TORONTO, Nov. 4, 2013 /CNW/ - The market cap for the top 100 junior miners fell 44% to $6.49 billion
in 2013 as compared to 2012, according to the seventh annual Junior Mine report, which looks at the top 100 mining companies on the TSX Venture
Exchange (TSXV). The cash position of junior miners has also steadily
declined. Among the top 100 on the TSXV, cash and short-term
investments fell by $695 million in 2013 to $1.2 billion compared to
2012's balance of $1.9 billion.
"It's the same theme across the entire sector - miners are facing a
confidence crisis and juniors are the ones hardest hit," says John Gravelle, PwC's Global and Canadian mining leader. "When the recovery does come, investors will most likely put their
money into the senior producers first, given their stronger balance
sheets and proven production and profit-making capabilities."
Developers were the only junior mining category that increased capital
expenditures in 2013 by a modest $74 million. Looking at other
categories, Gravelle explains, "Some juniors, particularly at the
exploration stage, have been forced to stop work on their properties.
Others will decide their only survival tactic is to merge with another
player or accept a takeover offer."
The lowdown on write downs
Write downs were also a necessary drawback to the current volatile
market environment. Write downs among the top 100 junior miners
increased 175%, or by $55 million in 2013 compared to last year. In
total, 2013 saw the top 100 companies take $87 million in write downs
for the period ending June 30, 2013.
These adjustments to mineral properties were not isolated to a few
projects or companies, but instead spread out across 37 of the top 100.
Search for financing
Overall, cash generated from financing activities fell 34% in 2013
compared to last year - that's after a 52% drop in 2012 from 2011.
Gravelle says, "Investors are shying away from the high risk-reward
proposition of junior miners - turning instead to those that pay
dividends or have more assets to support them." According to the
report, only three companies in the top 100 paid a dividend in 2013:
Sierra Metals Inc., Callinan Royalties Corp., and Midway Gold Corp (to
preferred shareholders only).
Regarding equity financing, the top 100 raised $795 million in 2013 -
down by half compared to $1.59 billion in 2012. Producers saw the
biggest drop in equity financing with only 4 of the 15 producers in the
top 100 raising more than $1 million.
Looking at initial public offerings (IPOs), the number of IPOs have
fallen more than half in the past three years to 24 in 2013, down from
52 in 2011. There were 45 mining IPOs in 2012. The report found that
the average market cap for the 24 companies that went public in 2013
was $2.2 million - demonstrating that while there were several IPOs in
the current year, a substantial amount of cash wasn't raised.
Patience is a virtue
While mergers and acquisitions across the sector have fallen, juniors
are targets for opportunistic senior players seeking future growth.
"Having the flexibility to advance projects until the market turns is
critical. Patience is important - many seniors aren't looking at buying
new projects now, but concentrating instead on cleaning up their own
balance sheets before they start buying again," says Gravelle.
Meanwhile, many juniors have cut costs and some have achieved their goal
of graduating to the TSX, as Vancouver-based Sierra Metals Inc. did
this summer. According to the report, costs of production fell 58% for
developers and 26% for producers. Exploration expense also fell 42%
across the board.
"Many juniors need to be watchful with their plans, and have as much
cash on hands as possible to wait out the uncertainty. The ones that
raised money when the markets were good must now protect every penny as
they move forward - longevity is essential," says Gravelle. "If a
junior can survive this tough financial market, chances are it will
succeed when the recovery inevitably arrives."
For more information on the mid-year Junior Mine report, please visit PwC's mining site at: www.pwc.com/ca/mining.
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