Canada's junior mining sector 'in survival mode'

 

 

By Alexandra Posadzki, The Canadian Press June 18, 2013

 

Canada's junior mining companies are turning to alternative sources of funding such as private investments, strategic mergers and the sale of non-core assets in the face of headwinds that range from slowing global growth to risk-averse investors.

"They're in survival mode," said Jessica Fung, a commodities analyst at BMO Capital Markets. "They're barely getting by. They're raising just enough money to make it through the next quarter."

Junior mining companies, which typically focus on exploration, have often turned to the equity markets to secure funding for new projects. But with risk-averse investors taking their money elsewhere, the sector is looking at other means to raise capital.

For the past decade or so, China's growth has pushed the price of metals higher as the world's second-largest economy boosted everything from manufacturing to residential construction.

However, predictions for a tempering of global economic growth point to weakened demand for commodities for the remainder of the year.

Base metal prices are expected to decline by about one per cent in 2013 - putting them 17 per cent below the 2011 average, according to a World Bank report issued last week. Meanwhile, the price of precious metals is expected to decline by more than 10 per cent this year.

The weakening demand for metals means many investors don't view the projects proposed by junior miners as needed in the near term, Fung said.

However, the challenges facing junior mining companies go beyond weakening demand for metals.

The unpredictable nature of emerging markets, where many Canadian mining companies operate, has made investors afraid to take on risk, according to the Canadian Mining Eye, published by Ernst & Young earlier this month.

That's made it difficult for junior mining companies to attract financing on the equity markets through initial public offerings.

Ross Gallinger, executive director of the Prospectors and Developers Association of Canada, says that while some junior mining companies have been able to attract funding, most of these deals have been for less than $200,000.

The challenge for junior mining companies will be finding ways to hang on until the tide turns, he added.

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