The purpose of this presetnation was to review how the Australian junior explorers responded to the bust in the late 1990s and from this identify strategies for how the current generation of juniors can survive the Global Financial Crisis.
The key messages were:
- Over the next 12 months exploration spend will drop by 50% over the 2007 peak.
- Although Juniors have "skinny" cash reserves (median of 1.1 years) this is in-line with where their rates have been over last decade.
- The main source of money for the Juniors are established companies raising equity from their existing share holders – the rate is 5x that of new IPOs
- The sector will struggle through by a combination of cutting back on expenditures and (assuming they do a good job communicating their strategy) through equity raisings from their existing shareholders.
- Most Australian Junior explorers will survive the downturn. Even so, I predict that 20% could leave the industry within 12 months.
- The average life expectancy of a Junior company is ~12 years ... which is equal to the life expectancy of a dog !
- The current climate creates great opportunities for acquisitions and consolidation
- History shows that great companies are born in adversity
- Companies need to focus on what's important - success comes to those with a strong vision to find quality assets.
- My biggest concern is that Juniors are cutting-back spending money-in-the-ground. If they don't drill, they won't discover.
Note: Please note that the presentation is a little "dated" in that the Junior sector has been surprisingly robust … so my predictions of gloom & doom were are a little overblown.