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Priced to go bust?

A glance at 100 global mining stocks that have lost 90% and more of their market value, plus a glance at patterns and lessons.

Author: Barry Sergeant
Posted: Wednesday , 18 Mar 2009

JOHANNESBURG -

Listed gold and silver stocks may rank as the world's best performing equity subsectors, relatively speaking, but some of their members are found in a selection of 100 mining stocks listed around the world that have lost 90% and more of their value. South African miner Pamodzi Gold, for instance, on Wednesday announced its latest plans in efforts to stave off an application for its provisional liquidation.

Wega Mining, which has lost 98% of its value, advertised itself as "proud to be developing African gold projects", and, it added, "has achieved the first steps in its goal to produce 500,000 ounces of gold a year". So much for that; the company recently announced plans to auction itself off.

At the other end of the scale, diamond stocks rank as the most stricken subsector in global mining, from a valuation viewpoint. A good number of their members can be found in the Bottom 100, ranging from BRC Diamondcore (about which there are no end of fascinating anecdotal stories about how various individuals have behaved) to Harry Winston, an established miner and one of the biggest (relatively) of listed diamond names, with a current market value of $120m.

Then there are the stricken base metal miners, ranging from Albidon, a would-be nickel digger that has basically shut down for now, to Century Aluminium, which has been battered by the bludgeoned aluminium price, the worst performing among base metals. Albidon has lost 99% of its market value; Century's has declined from $5.9bn to a mere $117m.

Then there is Katanga Mining, which sits on world class copper and cobalt assets in the Democratic Republic of the Congo. This story goes largely back to July 2006, when Nikanor listed in London and raised $380m in cash, and then $777m a year later. When Nikanor merged with Katanga Mining, early in 2008, $452m in cash was returned to Nikanor shareholders as part of the merger deal, which included Nikanor shareholders holding 60% of the merged entity.

Today, Katanga Mining is involved in desperate attempts to raise hundreds of millions of dollars in fresh cash. Katanga Mining's market value fell from highs around $2.6bn to a mere $4m, but has since recovered . . . to $67m. Other names down more than 90% and in the DRC mire include Camec, Anvil, and Metorex, which recently raised fresh capital by way of a hugely discounted rights issue, and expensive new debt, but has since said it will need more capital by the end of the year.

A huge lesson, however, has also come from the central African copperbelt that straddles the DRC and Zambia. First Quantum, which pioneered brownfields redevelopment in the region more than ten years ago, currently ranks as one of the world's best performing copper stocks. A significant factor in this outcome is good, old fashioned, great, management.

There is no real shortage of big stocks that have been ground down. Bumi Resources, an Indonesia-based coal and energy outfit, has seen its market value collapse from $18bn to less than $1bn. Other coal names that have lost more than 90% of value include Canada's Grande Cache, Russia's Raspadskaya, and the US's Patriot Coal.

There are some very big Russian miners that are more than 90% down, led by Evraz, which sports a market value of $3.6bn, but also holds net debt of $9.28bn, as of 30 June 2008. Russian miners developed something of a habit of drawing down big lines of domestic and foreign debt; Mechel has also lost more than 90% of its value. Unlisted Rusal, which has ranked itself as the world's No 1 aluminium producer, would likely also be down more than 90% if listed. Its debt on 30 June 2008 stood at $14.00bn.

Rusal recently won a standstill on half of its net debt, held by foreign banks.

But big debt is hardly exclusive to Russia. Teck, which operates in the Americas, has lost more than 90% of its market value mainly on its status as one of the world champions of mining debt, relative to its market value. The stock is worth just $2bn but holds net debt of $12.05bn. The numbers get bigger; Rio Tinto holds the highest-known net debt among miners, at $38.70bn, but investors appear to believe that the transnational mining group has a plan; the stock price is down by a modest 74%.