FROM THE EDITOR
Sympathy for the
Junior Miners
The mood at this year's Prospectors & Developers
Association of Canada (PDAC) was little a more dour
than years past. Prior to each presentation, the geologists would open with, "We know it's gloomy out there,
but…" They would then continue to speak to a crowded
room of professionals eager to hear their presentations.
Steve Fiscor/Editor-in-Chief
The success rate for junior explorers hinges on their
ability to raise money to fund activities much like any
other business. When times are tough, they can't find the money to support their
exploration activities. According to John Kaiser, editor, Kaiser Research Online,
of the 527 mining and exploration companies exhibiting at PDAC 2013, 114 of
them (22%) had $200,000 or less in working capital remaining. "That's enough
to stay alive for one more year doing absolutely nothing," Kaiser said. "One has
to wonder: Why are they here?" Nearly half of them (47%), Kaiser explained, are
trading at less than $0.20 per share.
How can the industry prevent a large group of explorers from extinction? That
was the central theme of the International Panel Luncheon during the conference. The three panelists were Kaiser, Eric Sprott, CEO, Sprott Asset Management, and Ned Goodman, president and CEO, Dundee Corp. Both Sprott Asset
Management and Dundee are hedge funds that control significant mining investments. Raymond Goldie, senior mining analyst, Salman Partners, moderated the
session. April 2013 E&MJ; will carry a full report.
All of the panelists agreed that future metal prices play a role in the success
(or failure) of mining companies and to a certain extent they blame traders. How
they rationalize it differs. Anytime metal prices move a little bit, even though it
is meaningless in percentage terms, Kaiser explained, traders use it to hammer
down or crank up the juniors. Sprott, who readily admits he is not a huge fan of
Comex, said the trading data is "an absolute joke. They are trading 1 billion oz
of silver a day and we are only producing 800 million oz/y—30% of the year's
silver supply can be sold in five minutes." Wild gyrations occur on paper, but no
physical metal ever changes hands. Governments and central bankers are the
real culprits, according to Goodman.
The panelists debated three options for raising capital: debt financing, equity listing and third party off-take agreements. None of the three was popular with
the panelists. As far as debt, juniors often face interest rates that are two to
three times higher than what the senior mining companies pay. They also in general believe that regulators are failing the system as far as equity trading. Some
junior miners blame royalty companies for the disconnect between stock performance and metal prices. So are royalty companies loan sharks or guardian
angels? One suggestion to clarify the position would be to insist the off-taker
take a major position in the company's stock.
The long-term market fundamentals for miners are strong. Demand for metal
and commodities is much higher than supply. The general consensus was that the
juniors should try to tough it out if they can and find a way to fund it themselves.
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