Reviewing cash burn rates for junior potash firms
Photo: David Stobbe/Reuters
A pile of processed potash
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Peter Koven Sep 28, 2011 – 9:25 AM ET | Last Updated: Sep 28, 2011 9:26 AM ET
When market turmoil increases, it can be almost impossible for junior mining companies to raise any money (see 2008, for example). Given the uncertainty in the air today, Mackie Research analyst Jaret Anderson decided that this is a good opportunity to review the cash positions of junior potash companies and see who is best equipped to get through a bear market.
He found that Allana Potash Corp., Karnalyte Resources Inc. and Western Potash Corp. are in very solid shape, with cash balances of $55-million, $35-million and $25-million respectively.
Allana can maintain its current spending pattern for more than three years without needing an equity offering, Mr. Anderson wrote. Karnalyte has 11 months of liquidity at recent burn rates, and while Western Potash has only eight months of liquidity, its spending could decrease as it is close to publishing a pre-feasibility study
Mr. Anderson also identified two companies with weaker liquidity positions: Ethiopian Potash Corp. ($7-million) and Verde Potash PLC ($9-million). He wrote that Ethiopian’s liquidity should be watched carefully, as its cash reserves will likely need to be topped up within the next 10 months. And while Verde only has seven months of liquidity at current spending rates, he noted that the company successfully scaled back its burn rate during the financial crisis in 2008. Verde also has some non-potash assets that it could try and tap for cash if needed.
The final company Mr. Anderson looked at is Rio Verde Minerals Development Corp., a newly public company. While not much is known about its burn rate yet, he noted that drilling plans this year could consume more than half of the company’s $12.5 million of cash. However, Rio Verde could start to generate positive cash flow from a phosphate asset that is expected to enter production next year.
Posted in: Mining, Trading Desk Tags: Allana Potash, Cash, Ethiopian Potash, Karnalyte Resources, Mining, Potash, Rio Verde Minerals Development, Verde Potash, Western Potash
