[miningmx.com] — JUNIOR MINING STOCKS endured some torrid trading sessions during the tail end of 2008, with a number of promising contenders seeing their share prices reduced to rubble as investors resorted to panic selling.
The temptation for punters, of course, is to sift through the debris to pick up counters that have perhaps been pushed too far down by irrational investment sentiment.
Though we could name a few choice selections, readers may be better served with a cautionary on which junior mining stocks not to take a flutter on in this new year.
While Kimberley Consolidated Mining (KCM) has seen its price fall from more than 100c/share when it listed in mid-2008 to levels of around 20c, Miningmx reckons punters need to remain aloof despite management’s efforts at restructuring to cope with a more difficult diamond market.
Basically, KCM’s selling point at listing was that it owned not only a promising exploration portfolio (most notably, the Carter Block) but also a mine (the Bo-Kaap mine on the Middle Orange River) that was capable of producing the cash flow necessary to fund exploratory activities.
Interim results to end-August 2008 certainly showed very little evidence that the much-mooted Bo-Kaap mine was capable of producing reassuring cash flows. In fact, interim figures showed KCM’s turnover of R37m never came close to covering operating costs of R58m.
Clearly, the cost-to-income ratio needs to be drastically altered lest KCM finds itself under enormous financial strain by its financial year-end. And increasing revenues won’t be easy with the diamond market flat.
With the interim cash flow negative (to the tune of R4m) and the opportunities for raising fresh capital (via a scrip for cash offer) extremely limited, you have to wonder how KCM will afford to embark on even limited exploration activity at the Carter Block.
At interim stage KCM’s current liabilities exceeded current assets by a hefty R14m, a situation that’s sent management scurrying to sell off non-core and redundant assets. It looks a desperate situation… a situation that doesn’t warrant speculative flurries at this delicate juncture.
* This story first appeared in Finweek, 15 January edition.
