This mining consulting firm has just jumped on commodities rally
Now that commodities are climbing out of a five-year-long trough, investors that shunned the junior mining sector are looking to get back in on the game.
A prolonged commodities bear market that diminished equity financings and deregulation that allowed big banks to get in on the brokerage business have killed off most of the boutique firms that specialized in the high-risk junior resources exploration space.
“There’s a void there,” said Shayne Nyquvest, executive vice-president of Mackie Research Capital Corp. “We’ve gone from 34 brokerage firms in ’96 – we took over eight of them when I was at Canaccord – we’re down to five.”
Those small brokerage firms provided important research on the junior exploration sector. Without that highly specialized business intelligence, it can be very difficult for the bigger brokerage firms, pension funds and banks to sift through the thousands of junior miners out there and find the handful that have the right combination of geology, management experience and sound political climate needed to make a new mine a reality.
Lawrence Roulston, who published the Resource Opportunities newsletter for 15 years, before joining Houston-based Quintana Capital Group, recently left Quintana to found WestBay Capital Advisors.
Roulston will be offering his expertise to institutional investors with funds that they want to deploy in the junior mining sector while the getting is good.
“There’s a lot of money out there,” he told Business in Vancouver. “A lot of people are smart enough to know that when the resource industry is down, it’s the right time to be investing.”
But because exploration is such a specialized niche, they might not be smart enough to know how to pick a winner.
“All the groups that are generalist investors have stayed away from the mining industry over the last few years, and now they’re realizing that they should be getting back in,” Roulston said. “But they don’t know how to do it. They don’t know how to pick companies that are real, versus the majority of the companies in this industry.”
Nyquvest agrees there is money on the sidelines waiting to be deployed in the junior resource sector.
“All of these commodity stocks have bounced 20% or 25% off the bottom,” he said. “The U.S. economy is getting rolling again, and commodity prices are increasing.”
The Scotiabank metals and minerals index overall rose 13.3% in October. Copper and metallurgical coal were the primary movers, since gold prices have declined. Copper prices rallied 30% between late October and late November.
That commodity price bounce now has investors rushing to get back into the mining sector.
“With the commodity prices rebound, people start thinking, ‘Did I miss the bottom? I better get in,’” said Michelle Grant, senior vice-president for B.C. mining and metals for EY. “What we’re seeing is certainly increased activity.”
Last week the TMX released its November 2016 report on financings that shows a dramatic increase in investing in the sector.
“They raised in secondary and supplementary financing about $500 million in November this year, compared to $185 [million] in November of last year,” Grant said. “So that’s a huge increase.”
As a geologist writing Resource Opportunities, Roulston has been to 45 countries and looked at hundreds of exploration properties.
Some of the world’s best deposits aren’t in the best political climate. Roulston said the Democratic Republic of Congo and Ecuador – until recently considered politically risky – are now looking promising again.
“The one that’s really turned around is Ecuador,” he said. “Two or three years ago, nobody wanted to go near it. Kinross [TSX:K], after spending several hundred million dollars, walked away from Fruta del Norte. And now Lundin [TSX:LUG] has gone and put a deal back together, and there are several other companies that are keen to get into Ecuador.”
Roulston added that, despite its challenges with First Nations, B.C. is also still a good investment.
“The prospects for B.C. are absolutely phenomenal, in spite of challenges, and they are challenges, rather than roadblocks. It’s really a matter of people working intelligently with the First Nations.”