By: Siviwe Dongwana - chartered accountant and co-founder and managing director of Adamantem

The basic economic problem that confronts all businesses is limited resources for unlimited wants. For some smaller mining companies, the reality is particularly acute – not every business possesses the balance sheet strength required to fuel growth, thus making strategic leveraging vital.

However, debt is expensive and introduces specific risks that include fixed repayment schedules, collateral requirements, extensive reporting obligations to lenders, and severe consequences for default not to mention the management time to deal with such consequences. The weight of these obligations can quickly become overwhelming when market conditions shift unfavourably.

The inability to service debt obligations is amongst the leading causes of many business failures, often culminating in business rescue or liquidation. Unfortunately, by the time many companies enter business rescue proceedings, the damage is often beyond repair. What might have been salvageable with early intervention becomes terminal through delayed action.

Miners have additional complexities which include commodity price volatility that can rapidly change project economics, exchange rate fluctuations that impact both costs and revenues, capital-intensive development phases with delayed revenue generation and onerous payment terms from suppliers and contractors and rising financing costs in response to perceived risk. These sector-specific challenges can create a perfect storm when overlaid with standard business financing pressures.

Consider this health analogy of addressing illness. Successful treatment requires both the right medicine and sufficient time. Time can be more important than the medicine itself as having time allows exploration of various treatment approaches. Similarly, even the most effective financial restructuring cannot save a business if implemented too late. The window for meaningful intervention narrows as financial distress deepens.

Assistance from restructuring professionals offers significant advantages; however, many companies are reluctant to seek help. Some believe that they have the internal capability to resolve the problems by themselves, viewing external assistance as unnecessary or as an admission of failure. This perception often proves costly, as internal teams may lack the specialized expertise or objectivity needed to navigate acute financial distress.

External advice is generally sought after the intervention by bankers, lenders and in some cases on the advice of insolvency lawyers. By this point, options have typically narrowed considerably, and stakeholder confidence may have eroded beyond recovery. The delay frequently results in more drastic measures becoming necessary when earlier, gentler interventions might have sufficed.

Accepting that companies operate in an ecosystem of relationships, stakeholder engagement is vital for success and must be undertaken constantly. Of further equal importance is a recognition of the domino effect of failing to make consistent payments which can be dire to smaller suppliers who themselves may operate on tight margins. Often, relationships get strained and soured due to late or non-payment to trade creditors. To this end, the mending relationships and restoring trust is vital to maintain operational continuity during restructuring efforts.

Restructuring professionals understand the concerns and interests of all relevant parties. They professionally work towards aligning competing interests, preserving critical relationships and assisting with complex creditor negotiations while maintaining operational focus, through properly developed restructuring plans. Their experience across multiple situations provides valuable perspectives that purely internal teams typically cannot match.

It is for these reasons that early interventions are necessary to bring fresh eyes and approaches to resolve problems and potentially open different angles and other avenues to tackle the issues at hand including identifying blind spots that management teams, immersed in day-to-day operations, might miss.

In the cyclical mining sector, operational or balance sheet restructuring is certainly not an admission of failure but rather a strategic tool for navigating market volatility. It represents prudent management in an industry characterised by boom-and-bust cycles, where flexibility and adaptability are essential virtues.

Early intervention creates the time and space needed for thoughtful, comprehensive solutions that protect stakeholder value and position companies for future growth. For junior miners especially, timely restructuring can mean the difference between extinction and emergence as stronger, more resilient enterprises positioned to capitalize when commodity cycles inevitably turn favourable again.