USGS releases first study to assess global earthquake risk to mineral supplies
Earthquakes have the potential to substantially affect mining operations, leading to supply chain disruptions that adversely affect the global economy.
Scotiabank economist Patricia Mohr addressed the challenges facing junior mining companies last week in the October edition of the Commodity Price Index report.
The underlying message: “A revival of equity capital for junior miners will depend largely upon a cyclical rebound in metal and mineral prices and an improvement in investor sentiment for senior producers,” commented Mohr in the report.
Mohr’s thesis is that as senior producers have adjusted to lower metal prices by implementing cost cutting measures, reserve replenishment through acquisition of junior explorers has disappeared almost entirely.
Collaterally, this has led to a plunge in the sentiment and share prices of juniors. The pessimism has been further exasperated as traditional forms of raising capital have dried up.
“The net result, junior mine finance is currently in near-crisis, with many small exploration companies now in survival mode, having limited working capital to maintain their TSX Venture listings,” added Mohr.
According to the TMX Market Intelligence Group, equity financings by mining companies on the TSX Venture is on track to total approximately $2 billion during 2013, down significantly from the $5.9 billion raised in 2011.
And while the return to traditional sources of capital may be a long way off, Mohr believes the increased participation by private equity could be a bottoming signal for valuations.
News of private equity capital finding its way into the junior resource sector first grabbed investor’s attention last October when Colombia focused explorer Red Eagle Mining Corp. (TSX.V: RD) announced a strategic investment from Appian Natural Resource Fund LP and Liberty Metals & Mining Holdings LLC. The two funds teamed up to provide $20 million in equity financing in exchange for nearly 30% of Red Eagle.
In July Liberty Metals & Mining again made headlines, this time pumping $23.5 million into True Gold Mining Inc. (TSX.V: TGM) for a 20% equity stake and 2% Net Smelter Royalty (NSR) on the Karma Gold Project. True Gold is working to commence construction at Karma before year end.
Hedge fund Wexford Capital LP took control of Marlin Gold Mining Ltd. (TSX.V: MLN) in August aftercompleting two consecutive $15 million rights offerings. Wexford now controls 52.7% of outstanding shares and has brought in its own board and management team to develop the La Trinidad Project.
Last week Venture-listed Tembo Gold Corp. (TSX.V: TEM) announced it had received shareholder approval to hand control over to an investor group made up of two private equity funds and publicly-tradedStratex International PLC (AIM: STI). The shareholder consent for change of control came after two failed attempts by Tembo management to raise capital through non-brokered private placements.
Also announced last week was a $40 million pre-construction loan by private equity firm Resource Capital Fund VI to Avanti Mining Inc. (TSX.V: AVT). The loan will transition to a convertible lone on June 30, 2014 if Avanti fails to complete a rights offering for at least $175 million. Additionally, the loan will mature on December 31, 2014 and be convertible at a price of $0.55 per share.
Mohr anticipates private equity will increasingly find its way to the resource sector in 2014 as valuations are expected to remain depressed. And with a mounting number of juniors unable to utilize traditional funding sources, it’s a buyer’s market for private equity for the foreseeable future.
