The general consensus these days is that the junior mining sector is in a state of flux and decline.  I briefly touched on this in a previous article “12. Financings – It Helps to Have a Credible Path Forward”.   Currently it is difficult for junior miners to get funding and the stock prices of many are on a steady downward trend.   Some observers say this just a temporary phase and the industry will cycle out of it as it always has in the past.   I’m not fully convinced that this will be the case, although I am hoping so since my employment is in the mining industry.
I am reasonably confident that metal prices will improve over time, but I am not sure that alone will result in the junior mining sector invigorating.  I think there is a general paradigm shift as to how personal investments are being made and how the mining industry is being viewed by the public.  The following article has my personal opinions on the present and the future.
Mining companies have been in the media with stories of cost over-runs, mine shutdowns, fatalities, protests, and environmental incidents.   In addition, the junior mining sector has had a few notable scams and companies have gone bust with little to show to investors.  In some instances company management were over promoting  sub-optimal projects simply for the exercise of raising the stock price and cashing out.  Not all companies fell into this category, but enough to possibly give an unfavorable image of the investment side of the industry.  I think it may take more time for the industry to recover from the overall image being created by the events described above.  The implementation of sustainable mining practices is a real attempt by industry to rehabilitate its image, but is anyone out there listening?  Regarding that I have three general observations:
  1. Yield Investors: When many of us baby boomers were younger, in our 30’s to 40’s and working with a steady income, we were willing to speculate on the mining stocks hoping for the big payoff, and there were many payoffs in the past. Also there wasn’t much else to speculate on. Now those same baby boomer speculators are moving into early retirement and financial planners push them into fixed income and dividend paying investments with 2% to 4% yield.  The risk tolerance profile for many of these investors has been shifted from speculation & growth to income & capital retention. Retirement is not that far away and therefore I am unsure how many of these people will ever re-enter into the junior mining stocks if metal prices do improve.  The majority don’t pay any yield.   Some do; looking at the yield for Barrick (1.7%), Goldcorp (3.2%), and Yamana (1.6%), yield seeking investors would view their stock prices at their current levels as being adequately priced.   If their share prices rise, yield goes down and makes them less attractive to those yield investor.
  1. Where to speculate now? So where are the 30 to 40 year olds speculating today? Younger people today may still speculate with their free cash, but they are not hoping to be investors in the next Voisey’s Bay, Kidd Creek, or Hemlo.  They never even heard of them.  They are hoping to be investors in the next Apple, Google, or Facebook.  The dot com bubble of 1999–2000 seemed like the junior mining companies and their investors trying to jump into technology and it was mainly a bust at that time.  However these days several of the new breed of dot-com companies are getting huge share price jumps for speculators.  Is it a tech bubble – maybe so.   I don’t know whether the younger speculators will ever have interest in the junior mining sector since they never heard of it and there is so much more happening out there.  Anecdotally I have heard that retail investor attendance at the Toronto PDAC and the various road-shows has been declining over the last couple of years, which may confirm a general lack of interest in mining sector investment.
  2. The perception of mining: The mining and energy news shown in the media is not helping the industry, focusing mainly on the negative aspects. The resource business appears to be somewhat analogous to the meat industry. Everyone like their aisles of nicely packaged sushi, chicken, and beef at the grocery store but nobody wants to see how it actually gets to the store shelf.  Millennials also love their metallic gadgets and the energy used to power them up, but please don’t show how it actually gets from mine to smelter to store shelf– it’s quite upsetting to them.
An interesting group of companies are the mid tier producers that have operating mines and generate profits, but do not pay a dividend.  I will be curious to see how such companies shares will perform since they don’t satisfy the yield investor at this stage of their life nor may they satisfy the pure speculator looking for order of magnitude gains.
The larger mining companies will always have their investors like pension funds and mutual funds, however the junior miners may be a different story.  Possibly private equity and equity-based crowdfunding will be the long term solutions since they are a developing field.  I have heard that one geological consulting firm already has a plan in place to help crowdfunders with their 43-101 report even though they don’t yet have the money to pay for the report.   I also understand that Canada now has two private stock exchanges that allow private equity to change hands, which may facilitate more private equity involvement in the future.
My bottom line is the junior mining industry needs to have a self-examination with respect to what the future holds.  The changing population demographics and society’s urbanization may result in fundamental and permanent changes to how the financial side of the junior mining industry will function.  Just my opinion.

3 thoughts on “25. Junior Mining – Are People Still Investing?

  1. hardrockminer

    What has also changed is how seniors do exploration. Back in the Hemlo days (I worked there, and I worked at Kidd) the seniors all had large exploration groups and a lot of plays. That system is gone and has been replaced by the juniors who fund grassroots stuff and then vend it to the seniors like Rosemont did to Hudbay.

    As long as prices rise it means demand is increasing, and that is a good sign for the juniors.

  2. Ken Kuchling Post author

    If I was a senior miner, I would like that system. Let me spend my money on actual development of mines and let the juniors handle the high risk aspect of exploration. If they find something that fits my project portfolio, then I buy them out. However this system requires a source of funds for the juniors and that funding seems to be drying up these days. Private equity can fill some of the gap but probably not all of it.

  3. hardrockminer

    Yes, the funds have dried up. I’ve been told there is money out there for good prospects, but it’s expensive money. As for equity offerings…forget it for now.

    But I am pretty sure this is part of the cycle and it will turn around when metal markets turn around.

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