Report finds 50 percent of juniors could be lost

October 21, 2013

In the next few years as many as 50 percent of junior mining companies could be out of business, this according to a report released by the British Columbia Securities Commission (BCSC) during is annual Capital Ideas Conference in Vancouver.

According the report, prepared by KPMG, falling metals prices, rising costs and a lack of capital funding threaten the future viability of many junior mining companies the Vancouver Sun reported.

A KPMG surveyed junior mining executives who said tough market conditions for raising funds have forced many British Columbia junior mining firms to drastically cut costs until markets improve.

The study noted falling stock prices and rising transactional costs for structuring deals have “diminished” the cost-effectiveness of public financing.

Some junior companies have worked together to cut costs by sharing offices and administrative staff, freeing up a significant amount of office space in downtown Vancouver where more than 800 junior companies are headquartered.

The findings came from interviews with executives from 15 British Columbia-based junior mining companies. KPMG representative Paul Levelton acknowledged to the Vancouver Sun that the small number of interviews does not provide a representative industry sample. But he said it does provide a good indication of the general sense of concern that exists among junior mining executives now.

“Much of the funding (raised today) is survival capital — being used to keep the company operational until such times as the market returns,” the report said.

Companies are spending less on exploration and studies to move their projects forward.

Several executives in the survey pointed to the falling price of gold as a major factor in the loss of interest in all mining stocks, with gold prices often having a trickle-down effect on the price of other metals.

Others said the demand for metals has slowed over the past few years due to slower global economic growth.

Almost all survey participants pointed to “inconsistent review and enforcement” of regulations by the BCSC and feel the BCSC should focus on protecting the public interest by thoroughly reviewing “questionable” media releases and feasibility studies.

Many executives feel the current downturn is cyclical in nature and conditions should improve over the next few years. They see the potential exodus of “less-economic” mining companies as a positive outcome because investor confidence may increase when stronger junior mining companies remain in the market.

A PricewaterhouseCoopers report earlier this year estimated pre-tax income for the entire B.C. mining industry fell to $1.8 billion last year from $3.7 billion in 2011. Falling coal and copper prices were a significant factor in gross revenues falling from $9.9 billion to $9.2 billion.

More than 29,000 B.C. workers are employed in mining and related sectors, the Vancouver Sun reported.

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