TORONTO: Once-abundant cash is drying up for Canadian small-cap companies, as trading volumes dwindle and lenders seek safer bets in a shrinking pool of venture capital.

One year after the U.S. subprime mortgage crisis, the fallout has hit the TSX Venture Exchange composite index hard, which is likely to force some companies to slow exploration or development.

The companies, with shallower pockets than their elders on the Toronto Stock Exchange's main index, the S&P/TSX composite, will face tougher hurdles raising money as concerns over the global economic outlook continue, analysts say.

"The amount of speculative capital that is typically available is just not available," said Wendell Zerb, a metals and mining analyst at Canaccord Adams in Vancouver. "It's in people's back pockets, under mattresses."

The sector also faces sparse trading volumes, said Robert Jennings, chairman of Jennings Capital, based in Calgary. In hard economic times junior stocks "really become orphans."

Because they are ignored," he added, "the bids dry up and the stocks start falling."

The Venture composite is home to more than 450 companies, out of about 2,200 on the broader exchange, with market capitalizations ranging from as little as 1.8 million Canadian dollars, or $1.7 million, to 2 billion dollars. Nearly half of the companies on the exchange are mining companies, according to TMX Group, which owns the junior exchange and the TSX.

The Venture composite index is down about 30 percent so far this year, with a marked drop since the beginning of the summer, when the key energy and materials sectors started sagging on the senior index.

But Jennings said it is possible for investors with a big appetite for risk to find good buys.

July figures showed Venture Exchange trade volumes down 19 percent from July last year, while total financings slumped nearly 35 percent. The value of transactions fell 39 percent.

And analysts say many companies may have few options but to hunker down until the coast is clear.

"You reduce your activities and you get into a cash-conserving mode," said Mario Caron, chief executive of Axmin, a junior gold exploration company.

Axmin, which is based in Toronto, mainly operates in Africa and usually slows operations during the rainy summer months. But because of the economic slump the company is holding off to see what the market is going to look like in the fall, Caron said.

For most companies, the question is how long the slowdown will last, and whether small-cap companies can survive the wait.

Andrew Swarthout, the president of the mineral exploration company Bear Creek Mining, which focuses mainly on gold and silver projects in Peru, said: "The market situation and conditions in commodity prices that we're seeing now does tend to weed out a lot of companies that aren't sitting on solid assets. At the end of all of this you'll see a much smaller field of players."

Most analysts expect more mergers among the Venture exchange companies, as the businesses seek to cut costs.

"It is really a survival of the fittest business," said Rob Moss, an analyst at Acumen Capital Partners, in Calgary.

Mark Brennan, chief executive of the mineral exploration company Largo Resources, said he was surprised that there had not been more bankruptcies or mergers "out of desperation" among the small-cap companies.

"There have been a number of them," he said, "but not to the extent that one would anticipate."

Bill Harris, portfolio manager at Avenue Investment Management, said some companies will succeed, but others will not. He added: "If you have a good management team and a good asset, and they can hold their breath, fine. (Fantomas: I´m happy that I´ve found one of those companies !!!). But there is a whole bunch of Venture guys that don't fit in that category."

FANTOMAS