MONTREAL – Canada’s junior mining companies, hit hard by low metal prices and tight financial markets, still face months of challenges after the sector’s market value dropped to the lowest level in at least six years, according to an industry report.
“We don’t expect any improvement until the end of the first quarter of 2014,” said Nochane Rousseau, the report’s author and the Quebec mining leader at PricewaterhouseCoopers.
While market conditions won’t necessarily worsen, small companies will continue to feel the pressure through next April or May by continuing to burn cash amid challenges in raising financing. About half of the companies have changed CEOs and larger miners are also cleaning their own houses and not at the buying stage.
“If they are not able to merge or to sell their asset then for some of them they may have to close their business or to be delisted with the (TSX Venture) Exchange.”
Junior gold miners, which account for 41 per cent of the top 100 firms, have been particularly hard hit in the past year. The market capitalization of all junior minors fell by about half in the past year to $11.1 billion, according to the report.
As of June 30, the top 100 accounted for $6.5 billion of that total, down 44 per cent from 2012. That followed a similar slide in 2011 when the value peaked at $20.6 billion.
The sector has been on “a downward spiral since 2011, when commodity prices were at or near record highs and markets recovered from the devastating impact of the 2008-09 global financial crisis,” said the annual report released Monday.
The accounting firm said the mining companies listed on the TSX Venture Exchange also saw their cash and short-term investments drop by $695 million to $1.2 billion.
The entire mining sector is facing a “confidence crisis” and that junior companies are hardest hit, said the firm’s global mining leader.
“The junior mining sector is not for the faint of heart,” wrote John Gravelle.
He said the activities of the smaller mining companies are dependent on the market mood and commodities prices.
When the recovery comes, investors will likely first allocate money to senior producers given their stronger balance sheets and proven production and profit-making capabilities.
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