the industry are probably doing it a bit tougher, and consequently there are a number of opportunities because of their underperformance," Mr Simich said.

"Asset values at the moment have been falling quite dramatically, so that might create some interesting opportunities."

Rumours have been swirling that Sandfire could look to snap up exploration companies holding promising ground in the region around DeGrussa, with the likes of Ventnor Resources mentioned as a possible candidate.

However, Mr Simich stressed that the best growth options for shareholders generally came from exploration and discoveries rather than acquisitions.