A dearth of junior financing has painful implications for the most important junior asset: brains.
HALIFAX, NS (MINEWEB) – It was fitting I caught John Kaiser a few hours before he was on his way to attend a meeting in Vancouver about the dire state of the junior market. I had called Kaiser, the California-based owner of Kaiser Research, to get the latest on junior finances. He gave me that. It’s not good.
751 out of 1,789 companies on the TSX Venture that Kaiser compiles data on (near all) have less than C$200,000 in the bank. This group has swelled by about 50 percent since about the same time a year ago. Many of these companies have marketcaps around C$1 million.
All this is a real problem for juniors because, as Kaiser and others have pointed out, it costs about C$200,000 a year for juniors companies just to exist: e.g., to pay listing fees, accountants and Vancouver and Toronto rent. Not only that, but if your marketcap is $1 million or so, you can’t really raise money to fund much if any exploration, Kaiser noted. Companies are only allowed to issue 25 percent of their share count a year in financings, without shareholder consent, making it difficult for these million dollar juniors to raise cash to be spent beyond the bare necessities, like salaries.
And the ongoing dearth of financing cannot be dismissed as a silly blip. According to Kaiser Research data you have to go back to 2008 or 2003 for a period where a financing drought persisted so long. Of course the 2008 downturn turned around quickly, unlike today, so the better analog, as Kaiser pointed out, is 2003, near the beginning of the resource supercycle and before gold’s forceful rise. Back then financing was tough and the junior market a whole lot smaller.
In the unfolding crisis of junior cash there has been a fair bit of tough love going round: that there are too many juniors and a culling is needed. Kaiser agrees. He thinks too little capital is being diluted by too many companies on an exchange addicted to exorbitant fees.
The evolutionary thinking here goes that the financing crisis will cull the sickliest promoters peddling bad projects while the hardiest prospectors and veteran geological teams will weather the brutal market only to emerge stronger on the other side, once money starts to flow again, whenever that may be.
Indeed it’s a scenario Kaiser drew on as well, though in terms of cash as ammo. He sees opportunity now in teams that still have cash that are drawing on their last bullets to shoot at their best targets. Good things can come of this in terms of discovery.
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