It remains a tough environment for the mining sector with falling commodity prices and weak public markets impacting cash flows of operating companies and the capacity of emerging companies to progress development of projects. Having been involved with the mining sector for more than three decades, the current cycle, while painful for some at this time, is not unique. As a patient investor, we take a long term approach to the market and know that cycles come and go, so we certainly expect to see the sector recover at some point. We are actively supporting portfolio companies, both to maintain intact ownership and tenure of assets for the benefit of all shareholders, in addition to our core role of funding companies to develop assets and achieve cash flow as soon as practicable, even in this difficult financing environment.
Studies undertaken by RCF show that value is created by achieving cash flow and demonstrating the availability of construction financing. These studies have demonstrated over the past 3-4 years that the share price of companies 90 days after announcing a positive study have a high probability of falling more than 20%, likely in response to the gap between capital requirement and funding capacity.
We can’t say how long it will be before the sector sees a recovery but it will eventuate at some point as the natural process of attrition kicks in in an oversupplied market. Some commodities that experienced price falls several years ago are already seeing tentative signs of recovery. In the meantime, we will continue to support good quality assets and management teams and partner with them to progress the development and construction of projects to operating outcomes that will deliver benefits to all shareholders. For good assets it is highly dilutive to existing shareholders to fund piecemeal development work over many years that does not meaningfully contribute to achievement of cash flow. It is best to take a fully funded approach to project development.
This quarter, we’ve provided a new series of ‘In Focus’ and ‘Case Study’ material about a portfolio company with plenty in the pipeline. RCF initially invested in Wolf Minerals several years ago to enable the company to complete initial feasibility studies for its tungsten development in the United Kingdom. It is now well into the construction phase and on schedule to commence production in the September quarter of this year.
We will be watching mining industry trends around the world closely and look forward to bringing more news and updates over the coming months.