Financing Issues and Consequences

By: Ian Campbell | Tue, Aug 21, 2012
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Why read: Because mining exploration and development can be interesting to traders and investors, but those companies have no internally generated cash flow and must rely on continual new equity injections.

Commentary: If you participate, particularly as an investor, in mining exploration and development companies, you ought to read the article referenced in this commentary, and assess very carefully:

When you do that, make certain that you understand what is being communicated by the website or other data you are taking that information from. Most, if not all, financial data providers show only the balance sheet amounts (cash on hand, short-term securities, and interest bearing debt that each company holds at its most recently reported quarter-end. That typically means that neither:

Over the past three months many people who ought to know have told me how difficult it has been and is for junior explorers and developers to raise new equity. Moreover, where companies have been successful in raising new equity, more likely than not it has been more dilutive to existing shareholders than it would have been at the beginning of 2012.

Because of ongoing sovereign debt and in some cases bank problems, combined with financial markets volatility and general uncertainty, if anything financing for mining exploration and development companies is likely to get worse before it gets better. There are clear short-term and long-term consequences of this:

Topical Reference: Miners forced to get creative as traditional financing sources dry up, from The Financial Post, July 24, 2012 - reading time 3 minutes, thinking time longer.



Ian Campbell

Author: Ian Campbell

Ian R. Campbell, FCA, FCBV
Business Transition Simplified

Through his website and his Business Transition & Valuation Review newsletter Ian R. Campbell shares his perspectives on business transition, business valuation and world economic and financial markets influences on those two topics. A recognized business valuation and transition authority, he founded Toronto based Campbell Valuation Partners Limited (1976). He currently is working to bring his business valuation and transition experience to both business owners and their advisors in our new economic, business and financial markets normal.

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