Few companies are reeling from the commodity collapse as badly as junior miners. Three years into the supercycle's crash, investors who stick by the sector have largely abandoned smaller explorers and developers in favour of established companies whose projects are up and running.
The major knock against junior miners has been financing risk. No one knows if they will be able to raise the money they need to get their projects into production because shareholders have been so badly burned. That makes the recent developments at TMAC Resources Inc. and Pretium Resources Inc. all the more interesting.
In June, TMAC raised $135-million in a rare mining initial public offering, giving the company enough cash to get to the production phase. Last week, Pretium announced a $540-million (U.S.) financing package that gives the miner 70 per cent of the capital it needs to build its Brucejack mine in northern British Columbia.
The success of both companies is now vitally important for the entire junior mining market. If even the companies with solid financing plans cannot get much love long-term – possibly because of volatile commodity prices – a lot of small players will have little hope.
The early signs are encouraging. Despite volatile markets, TMAC's shares have fallen only slightly from their IPO price of $6, while Pretium's stock has popped 11 per cent since the financing package was announced. It is crucial now that shareholders stick by these companies – for the sake of the whole sector.
TMAC's rare mining IPO raised money to finance the miner's Hope Bay gold project in Nunavut. Despite investors' general nervousness with junior miners in this market, the deal largely got done because TMAC's leaders are respected industry veterans who used to work for companies such as Quadra FNX Mining Ltd. and KGHM International Ltd.
"With a high quality asset in Hope Bay, which is fully funded to production, has been extensively de-risked and, in our view, has tremendous upside potential, TMAC represents exactly what investors in the mining space seek: a good project, managed by good people with lots of opportunity for growth," CIBC World Markets analyst Jeff Killeen wrote in a recent research report.
A few years ago, Pretium was thought to be a junior gold mining star, but the commodity crash quickly changed perceptions, and shares have since fallen 60 per cent. The new financing package, while expensive for the company, has given shareholders renewed confidence.
The new financing includes a credit facility, a precious metals stream and a private placement from Orion Mine Finance Group and Blackstone Tactical Opportunities.
TMAC Resources (TMR)
Close: $5.65, down 22¢
Pretium Resources (PVG)
Close: $7.25, up 10¢