The Impact Deleveraging Will Have on the Mining Sector

Benjamin Cox |

Benjamin discusses deleveraging by comparing and contrasting past and current applications. In past recessions, companies deleveraged assets by issuing dilute of stock to the parent company’s balance sheet. In this recession, Private Equity is willing to take the leverage and the sub-prime assets off of the majors’ balance sheets.



Benjamin questions whether the majors are “throwing the baby out with the bathwater” when they do this. You rarely need to go to a financial intermediary unless the deleveraging process is not material to the major, but if an asset is worth over 2-3% of their market cap, then they should be returning that value to their shareholders. Benjamin references a company back in the 1980s that was able to create more value by spinning out assets into new companies than the parent company ever had.

Shareholders should demand that the majors do this over just giving assets to a PE fund. Benjamin finishes by pointing out that, while the value of assets are down during this recession, it is better in the long run to return those undervalued assets to shareholders; he argues that this is preferable even over what cash value you would receive by giving it to a PE fund, because once the market returns, those assets will as well.

 

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
HMTLF Hitachi Metals Ltd. 14.16 0.00 0.00 0

Comments

Emerging Growth

MGX Minerals Inc.

MGX Minerals is a diversified Canadian mining company listed on the Canadian Securities Exchange. MGX is engaged in the acquisition and development of industrial mineral deposits in western Canada that…

Private Markets

WayBetter

The spark hit Jamie when he saw co-workers competing to lose weight. Instead of pizzas and subs, they were eating salads and jogging along the river. Some were sneakily leaving…

Santo Diablo Mezcal

Santo Diablo Mezcal has been created to capitalize on a boom sector of the beverage market currently full of many small unmemorable products by producing one sexy, household, easily recognizable…