Cash crunch has junior miners feeling ‘despondent’

According to Mining Intelligence data, mining financings tumbled by around 13% last year, after falling a precipitous 45% the previous year. Numbers from the Prospectors and Developers Association aren’t in yet for 2023, but figures for 2022 showed a 35% drop in debt and equity raised.  

While figures may vary, they all point to a depressed market for miners — and one that has hit juniors especially hard. 

TSX Venture trading volumes, which collapsed in spring 2022, are now so low as to be near non-existent.  

Last year also saw a dramatic slide in lithium and nickel prices (down 80% and more than 40%), both much-hyped battery metals that are now in oversupply. Brokers are finding it tough to raise cash for anyone — unless they’re in uranium, which was at 16-year highs of US$106 per lb. at press time. The mood in the junior mining industry has deteriorated accordingly. 

“When people struggle to raise money of late, there are a few people despondent, that’s for sure,” Russ Cranswick, head of opportunities funds with mining-focused private equity group Resource Capital Funds, said in January. 

Even before the latest market turn, Canada’s junior miners were having a tough go of it. With the exception of an all-too-short pandemic battery metal boost in 2020-21, the general trajectory of the junior sector since the 2012 bust has been downward. 

RCF, which was established in the late 1990s and now has $2.5 billion in assets under management, invests globally and across the spectrum of early stage, late stage, private and public projects and companies. So Cranswick is well positioned to pinpoint why the juniors have been so unloved. 

Many of the reasons he gives are familiar. Competition from other speculative investment options (tech, crypto, etc). A lack of big, generational discoveries in the past 10-20 years. Fewer retail brokers focused on mining to tell companies’ stories. And a bloated number of public companies listed in Canada all seeking cash from a shrinking pool of investors. 

“There are way too many juniors. The investing public just can’t support a massive number of choices and it can’t keep them all alive — private equity can’t either,” Cranswick said. 

There’s also the fact that there have been so few winners in the space. 

“The industry has not historically generated good returns on capital,” says Canada Nickel president and CEO Mark Selby. 

“If we see some more successes again that will help unlock some of that capital and hopefully some of that will come back into the sector.” 

Canada’s rival in junior mining, Australia, has done much better in supporting its industry — and as a result has more winners. The country overtook us in mining equity capital raised in 2020, and boasts several advantages, including mandated support for mining from its pension funds and better infrastructure that reduces capital costs for development. 

At the sentiment level, it’s a confidence booster for retail investors that Australian billionaires who made their money in mining in the 1990s and 2000s are plowing their returns back in high-profile deals, Selby adds, citing Gina Rinehart, Andrew Forrest and Mark Creasy. The only comparable in Canada is Eric Sprott. 

Cranswick notes that Australian juniors also tend to be run by management teams with more operational experience than their Canuck counterparts. 

“In Canada companies are run by explorationists,” Cranswick said. “They’re very strong technically and have a good track record of discovery, less so of developing mines and putting them into production.” 

In the era of critical minerals — now elevated in importance from being merely base metals and industrial metals — all of these factors are working against us. 

It’s keeping Canada from capitalizing on its obvious opportunities in critical minerals, noted Marilyn Spink, director of operations with the Canadian Critical Minerals & Materials Alliance said recently. 

Canada’s traditional model of making discoveries then selling them to someone else to develop and operate means “there’s a lot of value extraction versus value creation out of the markets,” she told a recent Rocks and Stocks event organized by CIM in Toronto.  

“A lot of the world is looking to Canada and they’re shocked, actually. I have a lot of conversations with people in the EU, and they go, ’What do you mean, junior miners don’t develop their properties?’”  

New funding prospects

It’s not all hopeless, though. 

New funding models are emerging in the critical minerals space, most notably direct investment from end users that know they’ll need the product in the future. 

And in the near-term, Selby sees things improving once the federal government starts to dole out its promised spending on critical minerals. 

While the big money in Canada has so far gone to battery and EV plants, details on mining-specific funding are imminent. 

“You will see that stuff really start to happen in the next 12 to 24 months where the governments are going to provide fairly significant chunks of equity,” Selby says. “Because the public markets haven’t been responding, we’re likely not going to respond quickly enough to be able to get the critical mineral supply chains built.” 

Ultimately, Cranswick says a junior revival will come when commodity prices recover, particularly when end users start experiencing supply shortages.  

“When you get a few of those commodities where everybody wants to be in them, I think those are as good as a discovery historically with an area play,” he says. “I think that could really drive the junior market.” 

— Note: Russ Cranswick’s name was misspelled in the original version of this article. We apologize for the error.