Junior miners see light at the end of global downturn tunnel

While the harmful effects of a slumping global economy on junior miners are nothing new, companies that have seen their value down on the TSX Venture Exchange this year and may soon see a few glimmers of hope.

That is the key message from a sector analysis released Monday by PricewaterhouseCoopers LLC (PwC). The study, conducted annually, records the ups and downs of the top 100 companies on the Toronto junior market.

According to PwC, estimated equity financing for the top 100 TSX Venture Exchange junior miners was down 41% to $1.6 billion compared with $2.7 billion raised by the top 100 junior miners in 2011.

The report also estimated that the market capitalization of 2012's top 100 dropped 43% in relation to last year’s top 100 as of June 30, with just 14 valued at over $200 million compared with 36 in 2011.

“In the last year, investors were cautious of the volatile market and not willing to invest .The macro-economic pull-back is driving investors to hold on to or cash-in their investments, leaving junior miners urgently looking for new sources of financing,” said in a statement John Gravelle, mining leader for the Americas, PwC. “While a dramatic turnaround is not expected anytime soon, recent market activities should give junior miners a resurgence of optimism for 2013.”

More alternative financing

The 2012 report “Junior mine: Must survive before you can thrive,” contains some good news. For instance, it says that alternative forms of financing jumped up from 8% in 2011 to 14%.

“Anticipate foreign investment and vertical integration to continue to be an important part of junior miners’ growth strategy in 2013,” said Gravelle. “Foreign investors are being strategic in the way they structure investments – acquiring substantial economic interests without having to acquire the public company that owns the asset.”

Recently, streaming and royalty companies are coming to juniors – providing project financing, while traditional lenders have been cautious, added Gravelle.  An example of this is Sandstorm Gold’s, this year’s number one junior mining company on the Top 100, current royalty agreement with Magellan Mineral.

Lesser IPOs

Only four mining initial public offerings on the TSX Venture Exchange were completed in the third quarter of 2012 compared with 14 in the third quarter of 2011.

But Ivanplats’ $300 million IPO, says the report, could signal the new beginning for mining executives looking to initiate IPOs that have been waiting in queue for some time now.

In total, there were 25 mining IPOs on the junior exchange in the first nine months of the year, down from 34 in the same period in 2011.

Image: Nurse takes care of fragile baby, 1906. By Musée McCord Museum.