The plunge in commodity prices has forced many mining companies to sell assets or metal streams to boost their liquidity. But their work is far from finished.
TD Securities analysts Greg Barnes and Craig Hutchison studied the liquidity of base metal miners and found that if prices remain low, liquidity will become “extremely tight” for many of them by the end of 2017, if not sooner.
“We are increasingly concerned that companies will be forced into equity issues at very low share prices in order to support their balance sheets,” the analysts said in a note.
Of course, miners will try to cut capital spending and sell more assets and streams before they consider dilutive equity offerings. But the TD analysts said some of these measures will hurt their operating efficiency.
They downgraded shares of First Quantum Minerals Ltd. and HudBay Minerals Inc. to hold from buy. They said these two firms likely have enough liquidity to get to the end of 2017 at current commodity prices, but could run into problems after that if they don’t take action.
“First Quantum also faces risks to its electricity supply in Zambia that could further delay the ramp-up of its new Sentinel copper mine,” the analysts said.