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Disrupting the downturn: Juniors that are defying the odds

by Virginia Heffernan on October 20, 2015 market

The fact that almost all of the equity raised by the top 100 juniors listed on the Toronto Venture Exchange (TSX-V) in 2015 was attributed to just 15 companies is further proof that good projects, managed well, continue to attract investors despite the protracted slump in the sector.

The TSX-V’s top 100 junior miners raised $515 million in equity and $278 million in debt in 2015, but most of the money went to a select few, according to PwC’s annual report on the sector. What did they do differently?

In its analysis of the junior mining sector, PwC examines some of the ways companies are keeping their heads above water and even thriving:

Oban Mining & First Mining Finance: consolidation works

One problem is that too many juniors are chasing too few dollars. The solution is for companies – especially those working in the same region – to consolidate their assets. The benefits are obvious: lower administrative costs, more cash, shared risk, and better security and potential upside for shareholders. “(Consolidation) may require management teams to set aside their personal egos and ambitions, but in the long run it will strengthen the sector overall,” says the PwC report.

In August Oban Mining acquired not just one, but three companies: Eagle Hill Exploration, Ryan Gold and Corona Gold. Osisko Gold Royalties investment of $18 million for a 20% stake in the company further strengthened Oban’s position.
The merged entity has gold prospects throughout Canada and recently raised $13 million in a bought deal financing to boost its treasury to $73 million.

First Mining Finance is taking consolidation a step further with plans to scoop up 40 to 50 undervalued or distressed assets and engage third parties to develop them as the market improves, retaining a royalty or other residual interest. Shares of First Mining are up 30% since the company acquired Gold Canyon Resources and PC Gold in early September.

Premier Gold Mines: partnering prevents dilution

Although surrendering a piece of a promising project is never easy, the alternative – losing the project altogether – is worse. In the current capital market environment, juniors are partnering with mid-sized or major companies that have the cash and other resources to keep projects moving.

Premier Gold’s Hard Rock deposit in northern Ontario is an example of a project which, had equity and debt markets been more receptive, might have succeeded independently. But in order to prevent further share dilution and secure the cash and mining expertise needed for development, Premier sold a 50% interest in the project to Centerra Gold. Following the transaction, Premier was able to raise $27 million through a private placement.

NovaCopper: non-traditional financing pays off

Lacking access to equity markets, some juniors are turning to metal streaming deals and royalties, and even to their peers, for money.

NovaCopper’s acquisition of Sunward Resources is an example of the latter strategy. In this case, NovaCopper had a promising asset (the Arctic VMS project in Alaska) but no capital, while Sunward had lots of cash but an uneconomic project in Colombia. Recognizing that money would be difficult to raise by any other means, NovaCopper paid a premium for Sunward’s $19.4 million treasury by exchanging each Sunward share for one third of a NovaCopper share.

As a result of the deal, NovaCopper now has the cash needed to complete a pre-feasibility study on its Arctic project.

Jaguar Mining: preparing for bankruptcy unlocks value

Sometimes a closer look at both assets and balance sheets identifies hidden value that may have been obscured during better times. Facing bankruptcy in 2013, Jaguar Mining was able to retain its assets through the insolvency process by using financial models to better understand the company’s business and cash flow requirements. Jaguar was even able to find, and partially recover, $40 million in refundable tax credits.

Jaguar appears to be on a slow road to recovery. In the third quarter, the company produced more than 25,000 oz. of gold from its mining operations in Brazil. The value of its shares jumped 47% in September.

“Innovative, determined and resilient companies are finding the cash they need to keep moving forward in an incredibly difficult market,” says PwC mining leader Liam Fitzgerald. “Miners need to act now – today, not tomorrow – because tomorrow may simply be too late.”

 


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