* Price, liquidity pressures rein in capital spending
* Junior miners particularly hard hit
* Some small companies could go under
By Randall Palmer
OTTAWA, Nov 18 (Reuters) - Weakness in commodity markets as
well as tight credit are causing huge cutbacks in capital
spending and exploration in the Canadian mining industry, a
senior mining official said on Tuesday.
"It has a huge impact on the mining industry because all
the capital gets readjusted," Jim Gowans, chairman of the
Mining Association of Canada, told Reuters in an interview.
"Investment gets either stopped or significantly reduced,
so that has massive long-term repercussions."
The impact was particularly severe on junior mining
companies, he said. "They just can't get funds, so programs are
going to be canceled or postponed," he said.
The initial public offering market has dried up temporarily
and access to capital through flow-through shares or entities
has also dropped, he said.
As commodity prices have dropped, profits and retained
earnings fall, and then the ability to borrow is also reduced
just when it might be needed most.
"It's kind of a Catch-22," said Gowans, who is also
president and chief executive of De Beers Canada.
De Beers Canada, which has two operating diamond mines, has
also cut back exploration, though it is not suffering from a
credit crunch as junior miners are. De Beers is 45 percent
owned by mining major Anglo American Plc .
Gowans said some junior companies faced the situation where
investors sell on good news, figuring they can catch a bit of a
price bounce, and sell on bad news as well.
They tell him the only way to survive is not to know, so
investors do not dump company shares. He said a typical comment
from a junior miner would be: "I don't want to drill, because I
might find out something."
And many juniors that do have cash want to conserve it in
the current liquidity crunch because if they do make a find
they will need the money to develop it.
Smaller companies could certainly go bankrupt, Gowans said,
particularly if they've gone through a major leveraged
expansion. About five mine operations have shut down in Canada
in the last month or so, he added.
(Editing by Rob Wilson)
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