Market downturn hits juniors looking for capital

A faltering U.S. economic recovery, a potential economic cool down in China caused by inflationary pressures and a Greek debt crisis that simply refuses to go away have all translated into a tough start to the year for the junior resource sector.

While near-record-high prices for many commodities continue to bless producing companies with windfall margins, shares in a vast numbers of junior mineral explorers have tumbled as investors take more and more risk off the table and squeeze out some of the feverish speculation injected into the markets since mid-2010.

In recent weeks, many of those juniors still hoping to raise money have been harshly reminded of the lasting effects of the 2008 financial crisis on capital markets.

On June 6, Ontario gold explorer Explor Resources (exs-v) had to cancel its $5.06-million private placement since its share price had fallen well below the level at which it had arranged the financing. On June 8, Reva Resources (rva-v) had to terminate a newly signed option agreement for a uranium property in Saskatchewan because it failed to complete a proposed $8-million private placement.

On June 10, copper-gold explorer Nautilus Minerals (nus-t), trying to develop its deep-sea-floor Solwara 1 project off the coast of Papua New Guinea, had to cancel its $150-million public offering because of what it called “weak financial market conditions.” And on June 15, Argentex Mining (atx-v), exploring its silver-gold Pinguino project in Argentina, announced it had to cancel a $20-million private placement primarily “due to market conditions.”

Reasoning some is better than none, Quebec-based Geomega Resources (gma-v) cut its recently arranged private placement down to $4.5 million from a maximum of $15 million on June 13. It will be offering 2.25 million units at $2 each, with each unit comprising one share and one-half of a warrant exercisable at $2.50 – not a bad rate at all when put in a more long-term perspective.

It was only last fall when Geomega listed its shares at 35¢ apiece after completing a $2.7-million initial public offering. Though the stock quickly reached an impressive high of $4.99 in March 2011, Geomega has yet to fully capitalize on the massive rise in its share price: the only financing the company has completed since its IPO was a $1-million placement at 90¢ a unit in January, before it released the eye-grabbing assays that sent the stock flying.

The very first hole of the company’s maiden drill program at its Montviel rare earth element (REE) project, located 200 km north of Val d’Or, Que., intersected 480 metres grading 1.24% total rare earth oxides (TREO). Testing a historic carbonatite complex extending over an area approximately 32 square km in size, the drill program targeted the 3.1-sq.-km core of the complex, finding enticing lengths of cerium, lanthanum and neodymium, with niobium oxide also present.

A third hole drilled 300 metres west of the first hole confirmed the discovery by hitting 512.7 metres grading 1.38% TREO. Of the 19 holes completed under the program, Geomega has so far released assays for seven of them, with the remainder expected shortly due to delays at the assay lab.

After all the results are back, the company can begin work on an initial resource estimate for the project, in addition to metallurgical testing. According to a company press release dated June 13, a phase 2 drill program will also begin “once continuing preparations are completed.”

Geomega says several world-class deposits of rare earth elements are found in carbonatites, such as Mountain Pass in California, Mount Weld in Australia, Araxa in Brazil and Bayan Obo in China. It optioned its Montviel project early last year from Niogold Mining (nox-v), in return for 1.525 million shares immediately, a 2% net output return royalty and $4.5 million in cash or shares should the project reach feasibility.

At presstime on June 16, Geomega’s shares were trading up 32¢ to $2.35 on light volume of 65,000 shares traded. The company currently has just 18 million shares outstanding.