Jackpot! The Mining Flight Continues

How mining companies are trading in tenements for just about anything else.

Casinos, landfill, eggs, nuclear waste and marijuana. The wildly disparate sectors that mining companies are willing to jump into, in an attempt to avoid current distress in the metal markets, appears to know no limits.

At the end of last month, Perth-based iron ore junior Fe Limited, which has seen its share price crushed to a fraction of an Australian cent since its peak in 2011, became the latest notable deserter. The company’s tenements in Western Australia are being traded in for Cardinal House Group, an online gambling business, which is yet to receive an Australian gaming licence.

Bingo, fantasy football and a live online casino are expected to replace iron ore, copper, nickel and gold in the company’s new portfolio. If the deal goes through, Fe plans “to divest of its existing mining exploration business,” it told the Australian Stock Exchange, though it has “not yet identified any potential buyers for its existing assets and will keep the market updated.”

Eggs, Cannabis & Iron Ore

With commodity prices sitting at a 6-year low, Fe Limited is only the latest company to scramble desperately out of mining. In July, Toronto-listed Century Iron switched from iron ore exploration in northern Canada to selling Australian eggs in Hong Kong and mainland China, whilst International Goldfields, a onetime sister company to Fe Limited, dropped its mining ambitions earlier this year in favour of an early-stage Uruguayan bioscience business.

Expedition Mining and Capital Mining have both likewise jumped from mining into medicinal marijuana, whilst Toronto-listed Quia Resources told the market last month that it plans to delist and refocus its business, with plans to develop a hemp infused beer. “As an emerging industry, both the medical and recreational use of cannabis will provide exceptional business opportunities for years to come,” Expedition Mining said.

Upside Risk

Superficially, the extreme measures companies are taking, simply to survive as corporate entities, is yet another affirmation for investors that mining stocks are closer to the bottom of the cycle than the top, with risk now sitting to the upside. Other companies, from Gindalbie Metals to Nagambie Mining, have migrated into everything from landfill to nuclear waste, in an attempt to survive the cycle’s most painful pinch.

But the trend also suggests that mining shares, through an endless grind lower, are returning to their unfashionable depths of the 1990s, when the sector was widely regarded as an outdated, smokestack industry and a relic from a bygone era.

“I feel sorry for the management teams,” says London-based broker John Beresford-Peirse, a sell-side broker at equity issuing house Loeb Aron. Traditionally strong in mining, Loeb Aron has diversified into tech and biotech stocks in recent years, to minimise the impact of the current downturn. “The sector is just hideous,” he says, “from the majors all the way down.”