Friday 18th September 2020

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Calm after the storm

Observations, forecasts and advice from the Vancouver Junior Mining Seminar

by Greg Klein

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The final speaker put it most bluntly. Referring to the event’s theme, “Calm After the Storm: A Return to Normality in the Mining Sector,” Andrew Pollard said, “I guess that’s better than the original title for this meeting—which was “Junior Mining: I Guess We’re All Pretty Much Just F***ed.”

He spoke without asterisks.

For all that, Pollard and the others had some encouraging remarks for the Vancouver Junior Mining Seminar. The president of Mining Recruitment Group was one of six people who passed on expert info and advice to a capacity crowd of about 150 mining and exploration executives at the September 25 Cambridge House International event. But while it was directed at industry, the audience heard some compelling commentary for investors too.

Observations, forecasts and advice from the Vancouver Junior Mining Seminar

A 150-strong capacity crowd of mining and exploration
professionals attended the Vancouver Junior Mining Seminar.

Addressing that topic most specifically was Adam Simmons, an investment adviser at PI Financial. A recent PhD in economic geology who played an integral role in discoveries during his 11 years as a project geologist, Simmons began by warning investors of potential drawbacks.

The downturn, he said, has not only driven some companies into very dilutive financings, but some firms are taking on premature debt when there’s no sign of cash flow. Under a worst-case scenario, their assets could be seized.

Another cautionary sign is “unwarranted bonuses cut to directors without much achievement.” That could even coincide with “a fundamental lack of bonuses to lower-level people, people that even came up with the ideas to be in certain areas,” Simmons pointed out. As a result there could be “people in key, critical roles in these companies that are not really incentivized, so these people could be disappearing.”

The method of contracting out services can lead to “cost contamination,” he warned. Some public companies “essentially filter public funds to a private company” with essentially the same management. Calling it a grey area, he said the process might “detract from putting money into the most important thing—advancing projects.”

Although juniors often have overlapping directors and management, Simmons called for greater separation between the two areas of responsibility.

Turning to a broader issue, he said, “As a geologist I often contemplate: ‘What is the business model of a junior exploration company anyways?’ The fundamental business model is to be able to find something that’s going to be bought by a company that can put a mineral prospect into production or else maybe you can raise the funds to produce this yourself.”

Too many companies “don’t grasp this. Or if they do, they don’t employ people who can take them to the top.”

Difficult as it might sometimes be, Simmons advised companies to simply let go of projects that don’t work out. And in doing so, companies need to be flexible about their future. “Sometimes that means re-branding a company. In other cases that might mean a complete rollback and starting again,” he said. “That’s fine. That’s not a bad alternative.”

With spending cuts affecting all companies, he’d like to see more senior companies consider junior acquisitions.

Since June there’s been an ever-increasing trend of higher lows and higher highs on the Venture exchange.—Adam Simmons, investment adviser with PI Financial

As for the question foremost on many minds: “What it might take for a turnaround, I don’t know,” he said. “Maybe the destruction of other sectors, with money flowing into this one.”

But, he insists, light beckons at the end of the tunnel. “Since June there’s been an ever-increasing trend of higher lows and higher highs on the Venture exchange. Volumes have been picking up, although not substantially.” Investors and companies now have the opportunity to consider lower-priced opportunities, whether in greenfields, brownfields or producing assets.

Speaking to after his talk, Simmons outlined his chief criteria for evaluating a company. The first is the project and what’s known about it, whether it’s early-stage soil samples or more advanced data about grade and tonnage. Jurisdiction and infrastructure also rank among a project’s most important considerations.

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