For the junior mining sector, 2013 may well be remembered as another year of financing difficulties and disappointing performance -- and so far, it seems many market observers expect the struggle to continue into next year.
PwC’s recently-released Junior Mine 2013 report outlines a grim year for the sector. In particular, it says market cap for the top-100 junior miners on the TSX Venture exchange fell 44% to $6.49 billion this year, compared with 2012. The cash position of junior miners dropped to $1.2 billion in 2013, compared with $1.9 billion in 2012.
The TSX Venture Index
(CVE:OSPVX), which boasted 1,290 mining companies as of the end of October, has fallen more than 25% so far in 2013. The Market Vectors Junior Gold Miners ETF
(NYSEARCA:GDXJ) has tumbled more than 63% year-to-date.
Although stable in September and October, drilling activity is also still at a historical low, according to SNL Metals Economics Group’s most recent Pipeline Activity Index.
“Drilling activity and initial resource announcements continue to show the effects of drastically reduced grassroots spending in 2013,” says the report.
According to PwC, cash generated from financing activities fell 34% in 2013, following a 52% drop in 2012, while the top 100 miners on the Venture exchanged raised half as much in 2013 as they did in 2012. The number of initial public offerings, says PwC, has also fallen by more than 50% in the last three years, while miners represented 35% of the Venture’s market capitalization this year, down from 51% in 2012.
On a positive note, SNL says a few explorers have found interesting ways to raise capital and keep drills turning this year. PwC also highlights Sierra Metals
(OTCMKTS:DBEXF), which graduated to the TSX in July.
But more generally, with a number of juniors set to start 2014 with no funding, SNL says the level of drilling activity in 2014 “could be the lowest in years.”
Indeed, in its Tracking the Trends 2014 report released this week, Deloitte also notes that although some junior mining companies are seeking new sources of funding – such as private equity and non-traditional stock markets - many junior miners are struggling to survive.
“As a result, some juniors now have less than six months’ run time – a situation that may
fuel acquisitions or result in corporate failure,” says Deloitte. As such, in the current buyer’s market, it says “cash rich companies may beneﬁt by picking up juniors, many of whom will need white knights or lifelines simply to survive.”
John Gravelle, global and Canadian mining leader at PwC also says some juniors are targets for “opportunistic senior players seeking future growth.” But until such time, the smaller miners will have to sit tight.
"Having the flexibility to advance projects until the market turns is critical. Patience is important - many seniors aren't looking at buying new projects now, but concentrating instead on cleaning up their own balance sheets before they start buying again," Gravelle said in the report.
Many juniors, he also noted, need to be watchful with their plans. “The ones that raised money when the markets were good must now protect every penny as they move forward - longevity is essential," he added.
No positions in stocks mentioned.