Australian IT companies have been warned to be cautious about taking investment capital from mining interests who are moving into the booming Internet industry.
The warning was sounded by Jonathan Tooth, an IT finance specialist and Corporate Manger with Shaw Stockbroking, while speaking at a workshop for IT entrepreneurs in Sydney.
Tooth pointed out that many mining companies were suffering from the downturn in commodities prices such as gold and were looking for alternative investments.
With the current boom in Internet related stocks, the IT sector of the market is attracting a considerable amount of attention from investors. Recent months have seen a number of cashed up mining firms making investments in the IT industry, diversifying out of the moribund commodities markets.
Tooth said that IT companies who were planning on taking investment from mining interests they needed to be sure that the mining interests weren't overvalued. He noted that if IT companies were planning on merging with such companies that they had to ensure that they were appropriately valued so that the IT company would retain a solid percentage of control in the new company.
"If a mining company is overvalued then you could end up getting much less of a share in the business than your company is worth," Tooth noted.
Tooth said that the current high level of investment in the industry was a good sign for long-term growth, provided that profits result from those investments.
"What we have to hope is that the 'blue sky' turns into profit and that turns into another round of investment."
Tooth was speaking at the 1999 Entrepreneurs' workshop that was presented by Online Australia Year and the Multimedia Internet Network.
