* Some smaller Australian miners are running out of cash
* As funding options close, firms seek new ways to stay in
* Gold miners hardest hit due to bullion's price plunge
* Executive pay cuts, cheaper rents among ways to cut costs
By James Regan
SYDNEY, May 31 From pooling office space to
paying bills with company stock, small and mid-sized Australian
miners are finding new ways to stay afloat during one of the
sector's worst downturns.
China's slowdown has helped cool a decade-long commodities
boom that pushed gold, copper, iron ore and coal prices to
record highs, leaving Australian miners facing a painful
transition to lower margins and weak investment interest.
Only a year ago, with miners flush with cash and desperate
to retain staff, six-figure salaries and executive-style perks
for everyone from truck drivers to kitchen help were
Now, with traditional funding drying up, smaller miners are
devising novel ways to keep from going broke.
Unable to pay bills in cash, some are offering drill rig
operators, caterers and even public relations firms company
stock to keep them on the job - acts of desperation last seen at
the height of the 2008-2009 financial crisis.
"When this happens, the shares are often just dumped on the
market, which destroys the share price," said Peter Strachan of
Stock Analysis, an Australian research company focused on
Gold miners have been among the hardest hit and if
conditions persist Australia's ranking as the world's
second-biggest producer after China could be under threat.
A consultant said he was offered stock by a gold miner which
only a year ago was making plenty of money.
"The miner said it was the only way to keep some cash in the
bank and pay for ongoing services at the mine and the head
office," added the consultant, who rebuffed the offer
TOUGH TIMES, TOUGH MEASURES
Some miners have managed to raise money via heavily
discounted share offerings, which may buy time but threaten to
leave them in worse shape once the money is spent.
Gold miner Crest Minerals last week launched a
rights issue at half the average share price of the past 30 days
to raise A$2.2 million for exploration work.
"The equity and debt markets have essentially closed and we
are advising clients to explore every other means possible for
capital until this market turns," said Darren Weaver, a partner
with Australia's biggest corporate receiver Ferrier Hodgson.
To cut overheads in the once-booming mining city of Perth,
junior miners are sharing office space, slashing executive wages
and teaming up with private equity investors, one of the few
sources for capital still open.
"Private equity will typically wait until they think the
market is at the bottom and only then come in," said RBC Capital
Markets analyst Rob Sennitt.
Until now, small miners have relied largely on equity
markets to fund mines or exploration to locate new deposits,
with over 400 new junior resource floats in the last five years.
But 75 percent of Australian mining IPOs since 2008 are
trading below their issue price and investors have lost on
average 30 percent of their money in mining IPOs over the
period, according to data from the trade group Australia Mining.
IPOs in 2010 and 2011 are trading more than 50 percent below
their listing price.
Celsius Coal obtained $10 million from private
equity firm Blumont Group Ltd in Singapore in February via a
share and convertible notes placement to further plans to mine
steel making-grade coal in the Kyrgyz Republic.
"They just ask how much money you need. If they like the
project: done," said Celsius Managing Director Alex Molyeneux.
Not everyone is so lucky.
After a heavily discounted A$65 million rights issue in
February to address debt, Tanami Gold was forced to
idle its only operating mine following last month's 7.6 percent
fall in the gold price.
Another outback gold miner, Saracen Minerals, has
cut the fees it pays three non-executive directors by 20
percent, suspended work on a new mine, halved its truck fleet
and promised a review of the managing director's salary.
EXPLORATION AND MINING SERVICES
"Good project or bad project, it doesn't matter, there's no
money out there, things just keep getting worse," said Ross
Smyth-Kirk, chairman of Kingsgate Consolidated, which
mines gold in Thailand and Australia and is exploring in Chile.
Smyth-Kirk, who has watched his firm's shares slump to as
low as $1.43 from above A$5 in the past year, is now considering
a stock listing of Kingsgate's Thai subsidiary Akara Mining Ltd
on the Thai stock exchange to boost liquidity.
Companies supplying services at mine sites and front offices
are also feeling the pinch.
Many Perth-based mining consultants and other support
services are now operating on four-day weeks, according to
Strachan of Stock Analysis
Graeme Hunt, chief executive of Transfield Services
, said the service firm's 20 to 30 drilling rigs used
for mining exploration have gone from 80 percent utilisation to
under 10 percent.
"There are a growing number of companies that don't have any
other choice but to hibernate until this storm passes," said
Keith Goode, director of Eagle Mining Research.
Some miners are simply offering themselves to the highest
Copper miner Discovery Metals Ltd put itself up for
sale after failing to push through a capital raising. Its
largest shareholder, Chinese private equity firm Cathay Fortune,
is now willing to pay A$0.35-A$0.40 a share for the company, a
fraction of the A$1.70 a share offer it made in November.
(Additional reporting by Rebekah Kebede in Perth; Editing by Ed