Guest editorial: A heap of trouble for the junior sector – by Ed Thompson (Northern Miner – January 8, 2014)

The Northern Miner, first published in 1915, during the Cobalt Silver Rush, is considered Canada’s leading authority on the mining industry.

A pillar of the Toronto mining community, Ed Thompson kicked off the new year by resigning from his many directorships in junior mining companies. As he tells The Northern Miner, part of the reason for doing so all at once was that he is “trying to make a statement to regulators and government bodies that drastic corrective actions are necessary, or a thousand juniors are going to die or be dormant. Probably won’t help but you gotta try.” The following are his thoughts on the state of the junior sector:

2014 will be a very slow year for mineral exploration as both the senior and junior mineral exploration companies face a plethora of problems. It is not just one or two problems facing the industry but a multitude as the industry comes off its highs of 2003-08.

For the seniors, they have all faced cost overruns on their projects due to a combination of permitting delays, environmental and social costs and delays, and poor engineering supervision in their attempt to develop projects in remote areas of the world.

Virtually no major mining project in the world performed to specs and the financial markets have downgraded these companies. This negative publicity has rubbed off on the junior markets. If the majors can’t perform, why should we risk our money with the juniors.

The junior exploration companies mainly face a different set of problems due to the structural demands of their financings. To understand one of the basic difficulties, you need to understand how the system generally works. A typical junior raises enough money to carry out exploration for a year, often on one major project and sometimes several small projects.

They generally have a narrow time window due to climate, to do the work and get results. They use these results to raise money for the next year’s programs. If the work is delayed for any reason — e.g. permitting, local opposition, enviros, etc. — the season is lost and the potential investors often lose interest. The share price declines and further financings are tougher and at much lower prices. A death spiral.

There are a thousand junior companies out there at risk and no one seems to give a damn.

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