Following on from my presentation to the IMARC Conference in September 2014, the AusIMM invited me to write a short article for their Bulletin Magazine detailing my observations on the health of the Australian Junior Sector.
Observations/comments are as follows:
- In 2014 only eight new junior exploration and mining companies were floated on the ASX. This is down from 17 in 2013 and 38 in 2012. In terms of junior companies leaving the ASX, 33 companies departed versus 22 in 2013 and 28 in 2012. As at the end of December 2014 there were around 650 junior explorers and mining companies listed on the ASX. After netting the two factors out, the total number of junior companies on the ASX fell by only 20 over the last three years. This is surprisingly low – and hints at their remarkable resilience
- Based on a random sample of 100 Junior Explorers listed on the ASX in July 2004, found that half of them were still active ten years later (in July 2014). The average age of the 52 survivors (as at June 2014) is 21.5 years; and the 48 casualties lasted 13.2 years. This gives a weighted average age of at least 17.5 years (and still counting).
- Of the 48 companies that are no longer exploring, 28 of them built a mine (ie moved up the food chain to become producers). Unfortunately only 10 of these are still in the business of mining. Five of the companies were acquired and four closed down their mine and reverted back to being an explorer. The remaining nine companies went into administration. This is a very high failure rate – and highlights the riskiness of this sector
- With regard to the 100 randomly selected companies, I looked at the value proposition of investing $1000 in each of them. Over the ten year period the value of the portfolio increased by 60% (equal to a compound growth rate of 4.9% in nominal terms)
- On an individual company basis, the returns were incredibly asymmetric. 78 of the companies lost money (with 18 of them returning less than 1 cent in the dollar) and 4 of the 22 successes gave a >10-fold return. It is this small handful of successes that paid for the sins of the others
- Looking ahead, I note that 17% of the ASX-listed juniors have a market cap