Base metal miners may be ‘forced’ into dilutive equity issues

The plunge in commodity prices has forced many mining companies to market assets or metal streams to boost their liquidity. However their jobs are not even close to finished.

TD Securities analysts Greg Barnes and Craig Hutchison studied the liquidity of base metal miners and located when prices remain low, liquidity will end up “extremely tight” for a lot of of these by the end of 2017, otherwise sooner.

“We’re increasingly concerned that companies is going to be forced into equity issues at very low share prices to be able to support their balance sheets,” the analysts said inside a note.

Of course, miners will try to cut capital spending and sell more assets and streams before they consider dilutive equity offerings. However 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 have in all probability enough liquidity to get at no more 2017 at current commodity prices, but tend to encounter problems after that when they don’t take action.

“First Quantum also faces risks to its electricity supply in Zambia that may further delay the ramp-up of its new Sentinel copper mine,” the analysts said.