Juniors chart cautious path through rough terrain of current markets

The Northern Miner attended the Precious Metals Summit held in Beaver Creek, Colo., from Sept. 13 to 16, where explorers, developers and emerging producers of gold, silver, copper, and platinum group metals vied for investors’ attention amid a challenging macroeconomic backdrop. 

Despite gold being down nearly 3% over the week, companies were upbeat in their messaging as they sought to convince investors of their respective abilities to deliver shareholder value over the next six to 12 months. 

However, given the difficulty in raising liquidity in the current environment, cash management remains at the top of junior companies’ priorities. The recent deterioration of value in the junior equity space could be a positive for royalty names on the acquisition front or consolidators looking for bargain deals. 

Perhaps the best way to describe Precious Metals Summit 2022 is that if the companies are all boats floating at sea, when the tide ebbs, they all go down. Newmont’s announcement on Sept. 15, that it had decided to delay the Yanacocha sulphides project in Peru was quite telling of the industry’s general mood. 

Newmont cited the unprecedented market conditions, including the continued Russian war in Ukraine, record inflation rates, rising prices for commodities and raw materials, prolonged supply chain disruptions and competitive labour markets for the decision — all factors that are also playing havoc with any junior developer’s established plans. 

Nearly everybody appears to be pausing projects or talking about scaled-down exploration programs designed to conserve cash. Proponents seek to achieve critical project milestones, but only to the degree that makes sense until the market is better positioned to reward equities for jobs well done. That’s not the kind of love investors are currently affording to companies — even those putting out good results. 

Given the discounted valuations, lower equity prices, and ongoing inflationary pressures, juniors with healthy balance sheets will likely fare better in the next year. While many companies remain well funded for the next 12 months, perhaps one-third of the 32 companies The Northern Miner interacted with at the conference may need to turn to markets to raise money in the short term. 

The big difference is those companies with grand narratives already shored up their coffers at the height of the market earlier this year before markets crashed in June and again in recent weeks. The handful who were able to secure financing earlier this year are financially set through to the end of 2023. 

Again, just as the majors set the tone when the tide started rising in 2018-19, they are the precursors of a more muted time in exploration and development activities as uncertainty pervades the market. 

For the very reasons Newmont put the brakes on Yanacocha, companies are forced these days to use 30% and even 40%-plus contingencies for their projects’ economic plans. They need to account for volatile factors that could, in essence, go either way two or three years from now. 

Enduring inflation, high interest rates, supply chain issues, and geopolitical tension contribute to increasing risk premiums investors require from miners. 

That also applies to the most sophisticated resource investment funds. According to Sprott’s lead portfolio manager John Hathaway, to continue financing new projects via paper deals is too dilutive. A key takeaway from a keynote presentation by the investment guru at Beaver Creek was that companies should beware of shareholder dilution via continuous share placements at dismal valuations. 

He believes dilution is the biggest threat to the industry’s investability. Ballooning enterprise values and share registers do not necessarily equate to value creation. 

Meanwhile, the best stories will continue to drive value through the drill bit. 

Despite a tough market, junior explorers, developers, and producers continue to focus on executing their plans and delivering more value to shareholders via their exploration programs. Over the coming months, companies expect to update the markets with their remaining drill results from their 2022 exploration programs and provide resource updates on their projects. Through The Northern Miner’s interactions with companies, it quickly became apparent that they view adding ounces through exploration as one of the cheapest growth options at their disposal. 

The summit also heard about ESG investing and how serious capital providers have become about it. While companies continue to focus their efforts on carbon reduction, a recurring theme revolves around the work done on the social front with a focus on Indigenous peoples, local communities, the local supply chain, and the local workforce. Through this work, companies hope to strengthen their social licence to operate and facilitate the permitting process for their projects, when applicable. 

Confirming the general mood at the Precious Metals Summit, the following week’s Gold Forum Americas, which caters to the senior members of the industry, was also described by analysts as ‘bearish,’ with gold having solidly fallen out of favour and copper stepping up as the metal du jour. 

BMO Capital Markets metals and mining analyst Jackie Przybylowski noted the strong attendance of primary copper companies such as First Quantum Resources, Hudbay Minerals and Ivanhoe Mines. While not entirely new, the analyst saw the markedly increased importance of copper or copper-gold assets as strategically crucial to gold miners.