On October 17, 2013, the B.C. Securities Commission (BCSC) released a report entitled “BC Junior Mining at a Crossroads: Executive Management’s Perspective“. The BCSC commissioned KPMG to prepare the report in order to help the BCSC to better understand industry challenges and perspectives about the current downturn, and the availability of financing for junior mining companies.
The report is based on interviews with senior executives from 15 junior mining companies headquartered in British Columbia. As KPMG itself cautions, given the small sample size (among other things), the report should not be considered to be statistically representative of industry opinion, but is merely indicative of potential industry opinion.
Most executives interviewed attributed the current difficulties faced by the junior side of the industry needing to raise capital to the cyclical nature of the mining industry and to general economic and market conditions. These factors were seen to contribute to the difficult capital markets currently faced resulting in, among other things, a lack of interest in junior mining equity due to the perception that they are less liquid investments and the need for more senior mining companies to focus on repairing their own balance sheets before becoming interested in acquiring new properties and projects. Participants also identified an older, more risk-averse investor demographic as a contributing factor. Although some interviewees also considered current regulatory requirements to be too onerous and costly, it was generally agreed that addressing these issues would not improve the ability of the junior mining industry to raise funds in the current markets.
Interviewees indicated that these companies will need to find innovative ways to sustain their day-to-day operations and indicated that they expect private placements and other non-public offerings to be the main source of financing for junior mining companies during the next couple of years.
Participants agreed that certain provincial government support, such as flow through tax credits were helpful, but that further support (including support for exploration activities and relations with First Nations) would improve the strength of the industry in the future.
Companies that were successful in raising capital indicated that more of the funds were being used as “survival capital” (for example, to fund overhead, listing and regulatory compliance costs) than in the past. As a result, less money was put into exploration, focussing instead on remaining operational until the capital markets recover.
The over-all message from the participants is that they believe that the junior mining industry will just have to “wait it out – the market will come back”.