Thousands of junior mining companies are prospecting for cash so they can keep up the hunt for new deposits amid the downturn in commodity prices.
The miners will be doing their best to attract investors at the annual Prospectors and Developers Association of Canada conference in Toronto this week.
A swarm of 25,000-plus miners, financiers and lawyers from more than 125 countries are expected to attend the four-day conference, the world’s largest mining gathering, which started on Sunday.
Funding for miners was scarce last year and the junior firms, which are responsible for the majority of new discoveries, are down to skeleton crews and desperate for investment.
“I have never been through anything like 2013. There were times when there was almost no hope,” said Richard Spencer, who has more than 20 years of experience exploring for minerals and is the chief executive of Toronto-based uranium miner U3O8 Corp.
“You just knew that it wasn’t really feasible to raise enough cash to do anything significant on the projects.”
The market capitalization of the Canadian mining sector dropped to $269-billion in 2013 from $389-billion in the previous year.
On the TSX Venture exchange, where most junior miners get their start, 36 were delisted. Stocks that used to trade above $1 have been reduced to pennies.
The worst part was the dwindling amount of cash on miners’ balance sheets.
The cash position of the top 100 miners on the exchange dropped to $1.2-billion as of the end of June from $1.9-billion in the previous year, according to PricewaterhouseCoopers LLP.
“Without access to funds they can’t get off to the races to do too much,” said Ross Gallinger, executive director of PDAC. “Access to capital is the biggest thing on their minds,” he said.
The industry sees encouraging signs that it will regain favour with investors.
The price of gold is up 10 per cent this year to $1,330 (U.S.) an ounce after losing nearly 30 per cent in 2013. The prospects for uranium have also improved since Japan said it wants to restart nuclear reactors that were shuttered after a 2011 tsunami caused a nuclear disaster in the country.
In addition, a ban on raw mineral exports in Indonesia has underpinned nickel prices. Many commodity experts believe prices for other base metals like zinc will rebound. And a handful of miners have successfully tapped public and private sources of capital this winter.
“That’s what’s exciting about this year. The level of interest is completely different,” said Mr. Spencer, whose company is exploring for uranium in South America and recently raised some funds. Mr. Spencer must continue to look for new investment as the $1-million in the bank will run out in about five months.
Some mining executives say last year was worse than the 2008 financial crisis when the global financial system unravelled.
But lessons were learned and the junior miners, like the major producers, have had to prove their worth to investors.
“If you just say, ‘I am going to explore something, somewhere,’ it’s not going to work. In 2010, 2011, you could have done that,” said David Grondin, chief executive of Montreal-based TomaGold Corp., which is developing gold properties in Quebec.
Unlike bigger mining companies that produce and sell metals, the explorers do not pull in revenue regularly. So the cuts they have had to make have had a wider impact on their operations.
For example, the world’s biggest gold miner, Barrick Gold Corp., cut jobs but still produced 7 million ounces of gold. In contrast, Sudbury-based Northern Superior Resources Inc. laid off 12 of its 17 full-time jobs and has had to curtail its work.
“It’s frustrating to have to slow down on a few fronts when we feel like we are very close to significant discoveries,” said Northern Superior chief executive Tom Morris. His company, which is prospecting for gold on properties in Quebec and Ontario, is operating off the $5-million it raised during the commodity boom in 2010.