Junior miners need to address credibility gap, panel hears

The past four years have been bleak for junior miners, but the downtrend is finally coming to an end, says Continental Gold (TSX: CNL) CEO Ari Sussman.

“We’re definitely at the beginning of the next uptrend, and raising capital is back,” he said at PwC’s Mega Mining Minds event in Toronto in December.

“For everyone in the gold business, things right now aren’t great, but the interest level is much higher than it was one year ago … raising money is going to become a much easier thing.”

While Sussman, part of a panel of junior mining leaders at the event, sounded an optimistic note on financing for the sector, no one on the panel suggested that the days of easy money for juniors would return.

Regardless of where the market goes, Stephen de Jong, president and CEO of Integra Gold (TSXV: ICG), advised that juniors need to think beyond price movements in commodities. They also need a plan to create returns for their shareholders, he said, noting that credibility is one of the biggest problems for the smallest companies.

“Microcap junior miners need to look at when we take investors’ money. What is our actual plan? Is it really just to drill a hole, cross our fingers and hope it works out, and that the stock price goes up?” he said.

“Nine times out of 10 in exploration, the initial plan doesn’t work out. If it doesn’t work out, are we able to walk away? Or are we there to protect our jobs and keep drilling?”

While not microcaps, the three junior mining companies represented on the panel have raised cash during a hard time for the sector.

Uranium explorer NexGen Energy (TSX: NXE), for example, has taken a technically and financially rigorous approach at its Rook property in the southern Athabasca basin that has instilled confidence in investors, including Hong Kong-based Li Ka-shing of CEF Holdings, who entered a $60-million financing of unsecured convertible debentures in the company in June. The financing, which is meant to move Rook towards production, was unusual for an exploration-stage company. (NexGen’s Arrow deposit at Rook has an inferred resource.)

CEO Leigh Curyer said NexGen’s focus on having the best people, pursuing an objective exploration approach of building data sets from the ground up, displaying financial discipline and being in the friendly jurisdiction of Saskatchewan, have all lowered the risk of investing in the project.

“Li Ka-shing’s view is that it’s a low-risk environment and a large reward environment,” Curyer said.

“We have had more than $10 go into the ground for every $1 of overhead. And that gives investors a good sense of confidence that even though it’s high risk, this will give you the best possible chance to be successful.”

It’s not just the financing environment that has become harder for juniors, Sussman said. The expectations for juniors in terms of work on corporate social responsibility (CSR) and environment have gone way up over the past 30 years.

“Now we need to match dollar for dollar your exploration budget with community relations, CSR and environmental management. These things matter from day one,” Sussman said. “That is a big challenge a lot of people still haven’t woken up to.”

The lower threshold for risk among investors also holds true for majors, who in better times, have been far less cautious when bidding for juniors to shore up their project pipelines.

“Senior mining companies have become much more risk-averse,” Sussman noted. “They want the projects derisked, and that is the biggest challenge.”

Juniors looking to put together their first exploration dollars need to be creative, because those first dollars will be harder than later financings, the panellists agreed.

Asked for advice on fundraising strategies by moderator David Redford — a partner at Cassels Brock — the panellists said that juniors should look to new strategies and avenues, such as crowdfunding and alternative financing through royalty companies.

Integra’s de Jong noted that there is also institutional money looking to invest in juniors of $100 million to $500 million with quality, advanced-stage exploration projects.

“There’s a black hole of projects out there that meet the institutional money [standards], even though there might not be as much institutional money as there was five years ago,” de Jong said.

In 2012, when Integra’s Lamaque project was at an earlier stage and the markets were souring for mining investment, the company chose to invest in its investor relation team.

“Everything we did was just getting harder and harder — we had to work really hard to raise $2 or $3 million,” de Jong recalls.

As a result of expanding its team (Integra’s IR team was larger than Goldcorp’s at the time), the company raised money. In 2013, a financing planned to total $4 million ballooned into a $12-million raise with 150 subscribers, de Jong noted.

For juniors nimble enough to take advantage, downturns can yield company-building opportunities.

Integra, for example, acquired the Sigma-Lamaque mill and mine — just 500 metres from its Lamaque project in Quebec — for only $7.6 million in 2014.

And NexGen’s Curyer noted that his company was incorporated in December 2011 — only eight months after Fukushima.

While they looked like “crazy men” for getting into uranium exploration so soon after that, the team understood that the long-term fundamentals of uranium remained strong.

“What distinguishes the thread of our companies [on the panel] is that we look for the top-quality assets, and even though the commodity price cycle has been very, very low, it has actually generated an opportunity to get your hands on good assets.”