Australia: The shine goes out of gold. Sex and drink are better businesses...
Financial Times, July 13
Junior producers face tough future, writes Stephen Wyatt
Junior gold producers and explorers in Australia have
been hammered by the recent collapse in the price of
gold to 20-year lows and the firmer Australian dollar.
The explorers have been hit especially hard and at
current prices their future appears dismal. "Junior
exploration companies reported a rapid deterioration in
exploration expenditure and financial health," said Mike
Chester, gold analyst at Salomon Smith Barney.
Of the 268 junior listed companies - defined as explorers
and producers outside the top 45 past and present
senior producers - 126 had cash reserves of less than
A$500,000 (US$333,000) as at March 31.
"The main problem for the juniors is the difficulty in
funding. Raising equity capital is impossible these days
and debt raisings are hard with the gold price falling,"
said Paul Gooday, gold analyst with AME Mineral
Economics in Sydney.
Tom Mann, director of Mogul Mining, an Australian
explorer in Mexico which has acquired Ewines, a wine
internet site, said: "You can raise equity for an internet
business these days, but if you say 'gold' you get
nothing."
At least 24 gold companies have now converted into
internet or technology stocks. One group, Perth-based
Western Minerals, has transformed itself into
Adultshop.com in a joint venture with Barbarella, an
operator of adult shops in Perth, Melbourne and New
Zealand.
For the juniors, it seems sex and drink are better
businesses than gold these days. Nick Limb, managing
director of New Hampton Goldfields, said: "The people I
feel sorry for are those that have spent the money,
worked hard and have good prospects. But, suddenly,
they have nowhere to go. They cannot get funding."
Historically, the Australian gold industry has been funded
by equity capital, but now it is funded by debt
underwritten by forward sales. These facilities, however,
are not available to smaller mining companies and that is
why some are going ".com", says Chris Lalor, executive
director of gold producer Sons of Gwalia.
He sees the Australian gold industry as split between
those producing above 400,000 ounces, which are in
reasonable shape, and those producing less.
Smaller miners are also hit by the fact that institutions
are index followers and the gold sector has collapsed as
a percentage of the Australian equities market, says
Michael Silver, director of Dome Resources, an
Australian-based gold and silver producer in Papua New
Guinea.
The gold sector market capitalisation has fallen from 6
per cent of the Australian all-ordinaries index to less than
1.5 per cent today. As a result, Australian gold sector
equity raisings have collapsed from more than A$1,400m
in 1994 to just over A$400m in 1998, while in the first
quarter of this year, placements and rights issues
totalled only A$33m.
Not surprisingly, Australian gold exploration expenditure
has also tumbled. It is estimated by Salomon Smith
Barney to fall to about A$450m this calendar year, 38
per cent down on 1997 levels. Only 30 of the 268 listed
junior gold companies spent in excess of A$500,000 in
the March quarter and total exploration expenditure of
the juniors fell to A$56m, down from A$71m in the
December quarter.
However, all of this does not mean that Australian gold
production is about to collapse. Output will eventually
fall, but not for a number of years.
According to Mr Lalor, Australian gold production will
hold at around the 300-tonne mark during the next five
years. This is primarily because Australian gold
producers have hedged against the gold price collapse
and sold forward more than four years' production, when
prices were over A$600 an ounce. |
