Presentation: International Mining and Resources Conference (IMARC),
Location: Melbourne, Australia
The presentation gives a high level overview of the recent trends in exploration spend and discoveries for the World for the period 1975 to 2013.
Most of the above has been discussed in previous presentations. Of particular interest is a section on junior companies. Given that these companies account for ~40% of total spend and 50-60% of discoveries by number (though most of these are small in size), the future sustainability of the mining industry is dependent on the health of this sector.
- I carried out a detailed analysis of 1980 junior explorers listed on the ASX, TSX/TSE and Other Exchanges. The cash position of many of these companies is dire. Based on the latest available data, 19% of the Australian juniors, 50% of the Canadian juniors and 68% of the other juniors (mainly AIM and NY Pink sheets) have less than AUD $200,000 of cash reserves.
- Of more important concern is the market cap of the junior companies – as this is what is used as “collateral” to raise exploration funds. By way of example it is relatively easy for a company with market cap of $20m to issue $1m via a share placement, no so easy if your market cap is only $1m.
- Based on the same analysis of 1980 junior companies I found that 1% of the Australian Juniors, 12% of the Junior juniors and 20% of the other juniors have market caps less than AUD $0.5 million. These companies are at great risk of going under. At the very least they will be in deep hibernation and/or require cash injections / sustaining loans form their principals.
- Notwithstanding the above I made a tongue-in-cheek comment that junior companies are like cockroaches … they can both survive a nuclear winter!
- Junior explorers are incredibly resilentat. By wat of example I did a detailed study of 100 Junior Explorers listed on the ASX in July 2004, found that 66 of them were still active ten years later (in July 2014). It is estimated that the average life expectancy of a Junior Explorer is around 10-20 years. Their longevity depends on ongoing funding from its shareholders. To achieve this, the company needs to generate a steady stream of good news on its projects. This, in turn, requires them to actively work their exploration leases.
- Ironically, the riskiest activity a junior explorer can do is actually build a mine – as the risk of failure is very high. In my survey 28% of the juniors did this, and of those one half of the companies went quickly broke or closed down their operations. Another quarter were taken over by other companies.