Canadian juniors more resilient than many expected: report

PwC’s report suggests juniors have been very resilient amid bitter market conditions.

A new report from PricewaterhouseCoopers LLC (PwC), released Monday, shows that despite having been hit hard by market conditions, only 31 juniors listed on the Toronto Stock Venture Exchange were delisted in the 12 months ending June 30.

In its seventh annual report, PwC acknowledges the sector has endured another rough year, with the market value of the top 100 dropping 44% to $6.49 billion. However, it notes that most of the delisted juniors became so due to mergers and that only seven because they requested it or for failing to pay listing fees.

The finding contradicts recent reports suggesting catastrophic scenarios, such as that at least 50% of the small mining endeavours won’t be around by 2015.

PwC’s report suggests instead that junior miners have been very resilient amid rough market conditions. They have managed to conserve their cash and keep the lights, despite seeing their cash and short-term investments drop by $695 million to $1.2 billion.

Confidence crisis

While delistings were less than predicted, PwC’s study does reveal most players fear what the future has in store for them.

It doesn’t help to know that juniors’ value has fallen so far that miners are no longer the dominant force on the Venture exchange. Mining companies represented only 35% of the Venture’s total market value this year, says PwC, down from 51% last year.

Companies large and small have cut expenditures, which for some juniors translated into freezing exploration work, while for others meant merging or accept takeover bids in order to survive.

Writedowns climbed to $87 million for the year ending in June, up from $32 million the year before.

The top 100 raised $795 million in equity financing, down 50% from $1.59 billion in 2012, with only four of 15 producers raising more than $1 million.

The number of initial public offerings has fallen by more than half in the past three years to 24 in 2013, down from 52 in 2011.

John Gravelle, PwC’s Global and Canadian mining leader, says the key for juniors is patience. “When the recovery does come, investors will most likely put their money into the senior producers first, given their stronger balance sheets and proven production and profit-making capabilities.”

That is why he recommends small players to ensure they have the flexibility to advance projects until the market turns is critical. “Many seniors aren’t looking at buying new projects now, but concentrating instead on cleaning up their own balance sheets before they start buying again,” concludes Gravelle.