While junior mining companies continue to struggle in the wake of weak commodity prices and tight financing conditions, not everyone is suffering.
In its annual junior mine report,
PricewaterhouseCoopers says some companies have cut costs and are hunkering down to weather the market storm.
A prime example is
Sierra Metals Inc. (
TSX: V.SMT,
Stock Forum), a company that topped a PricewaterhouseCoopers' list of 100 TSX Venture-listed mining companies as measured by market cap.
The company achieved its goal by graduating to the Toronto Stock Exchange in July.
It wasn’t an easy journey, but perseverance has paid off, PricewaterhouseCoppers said in its report.
“Cash is king and mining is very cyclical,” explained Sierra’s chief financial officer Fernando Piccini.
“Having strong, high quality assets is also very important, but having a strong balance sheet is critical to navigate through the cycles that will inevitably come for a junior mine company.”
Sierra has three mines in commercial production; the Yauricocha mine in Peru, and the Bolivar and Cusi mines in Mexico.
The company became eligible to trade on the TSX in July 2013 as a result of a deal it made in 2011 to buy 82% of the shares of Sociedad Minera Corona S.A., and with it the Yauricocha mine. It was a move that transformed Sierra Metals into a mid-tier player.
Piccini said Sierra is fortunate that it doesn’t need additional equity or debt financing to execute its medium term growth strategies, he said. The company’s cash position now stands at over $40 million.
In order to put Sierra in a better position to fund growth through possible mergers and acquisitions, the company was recently working new, more favourable terms to finance its roughly $70 million in debt, including more flexible terms and a lower interest rate, despite a rising rate environment.
Meanwhile,
Copper Fox Metals Inc. (
TSX: V.CUU,
Stock Forum) said that in an eventful year, the company was able to raise $2.5 million in a private placement that was fully committed by its director, Mexican businessman Ernesto Echavarria, who owns a majority stake in the company.
“For a junior, it’s a very fortunate to have a major shareholder with that ability,’’ said Copper Fox President and CEO Elmer Stewart in an interview with PricewaterhouseCoopers.
He said Copper Fox’s future rests with a 25% stake in the Shaft Creek Project in northern British Columbia, where
Teck Resources Ltd. (
TSX: T.TCK.B,
Stock Forum) has the other 75%. The company also has exploration programs under way at the Sombrero Butte and Van Dyke copper properties in Arizona.
Another company with a strong cash position is
Lumina Copper Corp. (
TSX: V.LCC,
Stock Forum), a company that ranked fourth on the 100 list. “Patience is important,’’ said David Strang, Lumina’s President and CEO. Strang said he is pleased to be working in a sector that must replace everything that is mined. It is why the company is confident that it will soon find a buyer for its flagship Taca Taca project in Argentina.
TSX Venture Exchange President John McCoach said he sees reasons to be optimistic, even though the sector is facing significant challenges. He was referring to a pickup in trading volumes since mid-summer and the value of the TSX Venture Exchange overall.
“I’m hoping these are good leading indicators of what’s to come,’’ he said.
McCoach said the TSXV has made some changes to try to help issuers, including junior miners, through these difficult times.
Between August 2012 and August 2013, it granted relief from certain existing pricing requirements related to private placement financings. About 60 TSXV issuers took advantage of those relief measures, McCoach said.
Still, PricewaterhouseCoopers could not ignore the fact that the junior mining sector has been on a downward spiral since 2011 when commodity prices peaked after the 2008 market crash.
It said the market cap of companies on the TSX Venture fell 44% to $6.5 billion as of June 30, 2013, in comparison to a year earlier.
The cash position of these companies has also been eroding, dropping by $0.7 billion in 2013 to $1.2 billion from $1.9 billion in the same period.
Overall financings were down 41% compared to 2012, the PricewaterhouseCoopers report said.
Disclosure: Readers should note that Sierra Metals Inc. is a Stockhouse client.