Resource Companies Feel the Christmas Crunch

Australian resource companies are facing the risk of using up their cash reserves by December 2012. The crunch would equate to these companies resorting to selling their assets or raise funds to survive.

According to industry reports, cash reserves of the resources industry has been reduced by half in the last two years as it faces rationalization and consolidation. These companies include Paladin Energy, Alumina Limited, Lynas Corporation, and Gindalbie Metals.

According the industry sources, these companies may have to face the harsh truth that their finances would run out if they do not find long-term funding solutions.

The financial constraint would also extend to other resources aspirants who are planning to implement their first projects.

These include Flinders Mines, Toro Energy, and Bannerman Resources. According to data, these have less than a year’s cash in reserve.

According to Macquarie Bank, the cash as a percentage of resource sector’s total assets has dropped to six percent in 2012. In 2010, the percentage was at 12. Macquarie said the dip is because of a number of reasons: delays in government approvals, drop in commodity prices, and currency fluctuations.

In Lynas’ case, a community campaign has been launched to protest its rare-earths processing facility located in Malaysia. The backlash has delayed the issuance of its operating license.

Last year, Lynas used up as much as $100 million quarterly just to sustain operations. Analysts predict that its $205 million cash on hand might run out by December of this year.

Gindalbie, on the other hand, has been hit by the stronger dollar.