Prospectors and mine developers, the lifeblood of the wider $1.5 trillion industry, are running low on cash as funding dries up, increasing the chances they’ll need to consider sales and mergers to survive.
So-called juniors have enough cash to last 5.7 months, according to the median multiple among 1,273 companies with a market value of no more than $500 million, data compiled by Bloomberg show. That’s 25 percent less than a year earlier, according to the data.
The situation facing the juniors will be a hot topic for the 30,000 geologists, promoters and investors expected to attend the Prospectors & Developers Association of Canada convention, the world’s biggest mining gathering, which started yesterday in Toronto.
Smaller companies probably will seek to merge, or they may “just cease to exist,” said Dan Barnholden, a Toronto-based investment banker at Cormark Securities Inc. “We’ve been counseling guys to manage their treasury very carefully because there really isn’t a lot of money out there,” Barnholden said last week in a telephone interview. “It’s sort of desperate times here now.”
Stock sales, one of the few options available to smaller companies to cover costs and advance projects, fell in 2012 for a third straight year, according to Bloomberg data. Canadian mining companies raised $726.8 million in equity and equity- linked financings this year, 45 percent less than the year- earlier period.
‘Hit the Wall’
“The capital markets have been largely shut down for the juniors,” said Mitchell Krebs, chief executive officer of Coeur d’Alene Mines Corp. (CDE), which agreed last month to pay about C$373 million ($363 million) for junior miner Orko Silver Corp. (OK) “You will see a lot of companies hit the wall in 2013.”
QMX Gold Corp. (QMX), which has projects in Quebec and Manitoba, in May lined up a $45 million loan for its Snow Lake project that was conditional on raising funds from a stock sale. The Toronto-based company is now approaching “non-traditional” funding sources such as private equity as public investors remain reluctant, said CEO Francois Perron.
“The equity is more afraid than the debt lender, that’s how difficult it is,” Perron said in a phone interview last week.
“I’ve been looking for equity for the last 12 months,” he said. “The reality is the traditional sources right now don’t exist.”
For the rest of this article, please go to the Bloomberg.com website: http://www.bloomberg.com/news/2013-03-04/mining-minnows-burning-cash-signal-more-mergers-coming.html