Financing for junior miners is "near crisis," says Scotiabank's latest commodity price index.
The small companies, which are critical for the future of the mining industry because they often find new deposits, raised $2-billion in capital on an annualized basis this year.
That is a third of the $5.9-billion the juniors raised on the TSX Venture exchange in 2011, according to data compiled by the TMX Market Intelligence Group.
Because the senior companies are now solely focused on cutting costs to stay solvent, the junior miners are left struggling to fund their operations by themselves. But the smaller companies are somewhat reluctant to raise funds in the public markets because their equity valuations are so low.
Financing "is currently in near-crisis, with many small exploration companies now in survival mode, having limited working capital to maintain their TSX Venture listings," says the Scotiabank report.
The report by commodity market specialist Patricia Mohr says the substantial drop in junior miners' valuations has spurred private equity funds into action. "M&A activity financed by private equity is picking up, sensing that a bottom in equity valuations is close at hand, with the object of rolling out an Initial Public Offering in four years' time," the report says.