Damon Kitney
Victorian Business Editor
Melbourne https://plus.google.com/118107316791307666801
Small Resources Index. Source: TheAustralian < Prev
Next > •• THEY are known as “zombies” — junior mining exploration companies so short of cash that they have stopped doing what they were born for.
And 30-year industry veteran Andrew Woskett reckons they are partly responsible for the paralysis that has gripped the smaller end of the nation’s mining industry.
“We have too many junior companies in this country. We shouldn’t have as many — there needs to be some sort of consolidation or rationalisation,” said Mr Woskett, the chief executive of one of the few with cash in the bank, Adelaide-based copper and nickel-gold explorer Minotaur Exploration.
The latest quarterly cash survey by accounting and advisory firm BDO found that the number of so-called “zombie” junior explorers on the ASX has continued to increase. They accounted for one in nine of the 831 junior companies that lodged September quarterly cash reports.
The numbers look set to rise further when the December quarter cash reports start flooding in later this month.
The ASX Small Resources Index is now back to the same level it was a decade ago. And as commodity prices continue to fall, there seems even less prospect of many getting enough cash in the door to restart exploration programs. Mr Woskett believes this would have serious consequences for the nation.
“What most worries me is that we might be sitting here in 12 months time saying, ‘Gee I hope it gets better next year’,” he said.
“We said that last year, and the year before. It hasn’t got any better. And a lot of companies are really hurting. Investors are staying on the sidelines, sentiment is terrible,’’ Mr Woskett added.
“If things don’t turn around in the next 12 months we will inevitably see a real diminishing of intellectual capital as people leave the industry because there is no future. Projects will wither on the vine. And it won’t be good for Australia.’’
To retain a listing, a junior explorer requires at least $500,000 a year to pay its staff and a range of internal and external fees before it even starts a drill rig.
That includes the costs of running an annual general meeting, something Mr Woskett describes as another example of the regulatory “over-burden’’ gripping the industry, on top of what he calls approvals and native title “red tape”.
“If it was not for the fact that we have a very loyal shareholder base who like to hear what we are doing, we’d be like a lot of the others who have to go around and get their mates from other offices just to have a quorum at their AGM. That is farcical,’’ he said.
BDO corporate finance partner Dan Taylor said more junior explorers would be forced to sell tenements and look for backdoor listing opportunities over the next year, following the growing trend of tech companies backing into the shells of failed mining companies to allow them to raise funds from investors on the ASX.
Perth companies such as Prime Minerals, White Eagle Resources, Blackfire Minerals and Lithex Resources are all now focusing on the technology sector.
Last month, Red Gum Resources was renamed Australian Travel Group as it raised $3 million in fresh capital on the ASX.
In a study last year of 1980 junior companies in Australia, Canada and other markets, veteran minerals economist Richard Schodde, from MinEx Consulting, found that one in five Australian junior explorers had less than $200,000 in the bank.
But there was some good news — Canada was worse.
And Mr Schodde also claimed that despite the perils afflicting the industry, most junior companies would weather the current downturn. Some, he said, would even make money.
Mr Woskett noted that some had also been the beneficiaries of the focus by the major miners on production.
“The majors don’t do exploration. They really don’t. They have cut back massively on exploration, sacked people, sold off tenements that are non-core for nothing,’’ he said.
Last year, Cassini Resources, a tiny resources explorer, saw its shares soar 389 per cent after it acquired BHP Billiton’s West Musgrave project. Cassini paid just $250,000 upfront. The shares took off again in September when it revealed high-grade copper and nickel mineralisation at the site.
“You’ve got to wonder about the majors — why do they sell things at the bottom of the market and buy them for squillions at the top?’’ Mr Woskett asked.
The BDO survey also found that 20 of the 831 junior explorers on the ASX successfully undertook capital raisings of more than $10m in the September quarter.
Late year, Minotaur itself successfully raised more cash through a share purchase plan from investors — which include Russian nickel heavy-hitter Norilsk, OZ Minerals and Newmont. It now has $7.5m in the bank, plus $5.3m from its powerhouse joint venture partners. They are the Japan Oil, Gas and Metals National Corporation, Sumitomo Metals Mining Oceania and Sandfire Resources.
Mr Woskett has long believed in attracting joint venture partners rather than trying to explore solo. A former managing director of Ballarat Gold Fields, he became CEO of Minotaur in February 2010 and has since moved the company out of its South Australian base into WA’s proven nickel-gold provinces around Laverton.
But its most exciting moves have been into copper in Queensland around the producing Eloise copper mine near Cloncurry.
In late July last year Minotaur made the very high-grade Artemis copper discovery just to the west of Eloise that sent its share price up 105 per cent in a single day’s trading. The discovery won the company the Queensland Explorer of the Year Award in 2014.
Mr Woskett was cautious on talking up Artemis.
“It is very much a work in progress. It is very early days,’’ he said, before noting dryly: “Putting out good results in an environment like this is actually not very rewarding.”
During his tenure the Minotaur share price has been stuck within a range of 8c-30c. News of the Artemis find in July sent it soaring to the 28c mark it was four years earlier, but since then the shares have halved to be back around 14c.
But Mr Woskett was quick to note they had outperformed the ASX Small Resources Index over the same period. The company’s losses narrowed last year to $2.6m, from $3.1m a year earlier.
“We have some very good prospects,” he said. “We have extremely good tenements where there is high prospectively and the intellectual capacity to take advantage of that. We also manage our cash very carefully.’’
And despite the doom and gloom in the industry, he would not dream of doing anything else.
“I like building things, I like creating things,” he said. “Discovery is a good thing to do and it is nice to convert it into something tangible and workable.
“It is a fun industry.”
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