Surviving the bear market – a practical guide – by Simon Rees (MiningWeekly.com – June 19, 2013)

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TORONTO (miningweekly.com) – Few companies in the Canadian mining sector have had much to celebrate so far this year; the bear market lumbers on, while liquidity remains in the doldrums.

Compounding matters is the uncertainty surrounding metal prices, which has “turned investors risk averse, leading to a challenging market for capital access”, Ernst & Young said in its Canadian Mining Eye for the first quarter of this year.

The country’s junior mining sector is suffering particularly hard. In late May, at the Cambridge House Vancouver Resource Investor Conference, head of Kaiser Research Online (KRO), John Kaiser, noted that 740 companies of the 1 800 junior miners tracked by KRO currently had only $200 000 in reserve.

Unsurprisingly, many companies are now solely focused on keeping afloat, Norton Rose Fulbright partner Robert Mason told Mining Weekly Online in a recent interview. Mason represents issuers and underwriters on corporate finance transactions and mergers and acquisitions (M&A), specialising in the mining and natural resources sectors.

Mason outlined three core survival strategies, starting with expenditure cuts. “All noncore work should cease, while non-integral projects should be put on care and maintenance. Exploration can be cut too; only elements essential to a key project should continue. Anything you might label ‘wouldn’t it be nice’ can be got rid of,” he advised.

Companies should consider their service providers. “For example, some companies will now only consider hiring the cheapest drilling company, regardless of whether they have had a long-term relationship with another, more expensive provider,” he said.

Employee numbers are also worth scrutinising. “Companies should freeze any big hires and think about laying-off non-essential staff,” he said.

Those working with joint venture (JV) partners should also examine the other company’s fiscal health. “Careful consideration of a JV partner’s cash position is essential. If a JV partner suddenly has to withdraw, a company can be left facing 100% of a project’s bill,” he warned.

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