Mining juniors in crisis – gold explorers particularly badly hit

The junior gold mining and exploration sector is currently at a very low ebb – but the better juniors will survive regardless and now provide tremendous opportunities for the savvy investor.

Author: Lawrence Williams
Posted: Friday , 25 Jan 2013

LONDON (Mineweb) -

Feedback from the Vancouver Resource Investment meeting last week suggests the junior mining crisis is really hitting home and unless there is a turnaround soon a significant number of junior gold explorers in particular will no longer be with us even by mid-year, and certainly not by this time next year.

A conference and exhibition primarily involving junior miners and explorers, and particularly one taking place in Vancouver where the largest proportion of North American juniors are headquartered, is an excellent venue for judging the state of the industry.

And on reviewing this year’s Cambridge House event the junior mining sector is in a precarious state at present with companies finding it difficult, if not impossible, to raise new funds to keep themselves afloat.

Stock prices are so low that new share issues are not really an option, while banks and financial institutions are just not prepared to take the risk of lending to companies in a sector that, even in good times, can prove a risky one for which to provide finance.

Reports from the event note more seating areas taking up empty booth spaces (presumably for companies which may have already paid for the space but just feel they can’t afford the expense of actually attending.) Apparently traffic through the exhibits on the first day of the event (last Sunday) appeared lower than in previous years, although it did pick up substantially on the second day.

One exhibitor commented it was the quietest Sunday he'd seen for the show -Sunday normally being the busiest day of the event.

Much of the evidence picked up regarding the truly dire state of the industry was, of course anecdotal with comments made about other companies - few of those present being prepared to admit that they too are suffering that badly.

Nevertheless reports abounded of juniors with virtually zero cash in hand; of hordes (perhaps an exaggeration – what comprises a horde anyway?) of investor relations people looking for new jobs; rumours of no-shows; companies cutting down on display materials where they could; more and more companies banding together to share booths (and having plans to do so for future similar events).

All signs of a junior meltdown with suggestions that perhaps 50% of juniors won’t be around in a year’s time. Indeed in his recent article on cashless juniors after attending the Vancouver event, Mineweb’s Kip Keen noted that analyst and newsletter writer John Kaiser recently pointed out that, of some 1,400-odd juniors on the TSX-Venture nearly half - 632 - have less than $200,000 in the bank.

Potential investors too were looking for, and finding, companies with stocks at real bargain prices which they felt they could make a large investment in, in terms of numbers of shares, but not have to spend serious money to do so, while those companies with substantial funds in hand were licking their lips eyeing potential bargain acquisitions, either in terms of failing companies, or lapsed concessions.

Although the junior meltdown is affecting companies operating in most sectors, it is gold junior explorers (by far the largest junior mining community) which are suffering most – which perhaps bodes badly for the medium term future of new big gold mine finds to keep the market supplied at the current rate in the years ahead. Naturally, also juniors formed to jump on the bandwagon of trendy metals and minerals like rare earths and graphite have largely disappeared as quickly as they materialised.

Perhaps the shake-out already happening in the junior mining sector is a necessary part of the mining investment process - sorting the wheat from the chaff. But, unfortunately, some companies with good projects and properties bite the dust too, although undoubtedly their projects and properties will resurface operated by others who may have timed their capital raising rather better – so frustrating for the entrepreneurial explorers who may have initially alighted upon them – but c’est la vie.

But, as previous severe downturns in the sector (as in 2008/2009 – and earlier post the Bre-X scandal, and at other times of sectoral weakness) the junior sector has always proved a resilient one in the face of adversity.

The survivors usually emerge stronger once the market turns around and from the investor point of view carefully analysed investment into the stronger players in the junior market can produce huge returns. (For example, post the 2008 meltdown, some companies showed gains of 1,000% or more in the recovery period). Pick a couple of these and you could be set up for life! Adversity generates opportunity!