Miners have successfully protected their employees, communities and business ventures from the global downturn and many are operating undeterred whilst benefiting from buoyant commodity prices for certain minerals. However, “earnings season” is beginning to show its not all good news across the sector and a rocky road lies ahead for some operators in FY21.
Although the mining industry has emerged more resilient than other industries due to strong prices for Australia’s top commodities (e.g. iron ore and gold), miners of coal and industrial metals have not faired as well. With Whitehaven this past fortnight reporting a c.95% slump in profit due to a decline in the coal price and lower global energy demand, similar trends are expected from some of its peers.
Small cap miners too are at greater risk. Those with less robust balance sheets and reliant on undertaking exploration activities in the short term are likely to also encounter challenges with raising and securing capital as investors trend towards more secure mining ventures, all the while, trying to operationally resize their cost bases.
In a bid to help at-risk miners and contribute towards Australia’s economic recovery, the Minerals Council of Australia has lobbied the Federal Government for a lower mining corporate tax rate and faster approvals for mining projects. Whether this reform is successful is yet to be seen but in the interim, it is important that at-risk miners, their Directors and stakeholders track the early warning signs and lead indicators of financial stress, particularly as we edge towards the conclusion of the moratorium on insolvent trading (now 31 December).
Whilst trading losses, creditors unpaid beyond terms and limited cash reserves are obvious indicators, we set out below some further indicators to be monitored by companies or their stakeholders in this industry. Early action to address financial distress facilitates better planning, better outcomes and also helps Directors meet their legal duties.
Early warning signs