The majority of mining companies that enter administration have strong prospects of coming out the other side if they make the move to right the ship early.
Richard Tucker, a mining industry restructuring professional and partner at KordaMentha, tells Mining.com.au around 99% of mining companies that KordaMentha assists will come out of administration.
“The thing you have to be cognisant of, whether we’re administrators or receivers or restructuring advisors before that, there’s one thing that’s for sure is there is an outcome, and we are for sale, in particular for administrators and receivers,” he explains to this news service.
“A lot of people go, ‘well administration, receivership, it’s going to get a really bottom dollar’. The one thing it does do is it flushes out interest.
“Obviously, some people say, ‘well yeah, but it attracts a distressed discount’. I would say the counter to that is if someone was looking at that company pre-insolvency, they’d know the company’s distressed anyway. It’s not particularly difficult to look at the finances.
“But because of the complexity associated with transfer in mining approvals or tenements and ministerial approvals, it’s highly likely that the transaction would be effectuated by a deed of company arrangement.”
A deed of company arrangement (DOCA) is an agreement between the company and its creditors aimed at keeping the business operating and providing a better return for creditors than immediately winding up the company.
The key to emerging from administration is to make the call early, according to Tucker, who pointed to the successful restructuring of gold miner Gascoyne Resources, now known as Spartan Resources (ASX:SPR).
“We were their restructuring advisor, which is a solvent deal,” Tucker told attendees at a gathering in West Perth on Wednesday (20 November).
“That is the poster child for how well it can go. We ultimately restructured that business, recapped it at $0.10, and two years later it’s $1.30.
“Don’t be afraid to engage early and talk about the difficulties as opposed to putting your head in the sand.”
Tucker said Gascoyne made the “hard decisions early”.
“There, the MD stood up to the board and said: ‘we’re putting Dalgaranga on care and maintenance. It’s too variable. It’s too difficult. We need to put it on care and maintenance because it can vary from quarter to quarter. We’ve got limited cash’,” he explained.
“Doing that triggered about $100 million in liabilities. Without going into all the detail behind the scenes, we said ‘we think we can negotiate a solvent outcome because we’ve got time, because we’ve got optionality, because we’ve got runway, because you engaged early’.
“In the end, we settled those claims for, I won’t go into the exact numbers, but for cents on the dollar and some equity carried, and it’s been a tremendous outcome.”
In July, the Australian Securities and Investments Commission released data that showed restructuring appointments ballooned by more than 300% in 2023–24 compared to 2022–23 representing almost 13% of all external administrations.
More than 11,000 companies entered external administration for the first time in 2023-24.
The top three industries – construction (27%), accommodation and food services (15%) and other services (9.3%) represented over half of total external administrations.
The mining sector has also faced its fair share of administrations in the past year, the most recent being True North Copper (ASX:TNC).
KordaMentha is also acting as administrators for True North and recently announced a DOCA to recapitalise the company, which was unanimously accepted by creditors at the second creditors’ meeting on 18 November 2024.
Administrations in the mining sector are on the rise, particularly as the year comes to a close.
“I would say we’ve been consistently busy. I think this time of year is also a really busy time,” Tucker tells this news service.
Meanwhile, Ben Gibson, head of advisory for auction house Pickles, says the increase is evident in the formal notices.
“There was a bit of a hiatus during the Covid period, there obviously wasn’t as many,” Gibson tells Mining.com.au.
“So we’re returning back to more normal levels, and there’s probably a little bit of catch up to be done in that space to some degree.”
Pickles was enlisted previously by receivers and managers McGrathNicol to auction a range of equipment from Kalium Lakes’ Beyondie Sulphate of Potash Project following the miner’s collapse.
The assets that went to auction included generators, fuel tanks, solar control panels, mobile mining equipment and camp accommodation.
Write to Angela East at Mining.com.au
Images: Spartan Resources
