Positive signs put Canadian junior miners in a good position for recovery – PwC report

PricewaterhouseCoopers Inc. ("PwC") | October 13, 2016 | 4:30 am Base Metals Energy Precious Metals Canada Europe Coal Copper Diamond Gold Potash Uranium 

Mining companies once again make up over 50 % of the total market capitalization on the TSX Venture Exchange, up from 36% on June 30, 2015, according to PwC Canada’s 2016 Junior Mine report, Signs of Life. For the past 12 month period between June 2015 to June 2016, cash flows from financing activities increased significantly and cash flows from debt and equity financing increased to 45% and 48% respectively.

According to the report, investors have seen a rise in the market capitalization of top junior mining companies on the TSX Venture Exchange by more than 100% compared to last year. The report mentions that the political and economic uncertainty around the globe provided some relief to junior mining companies by inflating the price of gold by as much as 22%. Gold is a key asset for each of the top five juniors, with the exception of the top company which focuses on uranium exploration.

“While the outlook is positive, it’s too early to call it a recovery,” said Liam Fitzgerald, National Mining Leader, PwC Canada. “For the past few years, executives have had to look at different and creative ways to allocate resources and capital. As investors renewed their interest in junior assets, we’re now seeing market valuations close to what they were in 2012 which is encouraging.”

2016

(in millions of $)

 2015

(in millions of $)
Cash Reserves (Top 100) 900 670
Cash Reserves (Top 5) 240 70
Aggregate Market Capitalization 11,400 4,800

For the most part, companies sat in the same spot of the mining lifecycle from the previous year, with a majority of them at the exploration and evaluation stage, followed by development and production stage entities.

While highlighting the state of the industry and its successes this past year, Signs of Life, also warns mining companies that there is no room for complacency.  “The mining sector is moving in the right direction but executives must continue to remain cautious.  By managing risk in this volatile market, they can focus on new project pipelines and investigate new opportunities for mining in locations like Nova Scotia,” adds Fitzgerald.

The report highlights three important areas to watch for:

  • Resilience: There’s a human element at play right now, it seems markets are rewarding companies run by experienced mining executives who have demonstrated creative leadership and an agile approach to capital allocation, putting these organizations in a strong position to ride any recovery.
  • Capital allocation: While investors are clearly more enthusiastic about gold’s future these days, a key question is capital allocation. Many made significant cuts to survive the downturn and the long-term effects of that belt tightening remain unclear. The market is now watching to see when and how these companies will begin to spend money again.
  • Gold rally: On a macro level, greater political and economic uncertainty around the globe has provided some lift to junior miners by inflating the price of gold, which had risen by as much as 22% by the middle of the year. The result has been the first sustained rally in gold prices since 2012, which in turn has created new enthusiasm for junior gold companies.

Read the full report, which is now available on pwc.com/ca.

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