Feb 25 (Reuters) – Many of the small Canadian-listed mineral explorers that supply global major miners with new projects are considering merging with peers, according to a Reuters survey, but for most it may be tough to close deals.
Just over half the Toronto Stock Exchange and TSX Venture-listed miners and explorers that participated in the Reuters survey said they are at least somewhat likely to announce a “merger of equals” over the coming 12 months, but only a handful said such a deal is “very likely.”
Out of favor with investors, most explorers – or junior miners – badly need cash. And the few with strong balance sheets figure there must be some great deals around. Several industry leaders have argued that consolidation could fix the sector.
But such discussions often come to a halt when executives at target companies realize that they will have to sell cheap. Some stocks have dropped more than 90 percent over the last two years, and bids reflect the low valuations.
“The guys running these small companies are promoters. They’re dreamers, and they’ll hang in until the cows come home,” said Tom Caldwell, head of brokerage and wealth manager Caldwell Securities. “Most would rather hang in there and end up with $10 in the treasury and start the game all over again in two years.”
The fate of the juniors has implications for the broader industry and commodity markets. They drive global mineral exploration and when they succeed, often become takeover targets for bigger players.
Yet after a more than two-year funding crunch, many have scaled back or halted the exploration work that is their reason for being, and without a buyer or investor they could remain in hibernation or even risk being delisted.
While some money has started to flow back into the sector, there are some 1,600 miners and explorers on the Toronto Stock Exchange and its junior board, the TSX Venture, and competition for funds is fierce.
Nearly half the companies for which Thomson Reuters data is available had less than C$500,000 ($451,700) in cash and short-term investments at the end of the third quarter of 2013.
Talk of consolidation is sure to bubble on Sunday when the world’s largest mining industry gathering, the Prospectors and Developers Association of Canada convention, kicks off in Toronto. More than half the world’s public mining companies are listed in Canada, and the majority are small explorers.
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