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$3 Billion In Junior Companies Working Capital To Vanish – John Kaiser

By Alex Létourneau of Kitco News
Monday March 2, 2014 11:22 AM

(Kitco News) - While there is still hope within the junior resource sector, John Kaiser, founder of Kaiser Research, isn’t painting a pretty picture for some companies.

Speaking at a keynote program at the Prospectors & Developers Association of Canada’s 83rd convention in Toronto, Canada, Kaiser outlined how badly the junior resource sector is hurting.

He said, “717 companies have negative working capital, 291 have between $0 and $500,000, 554 still have between $500,000 and $20 million – those are the ones that are most likely to survive.”

“How bad is this situation? The companies that have negative working capital are trading below 30 cents, totaling almost $3 billion to service providers, to the executives’ salaries – this money will never be paid back in cash,” he said. “It will be settled for paper, which will then be rolled back and then it is just going to vanish. This is a huge hit to the system right now,” he added.

Kaiser pointed out the change within the sector, noting that many junior companies are now taking their discoveries further down the pipeline.

“An important thing that many people do not understand is that in the last decade, the anti-resource junior space [with] its professionalism, is the level of technical work that they did. It is no longer a story of generating a target, poking holes at it and doing a happy dance when they hit something, and then a major comes in, farms in or takes it up,” he said.

“Now the juniors are taking these things all the way through to feasibility.”

In turn, this has now affected the way potential investors look at investing in a junior resource company. It’s already difficult to find a proper investment, he said, and now expectations have been raised, meaning juniors will need more capital to advance their projects.

“The audience out there, their expectations are now substantial and all these pretend companies that the brokerage industry polluted the system within the past decade, they are simply just going to fade away,” he said.

By Alex Létourneau of Kitco News aletourneau@kitco.com
Follow Alex Letourneau @alex_letourneau