Reason for Optimism - Stockhouse https://www.stockhouse.com/Community-News/2012/Aug/23/Stockhouse-Movers---Shakers--Reason-for-optimism-i
“A large number of institutions and funds are sitting with a disproportionate amount of cash on their balance sheets and are looking to get back in."
An improving outlook for gold and other key metals is giving a lift to the bruised junior resource sector.
Brokerage industry officials say the brighter mood is reflected in the TSX Venture Exchange’s Composite Index, which has jumped to 1,248.08 from around 1164.47 on June 28, a move that is attributed in part to a recent spike in the price of gold.
“I can see that the very negative sentiment that we saw in June and July has given way to a bit more optimism,’’ said Max Meier, Chairman of PI Financial Corp. one of western Canada’s largest investment firms.
One mining industry official said the uptick in metal prices is starting to wet the appetite of large investors for small cap stocks.
“A large number of institutions and funds are sitting with a disproportionate amount of cash on their balance sheets and are looking to get back in,’’ said Steve Stakiw, spokesman for Trevali Mining Corp. (TSX: T.TV, Stock Forum), a Vancouver-based mining company.
Stakiw said money will likely flow to companies with a portfolio of advanced stages projects.
However, Meier said companies which have seen their stock prices crater will likely wait a few more months before electing to finance projects by selling equity. “There is no way that we are in a bull market,’’ he said. “Underwriters will want to be confident that the worst is behind us and that it is safe to underwrite these stocks again.’’
Officials say underwriters have good reason to be cautious. The selloff in the resource sector has forced many companies to make tough decisions about whether to delay projects or forge ahead.
Some have been forced to conserve cash by amending option agreements, allowing companies to defer exploration spending commitments. “I would love to say that things are improving,’’ said John Icke, interim President and Chief Executive Officer of Teslin River Resources Corp. (TSX: V.TLR, Stock Forum).
But after seeing its stock price fall to 2.5 cents, Teslin recently struck a deal with Eureka Resources Inc. (TSX: V.EUK, Stock Forum), allowing Telsin to delay spending on the Frasergold project in central British Columbia.
It is why Icke said it is difficult to make any blanket statements about the state of the resource venture industry.
“I think you have to look at it from a company by company basis,” he said.
Trevali, by contrast, is going ahead with projects in Canada and Peru, even though the company has seen its stock price fall from over $1.60 to 93 cents.
Last week, Trevali said it had arranged a $10 million bridge credit facility to fund development of a zinc-lead-silver mine and mill in New Brunswick. The company is in the final stages of arranging a $50 to $60 million debt facility and hopes to be able to make an announcement soon.
“Things are definitely better than they were a month ago,’’ said Gordon Medland, Chairman of Leede Financial Markets Inc., a Vancouver brokerage with a traditional focus on early stage resource exploration.
However, Meier and Medland both say any improvement in sentiment has yet to show up in deal flow numbers.
Medland said he is currently working on a couple of financing deals. However, it could be another few weeks before he is in a position to talk about the companies involved, he said.
PI Financial, meanwhile is working to compete a previously announced agreement that will see it acquire the client accounts of Vancouver-based Union Securities Ltd., as well as sixty Union investment advisors. PI said the deal is part of a strategic focus on the growth of its operations.
Once the deal is complete, PI will have offices in Vancouver, Victoria, Calgary, Regina, Winnipeg and Toronto, as well as 250 employees on its payroll.