Eighty-four per cent of the 700 ASX-listed mining companies are in a state of 'marginal or distressed' financial health, according to Lincoln.
Lincoln chief executive Elio D’Amato said the key to identifying mining companies capable of “riding out any bumps” is to look for companies with strong operating fundamentals.
Lincoln believes that of those 700 companies, only four display the right characteristics: BC Iron, Sandfire Resources NL, Blackgold International Holdings and Mineral Resources Limited.
“BC Iron is a stock that we’ve covered for the last two years and it’s a great example of a company that is able to weather the storm, managing to perform well despite operating in a weaker iron ore price environment,” said Mr D’Amato.
“It is able to do this by keeping operations simple and running its core project at Nullagine leanly.”
Mr D’Amato said that overall, he expects the mining company reports in April to be weak.
Lincoln examined the accounting ratios of all mining companies listed on the ASX, including each stock’s profitability, cash flow, liabilities and assets, and discovered only eight per cent of all companies had a rating of either strong or satisfactory for their financial health.
This is due to a combination of factors including poor weather conditions in Western Australia, which has affected operations over the last few months and led to port closures, and concerns about industrial action at those ports,” said Mr D’Amato.
“We also expect that weaker manufacturing data from China and its consequential adverse impact on commodity prices will weigh on results.”
Mr D’Amato said quarterly mining reports provide a useful tool in monitoring a company’s operational progress.
“Our advice to investors is to be careful and don’t jump the gun; see what results come out and then react after that,” he said.
