Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
The rising number of exploration projects, equity and debt financings, as well as mergers and acquisitions, indicates a renewed confidence in the junior sector. (Image: Pure Gold Mining’s Madsen gold project in Ontario’s Red Lake gold camp.)
After years of struggling following a drop in commodity prices, Canadian junior miners are seeing renewed confidence in the sector with valuations rising for the second year in a row, a report released Monday shows.
Juniors, however, significantly underperformed the Venture Exchange as a whole.
According to PwC Canada’s Junior mine 2017, the top 100 mining companies on the TSX Venture Exchange raised $12.2 billion in equity in the year ending June 30, up 7% from the $14.4 billion a year earlier.
While the combined valuation of the juniors is back to levels not seen since 2010, the group significantly underperformed the Venture Exchange as a whole, the report shows.
Cash balances of the top 100 swelled 74% in the period, reaching Cdn$1.57-billion, the largest amount in the last five years.
That, says author Liam Fitzgerald, National Mining leader at PwC, proves that investors are willing to embrace additional risk. While optimistic, that enthusiasm remains selective, Fitzgerald notes, which indicates the sector has not fully recovered from the downturn.
“Junior miners seem to understand that this is a period of delicate recovery and are taking a more disciplined and strategic approach,” Fitzgerald says. “Strengthening global economic conditions today bode well for higher commodity prices, but without inflation it may prove difficult for junior miners to maintain their positive momentum.”
Spending on exploration, development and mergers and acquisition was also up in the period, with cash outflows coming in at $1.15 billion, up from $268 million a year before.
The report expects the recovery cycle to remain choppy and driven by commodity prices. The link to commodity pricing has been apparent in several cases such as metallurgical coal growth due to robust demand for steel in Asia. Copper and zinc prices saw consistent increases year over year, and gold managed to sustain the gains it posted in 2016, due to the anticipation of rising inflation in the United States and growing geopolitical uncertainty.
In the two years since most metal prices began a slow climb off their lows, cautious producers have built fewer new mines than normal. “This could underpin commodity prices and help the broader junior mining sector raise more funding for exploration and development,” Fitzgerald concludes.
Comments
aegetswil1
That was based up to end of June 30, 2017 – Since then many many junior minors shares have dropped considerably – and I wonder why they haven’t picked up in today’s ‘high-season’ for precious metals.