Mining Markets recently spoke with Michael White, president and CEO of Toronto-based IBK Capital, for his views on the junior mining market. As the head of IBK, a private investment bank that largely deals with junior miners, White has had a front-row seat to the suffering of these companies over the past two years. While some companies won’t survive the current market malaise, White believes the market is at, or near, a bottom — and predicts a migration of talent from the majors to juniors that will build the next generation of majors.
Mining Markets: IBK does a lot of work with resource juniors, so you’ve got a front-row seat to the difficult markets they’ve been facing. Could you describe the current financing environment for the juniors?
Michael White: In the industry we talk about windows being open and windows being closed, and arguably, the window is closed. There are a few financings getting done, it’s not impossible to get financings completed. Sometimes these companies have to be a bit creative in order to fund their exploration or development, but generally speaking, the mining market today is much poorer than it was a couple years ago.
We really have seen a decrease in value in the equities for the exploration companies and the producing companies in metals and mining over the last two years. So it’s not something that’s new if you look back at the charts, the sell-off has been going on for two years. It’s a tough environment for financing.
MM: You must be seeing some desperation out there.
MW: Yes, some companies are at the point where they’re just keeping the lights on. They’ve suspended operations in the sense that they’re no longer active in the field, or if they are, it’s on a very limited basis. They’re paying their overhead, which typically is their office rental space, listing fees, accounting fees — public companies do have a minimum amount of expenses they have to cover each year. And some of them are doing just that — they’re just raising small amounts of money, passing the hat, so to speak, and pulling in a few hundred thousand dollars to stay afloat.
There are some people in the industry who believe that 50%-plus — and I’ve heard as many as 85% — of these juniors will disappear. I don’t believe that it will be that many, but certainly we will have many that decide to delist. And then even if they delist from the Toronto Stock Exchange, there are alternatives. They may find themselves listing on the CNSX as an example, which is a cheaper exchange in terms of listing expenses.
So we’ll see, there’s definitely a shakeup going on and it’s fuelled by a lack of fuel if you will — there’s no money in the system. But this is nothing new, this business is cyclical and we happen to be, I believe, at the bottom end of the cycle, or at least close to it. This didn’t just happen a few months ago — we’ve been experiencing a selloff now for two years now.
MM: Are you keeping up to date with the Venture Company Association in Vancouver? John Kaiser and Joe Martin of Cambridge House are involved with it — they’re talking about the regulatory environment for juniors, the cost for juniors to operate — and a whole bunch of other things that they believe are putting more pressure on juniors — high-frequency trading, accredited investor rules, things like that.
MW: I am not active with them, but certainly that’s something that the Emerging Market Dealers Association (EMDA), has been talking about — the idea of improving the investing environment by expanding the audience. And that’s something that’s been kicked around for a while now. Ontario doesn’t have an offering memorandum prospectus exemption as they do out west. There are also thoughts of lowering the bar when it comes to accredited investors, allowing more people to become accredited investors based on their wealth, but also based on their experience and what they do in life. For example, why can’t a securities lawyer be an accredited investor? They’re supposed to understand a little more than the average person about this business.
I’m all for expanding the audience. Certainly if there are people out there that would like to invest in these companies and understand the risks that come with owning these shares, and understand the rules and regulations around private placements, then perhaps it’s something that should be looked at. But I’m not sure how much that would add to what we do in terms of funding our clients. There is a lot of money available to participate in private placements, it’s just not interested in mining and metals at the moment.
MM: So what will solve the problem? Historically, what do we see at this point in the cycle?
For the rest of this interview, click here: http://www.miningmarkets.ca/news/ibk-capital-ceo-calls-the-market-bottom/1002530787/x0ps44wfdWrlxu0q82vM20/?ref=enews_NM&utm_source=NM&utm_medium=email&utm_campaign=NM-EN08152013