Mining Indaba 2021

Solving the liquidity and credit crisis of quality small and medium-sized mining and mineral operations

With the deepening of the economic impact of the Covid-19 crisis and the full or partial lockdowns that have proliferated around the world, many commentators have begun to evaluate what postpandemic local and global economies will look like and who will survive the storm. We have already witnessed deep cuts to employment across the globe. Businesses that were strong 6 months ago are cutting back on production and delaying capital projects, and some are closing down.

Global stock markets have seen strong recoveries from the late March lows, and in that time, governments around the world have uniformly announced stimulus packages as life support to their shrinking economies. Whilst the intention behind these stimulus packages has been to inject liquidity into the real economy, including small and medium-sized businesses, the reality seems somewhat different.

If we are to draw any similarities between the current crisis and the financial crisis of 2008/9, then this moment may represent the continued decoupling of Main Street from Wall Street, with huge amounts of liquidity, in the form of very cheap capital, finding their way into large corporates and institutions while small businesses struggle on. The result is that large corporates have strong balance sheets, and, coupled with a lower-for-longer rate environment, stock markets will experience strong rallies with higher-than-ever multiples being achieved – all against the backdrop of a stumbling economy. Whilst governments and the banking system have stated the intent to feed this capital into Main Street, in practice this has proven to be harder to implement. As with many other sectors in our global economy, junior to mid-cap miners will continue to battle for access to the capital stimulus.

The real loss in all of this is that here are excellent small to medium-sized businesses that, at best, are unable to implement essential projects needed to ensure the long-term profitability and sustainability of their operations or, at worse, face collapse due to liquidity constraints. This is truer in the mining sector than in many other sectors because of the long lead times of capital projects in the industry, and in some cases the dynamic is even magnified, as these crises are accompanied by suppressed commodity prices. The longer the crisis continues, and the longer these small and medium-sized businesses go without a liquidity event, the starker will be the increase in insolvencies. And herein lies one of the great opportunities to emerge from the pandemic – solving the liquidity and credit crisis of quality small and medium-sized mining and mineral operations.

At Acrux Resources, we have positioned our businesses to offer our partners enhanced returns within a reduced risk profile. We understand that the liquidity and capital needs of individual mining businesses will vary, and, as such, bespoke solutions will be required. We listen to each business’s problem and provide the solution that best meets its needs: be that debt, equity or even fully funded operational efficiency solutions. We are ready to solve problems for excellent assets run by competent operational teams. And when the commodity price environment recovers, these businesses will again fly.

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By: Sean Browne, Acrux Resources