The past four years have been bleak for junior miners, but the downtrend is finally coming to an end, says Continental Gold (TSX: CNL) CEO Ari Sussman.
“We’re definitely at the beginning of the next uptrend and raising capital is back,” he said at PwC’s Mega Mining Minds event in Toronto in December.
“I know that for everyone in the gold business, things right now aren’t great, but the interest level is much higher than it was one year ago … Going forward, raising money is going to become a much easier thing.”
While Sussman, part of a panel of junior mining leaders at the event, sounded an optimistic note on financing for the sector, no one on the panel suggested that the days of easy money for juniors would be returning.
Regardless of where the market goes, Stephen de Jong, president and CEO of Integra Gold (TSXV: ICG) advised that juniors need to think longer-term, beyond price movements in commodities. They also need a plan to create returns for their shareholders, he said, noting that credibility is one of the biggest problems for microcap juniors in particular.
“Junior miners, microcaps, need to start looking at when we take investors’ money, what is our actual plan? Is it really just to drill a hole, cross our fingers and hopefully it works out and the stock price goes up?” he said.
“Nine times out of ten in exploration, the initial plan doesn’t work out. If it doesn’t work out, are we able to walk away? Or are we there to protect our jobs and just keep drilling,” he continued, even when there’s no good chance of finding something.
While not microcaps, the three junior mining companies represented on the panel all have been able to raise significant cash during a difficult period for the sector.
Uranium explorer NexGen Energy (TSX: NXE), for example, has taken a technically and financially rigorous approach at its Rook property in the southern Athabasca basin that has instilled confidence in investors, including Hong Kong-based Li Ka-Shing of CEF Holdings, who entered into a $60-million financing of unsecured convertible debentures in the company in June. The financing, which is meant to support moving Rook toward production, was unusual for an exploration-stage company. (NexGen’s Arrow deposit at Rook has an inferred resource.)
CEO Leigh Curyer said NexGen’s focus on having the best people, pursuing an objective exploration approach of building data sets from the ground up, displaying financial discipline, and being in the friendly jurisdiction of Saskatchewan, have all lowered the risk of investing in the project.
“Li Ka-Shing’s view is that it’s a very low-risk environment and a very large reward environment,” Curyer said.
“We have had more than $10 go into the ground for every $1 of overhead. And that gives investors a really good sense of confidence that even though it’s high risk, that will give you the best possible chance to be successful.”
It’s not just the financing environment that has become more difficult for juniors, said Sussman. The expectations for juniors in terms of work on CSR and environment have gone way up over the past 30 years.
“Now we need to match dollar for dollar your exploration budget with community relations, CSR, environmental management: These things matter from Day 1 today,” Sussman said. “That is a big challenge a lot of people still haven’t woken up to.”
The lower threshold for risk among investors also holds true for majors, who in better times, have been far less cautious when bidding for juniors to shore up their project pipelines.
“Senior mining companies have become much more risk-averse,” Sussman noted. “They want the projects derisked and that is the biggest challenge.”
Juniors looking to put together their first exploration dollars need to be creative because those first dollars will be much more difficult than subsequent financings, the panellists agreed.
Asked for advice on fundraising strategies by moderator David Redford, a partner at Cassels Brock, the panellists said that juniors should look to new strategies and avenues that have opened up such as crowdfunding and alternative financing through royalty companies.
Integra’s de Jong noted that there is also institutional money looking to invest in juniors of around $100-500 million with quality, advanced-stage exploration projects.
“There’s a real black hole of projects out there that meets the institutional money (standards) even though there might not be as much institutional money as there was five years ago,” de Jong said.
In 2012, when Integra’s Lamaque project was at an earlier stage and the markets were starting to sour for mining investment, the company chose to invest in its investor relation team.
“Everything we did was just getting harder and harder — we had to work really hard to raise $2 or $3 million,” de Jong recalls.
As a result of expanding its team (Integra’s IR team was larger than Goldcorp’s at the time), the company was very successful in raising money. In 2013, a financing originally planned to total $4 million ballooned into a $12-million raise with about 150 subscribers, de Jong noted.
For juniors nimble enough to take advantage of them, downturns can yield company-building opportunities.
Integra, for example, acquired the Sigma-Lamaque mill and mine, located just 500 metres away from its Lamaque project in Quebec, for only $7.6 million in 2014.
And NexGen’s Curyer noted that his company was incorporated in December 2011 – only eight months after Fukushima.
While they looked like “crazy men” for getting into uranium exploration so soon after that, the team understood the longterm fundamentals of uranium remained strong.
“I think what distinguishes the thread of our companies (on the panel) is we’re looking for the top-quality assets and even though the commodity price cycle has been very, very low, it has actually generated an opportunity to get your hands on such good assets.”