Junior miners turning to alternative financing: PwC report

John Gravelle, author of the new PwC report on junior miners.

With the Top 100 junior miners on the TSX Venture Exchange (TSX-V) facing decreases in debt and equity financing, as well as market capitalization, miners must either reduce spending substantially or turn to alternative forms of financing for growth, according to PwC's latest Junior Mine report released today.

The market capitalization of 2012's Top 100 decreased 43% compared to 2011's Top 100. As well, the number of mining companies in the Top 100 with market capitalization of more than $200 million dropped to 13 - falling from 2011's record high of 36 companies. Meanwhile, equity financing decreased by 41% to $1.6 billion compared to $2.7 billion raised by 2011's Top 100 junior miners.

"In the last year, investors were cautious of the volatile market and not willing to invest. The macro-economic pull-back is driving investors to hold on to or cash-in  their investments, leaving junior miners urgently looking for new sources of financing," says John Gravelle, Mining Leader for the Americas, PwC "While a dramatic turnaround is not expected anytime soon, recent market activities should give junior miners a resurgence of optimism for 2013."

With the IPO market falling silent for most of 2012 - only four mining IPOs on the TSX-V were completed in Q3 2012, compared to 14 in Q3 2011—Ivanplats' $300 million IPO however could signal the new beginning for mining executives looking to initiate IPOs that have been waiting in queue for some time now, continues Gravelle.

Turning to alternative financing

According to the 2012 Junior Mine report, alternative forms of financing experienced an increase—jumping from 8% in 2011 to 14% in 2012.

"Anticipate foreign investment and vertical integration to continue to be an important part of junior miners' growth strategy in 2013," says Gravelle. "Foreign investors are being strategic in the way they structure investments—acquiring substantial economic interests without having to acquire the public company that owns the asset."

Recently, streaming and royalty companies are coming to juniors—providing project financing, while traditional lenders have been cautious, adds Gravelle. An example of this is Sandstorm Gold's, this year's number one junior mining company on the Top 100, current royalty agreement with Magellan Mineral.

Highlights of the Top 5

Some of the findings regarding the top five junior mining companies in 2012 include:

• The total market capitalization for 2012's top five juniors declined 33% from 2011's top five market capitalization.
• Four out of the top five juniors are in production. In 2011, four out of the top five juniors were in the exploration phase.
• Last year, four out of the top five juniors were gold-based companies. In 2012, one is gold-based, while three are base metal mining companies.

"Investors are noticing juniors who are in advanced stages of development or production, as evident by recent deals completed in the junior mining space and by the market capitalization performance of juniors in production," said Gravelle. "Overall in 2012, producers were the only group who did not face a significant decline in market capitalization."