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30%-50% of junior miners not expected to survive - BCSC report
“Retail and institutional markets have virtually disappeared for the financing of junior mining companies,” a senior mining executive recently told a B.C. Securities Commission survey.
Related Stories Junior cash crisis mounts. No quick turnaround. Author: Dorothy Kosich Posted: Monday , 21 Oct 2013
RENO (MINEWEB) -
A report recently released by the British Columbia Securities Commission found some senior mining executives feel the market is at its lowest and should slowly start to recover in one to two years.
However, other executives felt the market has yet to hit its lowest point and don’t expect conditions to significantly improve for another three to five years.
Of the in-depth interviews conducted with 15 mining executives, the participants agreed that there “will be an eventual exodus of mining companies and exploration endeavors,” said the report, BC Junior Mining at the Crossroads: Executive Management’s Perspective, which was authored by KPMG and commissioned by the B.C. Securities Commission.
“Between 30% and 50% of junior are not expected to survive,” said one participant in the interviews. “30% is fine, and perhaps required, but 50% is not.”
See also: Junior cash crisis mounts. No quick turnaround
Large mining companies are expected to continue to shed uneconomic assets such as exploration programs, mine development programs and high cost operating mines, said the report. “While investors may continue to see mining companies ‘in the red’, all participants agreed this is healthy and part of the natural cycle of the mining industry.”
“As a result, exploration activities (and expenditures) are likely to continue to remain lower compared to deposit appraisal and mine operations,” said KMPG. “During this time, some participants expect significant changes to board members and management teams for large and small mining companies.”
“With the change, it is expected that new boards and management teams will require a period to: build investor confidence; make the changes necessary to help companies start with a clean slate.”
LONG-TERM OUTLOOK
Many of those interviewed for the report saw the potential exodus of less-economic mining companies as positive “because investor confidence may increase when stronger and better-established juniors remain in the market to compete for already limited available capital,” said KMPG. In the long term, the remaining companies are expected to regain momentum and rebuild investor confidence.”
“When the larger mining companies start to rebuild their pool of capital, the focus will eventually turn to supporting and investing in juniors to expand existing operations,” the report advised.
However, some of those interviewed expressed concern that the longer the delay in the recovery of the B.C. mining sector, “the more damage will be done to Vancouver’s reputation as a mining centre of excellence.” This will occur as some of the supporting infrastructure disappears (independent brokers, lawyers, accountants, geologists, etc.).”
Meanwhile, as junior mining company transactions have become less popular for investment, independent brokers have closed shop, been bought by other financial institutions or focused on more profitable sectors, according to the report. “There is concern amongst the juniors that this loss of intermediaries could be a longer term problem for the industry when it returns to more ‘normal’ markets.”
Those interviewed indicated that while partnerships, joint ventures and options agreements between major and junior mining companies were somewhat successful, these have largely tapered off due to poor stock prices, and the need of many of the senior mining companies to restructure corporate balance sheets before investing in new projects or properties.
In their interviews, the participants identified several contributing factors to the current state of financing in the mining industry. They include metals prices; slow economic growth, global financial issues; the need for senior mining companies to rid themselves of ‘toxic assets’ and problematic projects; and resistance to high risk investments from both institutional and retail investors. Of lesser importance were regulatory costs and policy barriers, according to the report.
Nevertheless, juniors generally agreed that the cost associated with fulfilling regulatory requirements, such as legal, audit and permitting frees were relatively more burdensome than in the past, given current market conditions. Most participants understood that while such regulatory requirements are in place to ensure reporting consistency for mining companies, junior companies could be assisted through the down-cycle if more flexible reporting requirements than those required of senior and more advanced-stage developments in the mining industry were implemented,” said KPMG.
“The interviewees agreed that there were opportunities for securities regulators to improve and streamline their oversight going forward: to make sure that there is consistent review and complaint for all companies; and, to look for flexibility to reflect the disparity in the size and nature of companies in the mining sector,” said the B.C. Securities Commission.
