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TORONTO — Everyone agrees that junior mining companies are in a severe crisis. The question is: what should they do about it?
It is a theme that has dominated the Prospectors and Developers Association of Canada (PDAC) conference this year. Working capital is whittling away for hundreds and hundreds of Canadian companies, and they have shown little-to-no ability to replenish it. A culling of the TSX Venture Exchange appears imminent, and few people think that is even a bad idea.
But amid the gloom, there are plenty of experts who believe that capable juniors can get back on their feet and emerge from this bear market in a healthier position.
Speaking at a luncheon presentation, hedge fund magnate Eric Sprott said that too many juniors are taking all the cash flow from their producing mines and putting it into the next one.
“Your market cap will go down,” he said. He argued that the ones who can convert their cash flow to dividends will change their fortunes dramatically. And that will allow them to acquire other companies.
Analyst John Kaiser said that the junior market needs to disconnect from the current situation and simply focus on the future. At this point, investors are using any negative sentiment about the mining sector as an excuse to hammer juniors. He does not see that changing imminently, and reiterated his view that hundreds of them need to disappear, leaving the competent ones behind.
“The sector is held prisoner by a narrative that I think is counter-productive,” Mr. Kaiser said.
Some juniors already view an industry culling as a key part of their strategy.
Jurgen Beier, Canadian mining leader at Deloitte, said a number of his clients have elected to stand back and wait for other juniors to vanish. That would leave far fewer competitors chasing the same capital.
For the rest of this article, please go to the National Post website: http://business.financialpost.com/2013/03/05/junior-miners-in-survival-mode-bracing-for-industry-wide-culling/