Why Capital Structure of Mining Companies Matters

Source: Seeking Alpha, Daniel Moser (2/13/09)

". . .not all mining companies are created equally."

Mining companies represent a compelling opportunity for investors with very long time horizons. Everything I have written about so far has been centered on this point. However, not all mining companies are created equally. Some companies didn't manage themselves financially as well as others throughout the gangbuster times and are now facing harder times relative to their peers. If you are considering investing in the mining industry, it is a very good idea to consider how the company of interest has been managing its finances over the last several years.

Last year should have made just about every CFO in the world take out their old text books to review the Modigliani-Miller theorem in order to review proper capital structures. Most business models that relied extensively on debt financing were destroyed in 2008, and those not officially destroyed in 2008 are going to be struggling for the foreseeable future. I am not sure that debt-driven business models will ever come back, let alone come back in the next 10-15 years.

In an article by The Economist titled "Digging Deep" published on Feb 5th, the author points out that several mining companies are rushing to raise equity. According to the article, the firms together are aiming to raise as much as 17 billion dollars, which will result in "lopping a fair chunk from their combined net debt of $62 billion dollars."

Not all companies are in the predicament of raising equity to pay down debt. Even though I am a long-term buyer of this sector, I do not believe all companies are created equally. Thus, I believe investors need to use a fine tooth comb in their examination of how these companies have conducted themselves in the good times, as well as bad.

Align Technology Shares Grind 12.5% Higher after Firm Posts Record Q4 Revenue of $834.5 Million
Source: Streetwise Reports (02/04/2021)

Align Technology shares set a new 52-week high after the company announced financial results that included record FY/20 total revenues of $2.5 billion.

Small-Cap Psychedelic Wellness Company Makes First Acquisition: Ketamine Infusion Centers
Source: Streetwise Reports (02/04/2021)

DELIC aims to become a leader in psychedelic health and wellness clinics.

GW Pharmaceuticals Shares Gain 46% on $7.2 Billion Acquisition by Jazz Pharmaceuticals
Source: Streetwise Reports (02/03/2021)

Shares of GW Pharmaceuticals reached a new 52-week high after the company reported it agreed to be acquired by Jazz Pharmaceuticals in a combination cash and stock deal for $220.00 per share.

Shares of Cassava Sciences traded 207% higher after the firm provided an interim analysis from an ongoing study demonstrating that simufilam improves cognition and behavior in mild-to-moderate Alzheimer's disease patients.

Viela Bio Shares Rise 52% on $3.05 Billion Buyout by Horizon Therapeutics
Source: Streetwise Reports (02/01/2021)

Shares of Viela Bio traded higher after it was announced that the company entered into a definitive agreement to be acquired by Horizon Therapeutics for $53.00 per share.

Algernon Pharmaceuticals, a clinical stage pharmaceutical development company, announced that it has established a clinical research program for the treatment of stroke focused on AP-188 (DMT), a known psychedelic compound. Algernon plans to be the first company globally to pursue DMT for stroke in humans and is planning to begin a clinical trial as soon as possible in 2021.

Novavax Shares Shoot 65% Higher on Phase 3 COVID-19 Vaccine Trial's 89.3% Effectiveness
Source: Streetwise Reports (01/29/2021)

Novavax Inc. shares established a new 52-week high after the firm's COVID-19 vaccine demonstrated an 89.3% efficacy rate in a Phase 3 trial in the U.K. and also showed efficacy against the South African variant in a Phase 2b trial.

Abiomed Shares Gain 8% After Firm Announces Record Q3 Revenue of $232 Million
Source: Streetwise Reports (01/28/2021)

Shares of cardiac medical device maker Abiomed Inc. traded higher after the company reported record revenue for Q3/21 despite the impact from COVID-19.

Sorrento Shares Rise 35% After Firm Posts Positive Data from Phase 1b ICU COVID-19 Trial
Source: Streetwise Reports (01/27/2021)

Shares of Sorrento Therapeutics traded higher after the company released positive preliminary results from it of Phase 1b COVI-MSC™ Study for treatment of hospitalized ICU COVID-19 patients.

Junior Mining Sector 'the Best Value in the Space'
Source: Streetwise Reports (01/27/2021)

The StreetSmart Live! Broadcast on Jan. 26, 2021, focused on metals and why now is a good time for investors to be looking at them and the mining space. John Newell, independent analyst and portfolio manager, and John Feneck, mining sector expert and president of Feneck Consulting, addressed the status of the current metals market. CEOs of the three metals-focused companies comprising the Metallic Group of Companies—Group Ten Metals, Metallic Minerals and Granite Creek Copper—discussed their projects.