The Junior Mining Market Environment 

Kass, let’s start with you. What’s it like for junior miners to be raising money right now? 

It’s currently very difficult for most junior mining companies to raise money and this has been something that has persisted for the past three years. If one looks at a five-year chart of the TSX-Venture Exchange, the junior market had a strong run during 2020 and into early 2021, but has been on a three-year downward trend, during which the index halved.

Miners focused on critical metals have generally had it a little bit easier, given the broad understanding of and global focus upon the energy transition, but the gold industry has especially struggled.  Many companies have had to put their exploration programs on hold as they’ve just been unable to get the financing to move projects forward.  The lack of available capital provides significant investment opportunities to help get these programs going and investors can be creative and strategic around structuring investments.  

Figure 1: TSX-Venture Exchange

Joe, how does that contrast with your market in Australia?

There’s a lot of similarities with some differences.  Lithium is a big part of the market in Australia, so that’s been a bright spot.  And, we’ve also had some high-profile discoveries.  However, in junior mining, the market window for financing opens and closes quite abruptly and a lot of junior company management teams are feeling the financing market window is currently shut, or very narrow.  As investors, that means we’re seeing bigger discounts, we’re seeing full warrants being issued, and we’re seeing preferential rights on the table. Junior company management teams are having to work harder to attract capital. 

Rhys, how are technical or commercial results being received by public market investors?

Well, as we all know, commodity markets are very cyclical with each commodity having its own cycle. Results are quite dependent on the commodity and where it is in that cycle. In relation to technical and commercial results, we’re seeing a wide spectrum where some miners, predominantly battery metals focused, are putting out average results and getting quite a lot of love from the market, while others are being completely ignored.  It’s been all over the map.  In the base metal space, it’s slightly different because there is always a shortage of quality projects.  If you have good project economics and you’re putting out quality work, you are generally being rewarded – but maybe not as much as you would have in years past, and that’s evident when you speak to management teams. 

Kass and Joe, anything to add?

Some Juniors are putting out good drill results. In a normal market, they would garner quite a bit of trading activity, and their share prices are barely moving. Speaking with many of the juniors, they’re just trying to develop a thoughtful strategy of how and when and what type of news the market might want to hear, better yet, respond positively to. 

The liquidity and daily trading volume in the junior mining sector is currently low.  I think that speaks to a lack of confidence or uncertainty that’s out there.  Investors are wondering what’s coming next, so maybe I’ll just sit on the sidelines.  And, when companies do release results, even when those results are good, it can be seen as an opportunity to exit which causes a drop in share price. It’s sort of a distorted quirk in the market right now. 

Joe, are equity prices reflecting commodity price levels? 

Yes, in the sense that current and near-term commodity prices are always a major driver of equity prices. But it’s important to differentiate between the commodity prices we’re seeing today, and people’s expectations of the future period when juniors hope to be in production and actually realize that pricing.  It’s a widely held view within the sector that, although commodity prices may be weak today, most industry participants can see the opportunity that’s in front of us given all the macro trends we’re seeing. Remember, however, as well as differentiating between today’s prices and tomorrow’s prices, it’s also important to differentiate between commodities.  Copper is a clear example where there is that very strongly held view that copper prices are going to be better in the future, but with some near-term uncertainty around China, hence we see more long-term upside in the price of copper than in other commodities such as thermal coal. 

What is the mood among junior company management teams? 

There is a bit of glumness amongst the management teams and the junior mining companies.  However, they have clear optimism about all the trends that portend well for the sector and they believe the time is now. 

I agree with Kass. It’s definitely an interesting dynamic with the management teams.  When you walk into a meeting, rather than talking about their technical advancements, the first thing they want to tell you about is how they’re conserving cash and reducing spending. The other interesting thing is that many of them are interested in what corporate activity they could explore. Merging with neighboring companies and projects for synergies or board changes, but generally how they can reinvigorate their story.  So, while the mood may be slightly glum, they are also getting creative in terms of how they think about their overall, long-term strategy and positioning in the marketplace, which is healthy. 

Kass, what do you see as the opportunities or where are you focused right now? What is your current approach to investing?

Critical minerals are definitely an interesting space to be looking at. There are a lot of high-quality projects out there. They’re trading at attractive valuations, despite their ability to continue to advance their projects. Particularly within the junior space, I’m looking at gold. I see a lot of deep value in gold right now. Many are trading at long term lows.  They continue to advance their projects and de-risk them with pre-feasibility studies or feasibility studies and are just trading at fractions of what they were a couple of years ago. It’s an exciting time to be a junior mining investor right now. 

Not to sound too repetitive or too bullish, I totally agree with Kass. I think the gold space is just a no-brainer at the moment.  In North American jurisdictions, it just feels like a space where you know it’s going to re-rate at some point in the near future, and you want to get in before that happens. 

The mines of the future are definitely on sale at the moment.  I think we’ll look back at this time and think we should have deployed even more capital.