Firm releases top 100 mining report in time for PDAC, industry's largest
TORONTO, Feb. 27 /CNW/ - The mood at this year's annual Prospectors &
Developers Association of Canada (PDAC) convention is expected to be much
different than last year, when the mining and metals' industry was flush with
cash, riding a wave of strong commodity prices and talking about mega mergers.
A new Ernst & Young paper outlines the deep impact the global credit crisis
has had on the Toronto Stock Exchange's (TSX's) top 100 public mining
companies by market capitalization.
In Survive, then thrive, Ernst & Young examines the size and scale of the
companies, and their commodities, financial health and future prospects. Some
of the numbers tell a sobering tale:
- Of the top 100 companies on the TSX, 92 saw their share price fall
between July 2008 and January 2009, leaving many vulnerable to a
takeover bid from those with access to cash.
- After three years of sustained growth, market cap of the top 100
mining companies in Canada fell starkly in 2008. The number of
companies with a market cap of more than $1 billion fell to 23 in
January 2009 from 42 in July 2008.
- In mid-January 2009, 28 of the top 100 on the TSX had less than $25
million in the bank. A number of companies below this threshold have
high-value projects to run and will be looking for either a cash-
rich partner or ways to cut costs.
- The majority of Toronto's IPOs in 2008 were by small, early-stage
exploration companies raising relatively low amounts of capital.
"But the news isn't all bad," says Tom Whelan, leader of Ernst & Young's
national mining practice. "There are ways for companies to significantly
increase their chances of recovery and future success. We're telling clients
to 'survive, then thrive,' meaning focus on getting through the current
challenges in order to come out stronger and better-positioned to thrive in
the long run."
Whelan outlines some key strategies for survival:
- For cash-poor companies, the focus should be on reducing costs,
reducing or delaying capital expenditures, and assessing short- and
long-term liquidity before any problems arise.
- Analyzing working capital early can help to free up cash and
significantly improve sustainability.
- Companies with healthy cash balances or access to funding can gain
ground by preparing for the eventual recovery of the sector. The
current low asset prices may present an opportune time to back high-
potential juniors, build portfolios and diversify.
- Even for companies that are in good shape, the stumbling or failure
of a critical supplier could do significant harm to the business.
Performing some due diligence in this regard may prevent surprises
down the road.
- Now is also a good time to focus on retaining and upgrading the
skills of quality personnel, and on the best prospects for
About Ernst & Young
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