Rising market capitalization marks a period of opportunity for the sector
According to PwC Canada's Junior Mine 2018 report, the year saw moderate changes to most commodity prices. — Photo courtesy PwC
After several years of financial turmoil, followed by a gradual recovery, the junior mining sector has experienced a relatively quiet year in 2018. According to PwC Canada's Junior Mine 2018 report, the year was defined by moderate changes in most commodity prices and growing investor enthusiasm for business models built on royalty streams and new technologies.
The report analyzed the top 100 junior mining companies by market capitalization on the TSX Venture Exchange for the 12-month period ending June 30, 2018. The aggregate market cap of the top 100 listings rose 6% to CA$12.9 billion, up from CA$12.2 billion 12 months earlier. While the sector hasn't seen valuations this strong since the heydays of 2011, gains still fail to keep pace with the valuation growth in other sectors, such as cannabis and FinTech start-ups.
"2018 was a relatively quiet year for the junior mining sector" said Dean Braunsteiner, National Mining Leader, PwC Canada. "However, it is clear that we are coming out of the bottom of the economic cycle and there is more optimism as market capitalization rose 6%. We hope to see more of an upswing in 2019."
The report shows that junior mining investors are placing a premium on successful royalty and streaming businesses. For example, two of the top five companies listed in the report—Cobalt 27 Capital Corp. and Maverix Metals Inc.—use a business model that seeks to replace operating and exploration risk with more predictable cash flows from streaming and royalty arrangements. These arrangements can offer investors diversified exposure to the metal, while limiting their exposure to operational risks.
Junior miners are also beginning to embrace digital technologies with a level of enthusiasm that did not exist prior to the industry downturn a few years ago. Many are investing in automation, artificial intelligence (AI), 3D modelling and the digitization of historical data.They're looking at these tools as a means to boost efficiencies, control long-term costs, navigate through volatile commodity prices and differentiate themselves in the competitive marketplace for investor capital.
"It's great to see the junior mining sector focusing on innovation and embracing digital technology" said Dean Braunsteiner, National Mining Leader, PwC Canada. "The broader mining industry has long been accused of lagging in this department and this year's report shows a different story."
This year also marked the end of gold as a dominant precious metal among the top five junior mining companies, as investors shifted their focus to lithium, cobalt and nickel. The battery metals continue to capture the attention of investors looking to capitalize on the technology boom, as stronger demand for mobile consumer devices and electric vehicles creates a greater need for power storage. The trend is likely to continue as long as the metals remain a key ingredient in battery technology.
Click here to read the full report.
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