The mining and metals sector is in the midst of a general realignment. Like many mining companies today, Miners Association of the Philippines is examining its liquidity fundamentals to address short term risks of liquidity and financing. This downturn in commodity prices have forced companies to restructure their business strategies in order to stay alive in an economic environment which is becoming more difficult because commodity and resource companies must now factor in climate change and CO2 pricing into its operations.
Several mining companies have replaced their chief executives. Even global resources giant like Glencore Trading is not immune, selling off assets to stay afloat and cope with downward pressures and total write-downs in the industry.
According to BNP Paribas, “There was the price correction starting in late 2011 and a downtrend since then. Valuations collapsed for junior miners, and liquidity started to disappear for them – and for the mid-producers and big integrated companies also, general liquidity became a big issue as a result of lower prices, high cost structures, too much leverage and big capex plans. Capex plans and exploration budgets were the ‘casualties,’ as a lot of projects that had looked attractive during the upswing were not as attractive anymore and were shelved.”
Look at gold. At current gold prices, many gold companies will not be able to repay or refinance. The Russian gold giant, Randgold, has announced a tentative plan for an exchange offer for certain bondholders, to extend the maturity dates of their bonds to 2019 in return for an increase in the coupon from 4 per cent to 7.5 percent, and to raise more cash from a proposed rights issue. The markets answered this call by marking down the company’s valuation to just £70 million – this share price drop means that Randgold has now lost around 95 per cent of its value over the past four years.
Miners Association of the Philippines appointed Mary Moylum as the legal officer tasked with the objective of achieving liquidity against its metal assets on deposit at JP Morgan Chase & Co, New York. Ms. Moylum, member of the international bar association, and former judge at the federal Immigration & Refugee Board, was appointed by Canada’s 20th Prime Minister Jean Chretien. She met with Eri Guzman, president of Paysoft International.
“One of the things I’ve been working on is to renegotiate the loan covenants of several investors. But that’s not enough because these investors are in their 70’s and want an exit in early 2016. In other words, these guys want to recoup their original loan investment and then some. But if the company doesn’t have the cash, then I have to find a creative solution to make a win-win for everyone concerned.”
Mining companies are now under tremendous pressure to make tough decisions and corporate adjustments just to survive. In Miners’ case, the president and its board of directors, including the lenders-investors would like all of their metal assets to be re-deposited in the Philippines and not JP Morgan Chase NewYork. This would give Miners a convenient way to restructure its balance sheet with the cooperation of the Philippines banks and its government. Right now it can’t do so. My job is to pull off a financial transformation and put liquidity into the hands of the company, while helping the unsecured shareholders recover their original investments and then some. I need to find a way for Miners’ to weather the bottom of this cycle, get cash to run its operations, pay off the lenders, investors and shareholders. Their solution to achieve liquidity against the company’s assets is to bring their gold home. Is their another solution?