Investors feast on Apple while juniors wait for their turn at the buffet

While tech giant Apple scaled new heights to reach over US$194 per share in late June, putting its market cap at an astonishing US$3 trillion, investors are finding junior miners less appetizing. 

To be fair, exploration companies have seen far worse periods — the 2012-2016 bear market, for example. 

But given the metals crunch that we all know is coming, raising money should be a piece of cake for juniors, especially those looking for buzzy critical minerals. 

Mining exploration financing has actually been strong since 2020, says Richard Carleton CEO of the Canadian Securities Exchange. 

“Mining is really leading the way in terms of both new companies that are listing on the exchange and as far as capital formation goes,” Carleton said in late June. 

Junior mining stocks make up about 40% of CSE’s listings, and now that the tide has gone out on cannabis, which peaked in 2021 with $5.6 billion raised on the exchange, mining has become the star sector. Junior miners, which saw peak financing in 2021 at $723.2 million on the CSE, have raised $244.2 million year-to-date. (That handily beats the ‘bud’ sector’s total of $99.4 million.) New mining listings have also been strong on the CSE, rising to 77 last year from 42 in 2020.

“There are a lot of companies getting financed and they are generating very positive results from their drilling programs,” Carleton says. “The challenge is that there’s just not been much reaction from the marketplace.” 

The missing ingredient is retail shareholders. Low levels of retail participation translate to a lack of liquidity and languishing share prices – even for companies with great projects. 

For CSE and the TSX Venture, Carleton says most of the daily turnover in trades — “probably well over 90%” — comes from retail accounts. 

Rising interest rates have been a particular “punch in the gut” for retail trading activity, he says, driving volumes back down to 2017 levels. “Considering we have 35-40% more companies now, that means that the per capita turnover picture is even slower than back then,” he said. 

With retail investors flocking to soaring U.S. equities like Apple, the lack of interest in mining means there are a lot of great juniors that are currently “uninvestable,” says Cam Currie, a Vancouver-based investment adviser specializing in mining stocks at Canaccord Genuity. 

“When I’m buying companies that have $100 million in the bank, are debt free, and producing 275,000 ounces of gold and they’re not getting recognized in value, why would I speculate in the junior stuff?” 

For now, copper’s being hurt by recession fears and precious metals aren’t getting any attention in the West, despite the ongoing decline of the U.S. dollar as the world’s reserve currency and Eastern Central banks buying up gold at a record pace. 

Currie says investors will need to see performance in the seniors first before money can flow into intermediates, developers and finally, explorers. 

“The junior exploration companies I think are going to be stuck for a while,” he said, adding that the current market is similar to the period just before the last “unbelievable” commodity cycle uptrend. 

The lithium story 

For John Kaiser, an independent analyst focused on junior miners who runs www.kaiserresearch.com, lithium is the best hope to get retail investors back in mining, rather than copper, which requires higher prices to incentive new production. 

The incentive price of lithium is seen at around US$10 per lb. lithium carbonate, well under the current price of US$43,150 per tonne, or US$19.57 per lb. And demand is quickly growing.

“As recently as 2005, the entire global lithium market was worth only $200 million,” he said. “Last year, it was roughly worth US$20 billion — 100 times bigger.” By 2030, the market could be worth an “incredible” US$100 to US$200 billion, Kaiser says. “That puts it in the league with copper and gold.” 

Canada happens to be a prime hunting ground for hard rock lithium, as the success of Patriot Battery Metals and its Corvette project in Quebec have demonstrated. But so far, it’s Australians rather than Canadian retail investors who have driven Patriot shares from 50¢ in early 2022 to a recent June high of $17.53. 

Australian investors, who participated in the 2015-2021 lithium boom, understand the coming demand, hard rock lithium deposits and the potential returns. 

“They’ve been through this major cycle,” Kaiser said. “When the Canadian market opens in the morning, (Patriot’s stock) merely reflects what happened yesterday on the ASX.” 

 Kaiser recalls how Canadians went “all in” on diamond exploration in the 1990s, despite its novelty for investors.  

“The lithium story is much bigger, and it’s much easier to understand in terms of quantifying, what does this intersection mean?” he says. “But they’re not going for it. And the Bay Street crowd seem to be paralyzed.” 

Kaiser says Patriot’s first resource estimate at Corvette, expected in July, “will be a “watershed moment for the sector because within two years or so, they will have demonstrated something between 50 to 100 million tonnes grading somewhere between 1% and 2% lithium oxide,” he said. “And depending what price you use, this will be to a large degree an open pittable resource that was sticking out of the ground.” 

With Patriot already rumoured to be considering a sale of the company, and Kaiser rhyming off a long list of potential buyers (most of them Australian), perhaps this will be the story that finally gets Canadian retail investors off the sidelines.