The fourth quarter of 2009 was an awfully good one for junior mining companies, as they took advantage of positive metal market conditions to raise a boatload of money. But now investors may face a comeuppance.

In a note titled "Heading for Heartburn," the junior mining analysts at Canaccord Adams suggested that the TSX Venture Exchange could face selling pressure in March as a result of the wild capital-raising activities from last fall.

Analysts Wendell Zerb, Eric Zaunscherb and Nicholas Campbell broke down the Venture Exchange financings in the fourth quarter and found that the "bulk" of the capital raised by mining-related companies through private placements (about $700-million) closed in November. So in March, the four-month trading restrictions on those private placements will end, and a flood of new paper could suddenly hit the market.

"Although numerous factors influence the valuation of small cap mining-related stocks, the added selling pressure of new free-trading paper in what is already a low-liquidity environment should not be overlooked," the analysts wrote.

Just how negative the influence will be depends on other factors, like overall market sentiment. However, the analysts did point out that the share prices of a number of the companies that raised money in November have already fallen back to pre-rally levels, and investors would not be likely to sell those names if they have already lost money on them.

"The overhang of free-trading paper is more likely to create a ceiling that, if breached on the upside, will introduce new selling and as such create a sideways trend in the market," they wrote.

Peter Koven