Market downturn hits juniors in the pocketbook

A faltering U.S. economic recovery, a potential economic cooling in China, and a Greek debt crisis have all translated to a tough start of 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 many junior mineral explorers have tumbled as investors take more risks off the table and squeeze out some of the feverish speculation injected into the markets since mid-2010.

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

On June 6, Ontario gold explorer Explor Resources (exs-v) cancelled its $5.06-million private placement after its share price dropped well below the level at which it had arranged the financing.

On June 8, Reva Resources (rva-v) terminated its 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), developer of the deep-sea-floor Solwara 1 project off the coast of Papua New Guinea, cancelled 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, cancelled a $20-million private placement primarily “due to market conditions.” 

But the well isn’t completely dry. Quebec-based Geomega Resources (GMA-V) cut its recently arranged private placement to $4.5 million from a maximum of $15 million. 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.

It was only in the fourth quarter of 2010 that Geomega listed its shares at 35¢ apiece after completing a $2.7-million initial public offering. The stock quickly reached a high of $4.99 in March 2011, and Geomega has not yet fully capitalized on the 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.

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

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 says it will 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 two drill program will also begin “once continuing preparations are completed.” 

Geomega says several world-class deposits of REEs 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 1.53 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 traded 32¢ to $2.35 on a light volume of 65,000 shares traded. Not including the recently proposed financing, the company has 18 million shares outstanding.