Saturday 19th January 2019

Resource Clips


Mixed messages

Perspectives differ on 2018 small cap performance

by Greg Klein

Perspectives differ on 2018 small cap performance

Not everyone agrees, but some sources represent 2018 as a comeback year for mining and exploration.
(Photo: PwC Junior Mine 2018)

 

It was the best of times, the worst of times or some middling but still promising times—you’d have the dickens of a time trying to reconcile these conflicting viewpoints. Such was the state of junior miners this past year, when varying fortunes eluded generalization. Just how the sector performed depended on who did the talking.

Outright despair came from Peter Clausi last October, as the CEO of GTA Resources and Mining TSXV:GTA discussed the company’s proposal to sell its assets amid a change of business:

A look at some different perspectives on 2018 small cap performance

In this difficult Canadian mining environment, it was almost impossible for the board not to come to this decision. The lackluster commodity markets, the depressed public market for junior explorers and the severe challenge of raising further capital all contributed to this decision. We believe GTA’s shareholders will be better served in a growth industry other than junior exploration.

Not every CEO would turn a press release into such a cri de coeur, but stats show GTA’s hardly alone. Evaluating 378 mining and other companies with market caps ranging from $4 million to $588 million, the S&P/TSX Venture Composite Index shows a nearly 35% drop in valuations since the relatively heady days of last January.

Yet an entirely different perspective came from PricewaterhouseCoopers in December, with the 2018 edition of its annual Junior Mine report. Unlike the S&P/TSXV Composite, this data focuses only on miners and comes from 12 months ending June 30. Furthermore it examines the Venture’s top 100 miners by market cap, a selection that could tilt results in favour of success.

And a degree of success PwC found, with the aggregate valuation growing to $12.9 billion, a 6% increase over the previous year, the third consecutive annual increase and the best performance “since the heydays of 2011.”

Not just the top 100, but Venture miners and explorers overall increased their total market caps by 5% to $21.1 billion, PwC reported.

Even so they were outperformed by cannabis, fintech and cryptocurrencies. “As a result, mining companies’ share of the TSXV’s total value declined to 43.8%, down from 47.4% a year earlier. Nevertheless, mining remains by far the dominant sector on the exchange, with life sciences (13%), finance (11%) and technology (9%) representing the next-largest industries by valuation.”

Investors favoured top 100 companies moving from development into production, while royalty streaming and the energy metals lithium, cobalt and nickel took on greater prominence at gold’s expense.

Financing for Venture miners overall rose 6.5% to $2.7 billion, almost $2.2 billion of that from equities that mostly went to explorers and development-stage companies, PwC stated. Companies in the production stage increasingly turned to debt financing, which rose 65.9% over the previous 12-month period.

Fifty-one of the top 100 raised more than $10 million apiece, while 10 companies each raked in over $50 million.

Apart from market caps and financings, spending provides another guide to the sector’s health. Some upbeat numbers came in October from Natural Resources Canada, following a survey of companies’ 2018 commitments for Canadian projects. If all went to plan, exploration expenditures for the year came to $2.36 billion, an 8% increase over 2017 and the highest amount since 2012. Juniors, struggling or not, accounted for over 45% of the total commitments.

With coffers at their fullest in seven years, equity and debt financings on the rise and commodity prices relatively stable, the industry has entered a long-awaited period of opportunity.—The PwC Junior Mine 2018 report

The exploration category included engineering, economic, feasibility and environmental studies, as well as general expenses. All that’s part of the much larger category of total Canadian mineral resource development investments, which totalled $11.86 billion this year, compared with $10.61 billion in 2017, NRCan found.

In fact Canada leads an encouraging global trend among juniors, according to S&P Global Market Intelligence. Using different methodology, the group found budgets for nonferrous exploration leaping by 19% worldwide this year to hit $10.1 billion. Juniors showed the highest budget jump at 35%, their first increase since 2012.

Canadian companies lead the world in nonferrous exploration, boasting a 31% budget increase this year, leaving Australia and the U.S. in second and third place, S&P added.

Of course all that can sound like smiley-faced consolation to companies struggling with jurisdictional difficulties, commodity performance, investor negativity or other challenges. But in an industry not always shy about basking in reflected glory, the continuing success of some companies must offer reassurance to the sector as a whole.


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