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The carnage in the junior mining world is every bit as bad as advertised, but there are a few glimmers of hope. That is the main message from a review of the sector released Monday by PricewaterhouseCoopers LLC (PwC). The study, conducted annually, chronicles the dramatic ups and downs of the top 100 companies on the TSX Venture Exchange.
Given the lack of financing available to most of these firms, it goes without saying that the past 18 months have been a slow-motion nightmare. According to PwC, the total market cap of 2012’s Top 100 plunged 43% compared with 2011 (as of June 30 in each case). Only 13 of them had market values above $200-million this year, compared with 36 a year ago.
As economic uncertainty increased last year, investors became more risk-averse and demand for junior mining equities evaporated. That made it extremely tough for these companies to stay active. Equity financing among the Top 100 dropped 41% to $1.6-billion year over year, and the smaller exploration plays barely raised anything.
Senior and mid-tier miners have focused on cash conservation and shown little interest in acquiring them. “The pure exploration companies are at a stage where they need to hunker down and make sure they don’t run out of cash before they turn around,” John Gravelle, PwC’s mining leader for the Americas, said in an interview. He noted most of them have done a good job of protecting their balance sheets.
With all that said, deal activity and trading liquidity in the junior space has picked up in recent weeks, and PwC believes that it bodes well for the future. The Venture Exchange is up almost 11% since the start of August.
Mr. Gravelle called last month’s $300-million initial public offering of Ivanplats Ltd. a potential turning point that could bring more confidence to the sector. Likewise, Brazilian billionaire Eike Batista’s recent takeover bids for two Toronto-based junior gold companies (Galway Resources Ltd. and Calvista Gold Corp.) are a sign that M&A could gain steam again.
For the rest of this article, please go to the National Post website: http://business.financialpost.com/2012/11/05/glimmers-of-hope-for-junior-miners-after-slow-moving-investment-nightmare/