56 small cap mining stocks are suspended – why, and do they have a future?
The ASX has the power to suspend stocks from trading, meaning trading cannot take place until the suspension is lifted. Suspensions can either occur at the company’s behest or the ASX’s.
Stockhead analysis has found 56 small cap mining stocks are suspended from trading, several of which have been out of action for many months. Why are they suspended and is there any hope for them?
The most common reasons companies get suspended are:
This is the most common reason, with 26 companies being suspended at least partly because of their financial condition.
Companies must release quarterly cash flow statements and annual reports. The ASX can suspend a company if its cash flow is inadequate or if it does not lodge such documents to prove its cash flow. They may query the company first and the company’s response will be released as an announcement, along with the initial letter.
The ASX will commonly ask:
In asking these questions the ASX will commonly allude to the most recent quarterly and potentially other announcements. While the company will always seek to talk up their long term future, it is easier to be confident when they recently raised capital.
It is not uncommon to see suspended companies having literally no revenue at all. However, such companies will only be operating in an administrative capacity.
In mining companies, this occurs when a company has no projects and is looking for new opportunities or seeking recapitalisation.
Only 14 of the 55 on Stockhead’s list are not proactively seeking new opportunities in some form. Some may be in long term talks, others may have been in talks but had them fail and are searching for others.
New opportunities may not necessarily be in mining. Some suspended companies want to enter new industries altogether from milk manufacturing (Longreach Oil (ASX: LGO)) to legal services (Navigator Resources (ASX: NAV)).
Even when an opportunity has been found, making it happen is no easy feat. Austsino (ASX: ANS) and Sundance Resources (ASX: SDL) were both voluntarily suspended in the first week of September.
After extending their suspension several times over the next three weeks, AustSino agreed to acquire Sundance for $58 million and anticipated it would take four months. Now they predict it will be complete by March 31.
They have also had difficulty in chasing money from Chinese investor, Guan Min Jie, who having agreed to invest $3 million last August has not paid and until 15 March to cough up the rest.
Whoever’s call the suspension is, it’s anyone’s guess when it will be lifted. Although the ASX will may say, “the suspension will continue until [the Company] is able to demonstrate compliance with Listing Rule 12.1”, it can take a while for the ASX & the company to see eye to eye.
The three most common ways to run foul of the ASX are failing to lodge documents, failing to pay listing fees or failing to respond to ASX queries (either adequately or at all).
Just because a company is suspended, it does not mean it has broken ASX Listing Rules or other regulations. The ASX may have suspicions and question their financial state or conduct.
Sometimes misconduct, or at least allegations of it, can emerge from company responses to queries.
Hardey Resources (ASX: HDY) was suspended after making two acquisitions and giving securities (equating to nearly half the company) without transparency.
The purchasers were just vaguely listed as ‘NV/VM Vendors’, the codes after the projects’ names. Several to and fro letters failed to convince the ASX that the conduct was acceptable and the ASX has been seeking to delist them.
ASX listing fees range from $26,376 to $61,729 for small cap companies.
New companies have to cough up entry fees as well. Eight companies on Stockhead’s list failed to pay listing fees and this is easy to tell.
The ASX released a ‘name and shame list’ after the deadline in August last year – many of which were suspended already.
Arguably though if they lack money to pay these fees (miniscule compared to the costs of mining), they should not be listed anyway.
Companies can also be suspended for breaches of other regulations particularly the JORC Code and the Corporations Act. It will not end well for the company when it is exposed from the outside and worse still when the company live ins denial.
The ASX will sometimes delist companies within a matter of months but other times it can take up to 3 years – which is the deadline when they usually will be removed. Of Stockhead’s list, only Sinovus Mining (ASX: SNV) is facing the axe very soon, having first been suspended back on February 25 2016.
It’s fair to say that the longer time goes on without a resolution, the less hope there is for shareholders.
Unfortunately, once a stock is suspended you are ‘trapped’ in your holdings. What can you do to avoid getting caught out?
It should go without saying – keep an eye on your shareholdings. Check their annual reports and their quarterlies and consider acting when things are starting to look suspicious.
And if you see the ASX & the company at polar opposite perspectives… well, you have been warned.
This is not to say companies cannot be turned around – they can. But it is more difficult for mining companies with high capital costs and difficulty in transitioning, because they may have to use new equipment or take up more promising projects.
How much hope there is for those in these companies that are suspended will depend on their status. If they have a clear opportunity on the table, there is hope. If they are in administration or are just ‘reviewing opportunities’, relief for shareholders will be a long time coming.
This is not intended to be legal or financial advice and does not take into account your personal circumstances. The labels attributed under ‘reason’ may not be the only factors the ASX took to suspend them or the company took to suspend themselves.