Investors need to be wary of companies with weak balance sheets and/or overextended exploration and development programs that may require external funding over the next three to nine months, writes Canaccord Wealth Management in its Morning Coffee newsletter.
On the other hand, for those companies that are generating cash flow and possess strong balance sheets, markets such as this one can provide opportunities to add new projects and growth through acquisition.
In keeping with that thought, Canaccord has compiled a list of companies that fit the following parameters:
- TSX or TSX Venture Exchange-listed, mining/exploration focused, with a market cap of between $20 million and $1 billion.
- Working capital in excess of $30 million.
- Working capital minus long term debt/ market cap is greater than 20%.
Here are the top five names on the Canaccord list:
Kobex Minerals Inc. (TSX: V.KXM, Stock Forum), which has $38.1 million in working capital. Trading at 56 cents this week, Kobex has a market cap of $25.8 million, based on 46 million shares outstanding.
PNG Gold Corp. (TSX: V.PGK, Stock Forum), which has $30.65 million in working capital. Trading at 17.5 cents this week, PNG has a market cap of $23.4 million, based on 134 million shares outstanding.
Monument Mining Ltd. (TSX: V.MMY, Stock Forum), which has $80.9 million of working capital. Trading at 40 cents this week, Monument has a market cap of $73.7 million, based on 184.4 million shares outstanding.
Ryan Gold Corp. (TSX: V.RYG, Stock Forum), which has $45.3 million of working capital. Trading at 38 cents, Ryan Gold has a market cap of $44.3 million, based on 116.6 million shares outstanding.
Keegan Resources Inc. (TSX: T.KGN, Stock Forum), which has $203.58 million in working capital. Trading at $2.99 this week, Keegan has a market cap of $225.8 million, based on 75.5 million shares outstanding.
In its May 8 report, Canaccord says sourcing new funding in this environment can come at an onerous cost. Unfortunately, this creates an opportunity for favourable merger and acquisitions (M&A) [activity] for companies that generate cash flow or that possess robust balance sheets,’’ the report says.
In an environment like this, juniors need to be cognizant of the need to manage their capital conservatively. Financing windows have been brief. The equity offerings that have been completed have come with increased costs, such as greater share dilution than would have been expected only 12 months ago.
It is why in this environment, Canaccord says investors become much more wary of cash positions and burn rates for the juniors.
For more details, here is a link to Canaccord’s May 9, 2012 Morning Coffee newsletter.