Tough times call for creative solutions, and for junior mining companies, now is the time to get creative according to industry analyst John Kaiser who spoke at the The Prospectors and Developers Association of Canada (PDAC) annual conference.
Kaiser said the mining industry is in the midst of the worst bear market seen in decades, and while commodity prices are expected to rebound, the recovery is still two years off. The Toronto Star reported on his speech, and said that Kaiser told the crowd that they should seek new ways to find investment money. He suggested the idea of crowdfunding as one possible option to survive the lean times.
In a report released during the conference, SNL Metals & Mining reported a 26 percent decline in exploration spending by mining companies in 2014.
SNL Metals & Mining calculated that the mining industry's total budget for nonferrous metals exploration was US$11.4 billion in 2014. This contrasts with the US$15.2 billion allocated in 2013 and the record US$21.5 billion budgeted in 2012.
Kaiser insisted that the industry will rebound as it always has.
He said the ongoing bear market has been dismissed as a cyclical downturn that will eventually reverse, as it always has. For instance the five-year downturn in the mining industry after the Bre-X gold salting scandal in 1997 was followed by a ‘super cycle’ of 13 years of sky-high metals prices and record share prices.
“While true for majors (big mining companies) whose fortunes hinge on the commodity cycle, it may not be true for juniors,” he said.
That’s because a $140 billion junior buyout “binge” in recent years has left the seniors with ample development inventory, and the big financial institutions need higher metal prices to care about advanced resource juniors “and have little interest in earlier stage exploration juniors,” Kaiser said.
In the absence of a big discovery such as the Voisey’s Bay nickel find in Newfoundland or the Ekati diamond deposit in the Northwest Territories, the small-cap mining firms that are struggling to survive will need to rely more on retail or individual investors to weather the storm – and lots more of them, he said.
He pointed out though that only accredited investors – those with a high net worth – are allowed to participate in private placements, the main funding gateway for juniors.
Marcus New of Vancouver-based InvestX Capital Ltd. suggests miners get into the crowdfunding game whereby they can tap into social media to both market their finds and raise money to get projects off the ground.
The problem of raising capital to stay afloat in the dormant sector is dominating conversation at the annual convention, the largest of its kind in the world which will draw about 25,000 miners, financiers, students and First Nations groups to the Metro Toronto Convention Centre.
“If retail investors, acting without a compensated intermediary, cannot put capital directly into corporate treasuries, the institution of the Canadian resource junior will go extinct,” Kaiser warned.
“This problem can be solved through an online…system which taps and shares the wisdom of crowds, providing a counter-balance to the downward bias of the trading system,” he said.
As it stands, hundreds of junior mining companies are trading below 10 cents a share these days on the TSX Venture Exchange, said Kaiser, while about 100 small mining companies have dropped off the market index altogether in the last couple years.