By Alistair MacDonald
Gold Canyon Resources Inc. has 5.1 million ounces of gold and 26
million ounces of silver underground on property in Northern
Ontario. It owns little else.
The Toronto-listed company is part of a generation of junior
mining companies that has gone into hibernation. Rocked by a
three-year-old mining downturn, these companies have reduced
themselves to skeleton staff, locking up their properties and
stripping out almost all costs.
Junior miners, which are companies that specialize in
exploration or small-scale mining, are in a position to sit out a
slump because they often have little debt, few big costs and the
ability to hire out their machinery, such as drills. That is unlike
the industry giants, from Freeport-McMoRan Inc. to Rio Tinto PLC,
which have big debt piles and large, high-cost operations to
maintain.
Those qualities have allowed the junior mining sector to defy
predictions of widespread bankruptcies. Nonetheless, the downturn
has stalled their exploration, historically a major contributor to
new supply of metals, from gold to copper.
An industrywide pullback in exploring for nonferrous metals
reflects in part the juniors' dormancy. Globally, the sector's
exploration budget shrank to $11.4 billion in 2014, roughly halve
of the $21.5 billion earmarked in 2012, according to a report by
SNL Metals & Mining.
Gold Canyon, which was founded in 1985, had just completed its
exploratory drilling when the downturn hit full stride in 2012,
sending share prices tumbling and steering investors and banks away
from many new mining projects. The next step for Gold Canyon was to
be a study to determine how economical it would be dig out the gold
and silver--but that was put on hold. Such feasibility studies can
cost up to $15 million.
"We have cut to the core," said Ron Schmitz, a director at Gold
Canyon with more than 20 years of industry experience.
Gold Canyon, which had built a 60-plus person camp in northwest
Ontario, now has just a "couple of guys" there to keep any
intruders out, said Mr. Schmitz. The company recently raised money
and has no debt, allowing it to ride out the downturn. But it still
has costs.
"It's about $150,000 a year just to exist," Mr. Schmitz
said.
Earlier this month in Toronto, Mr. Schmitz joined over 23,000
others in the mining industry, largely from the junior sector, for
the annual Prospectors & Developers Association of Canada
conference. Most were looking to raise money to restart their
projects. Most would return home disappointed.
"There is no money walking the floor," said Richard Cushing, who
works in investor relations at Monument Mining Ltd, a Canadian gold
miner.
Because mines typically take years to develop, skimping on
exploration could translate into meager supply growth down the
road. But if in the meantime demand picks up in a notoriously
cyclical industry, miners may find themselves scrambling to boost
production.
Among PDAC attendees, Everton Resources Inc. also is trying to
hold out by shrinking operations and putting exploration on hold in
the Dominican Republic. In 2012, the gold miner had up to 20 staff
and hired teams of contractors to drill, explore and test samples.
Now it has around eight employees and is doing little in the way of
digging out its gold or exploring for new assets.
"We sit and wait till the markets allow us to raise money," said
Sabino Di Paola, the company's finance chief.
Since its peak in April 2011, the Global X Junior Miners ETF
index has fallen about 78%. From their price peak, gold is down
38%, copper off about 42% and iron ore down 70%, according to the
Steel Index.
At the end of January, Toronto-based exchange TMX Group was home
to 1,485 miners, of which 80% were listed on the TSX Venture junior
exchange. All of these miners combined had a market capitalization
of $266 billion, less than half of their peak value reached in
February 2011.
Of miners' total market capitalization on the TMX in 2015, only
3.7% represented companies listed on the junior exchange,
underscoring how badly these miners have been hit.
For some, even a junior exchange listing--which for Gold Canyon
runs about $35,000 a year--has become a luxury. Last year, 44
miners asked the TMX Group to delist them from Canada's various
exchanges. That was double 2013's number and well over the 10
miners asking out in 2010 when the mining boom was in full
stride.
Delisting can be a risk for investors, who already are holding
portfolios of hibernating and illiquid miners, as it wipes out the
remaining equity value of the holding.
For some ill-fated miners, their listing is all they have
left.
Peter Cunningham is the founder of Lions Edge Capital, a
Toronto-based corporate advisory firm that specializes in enlisting
miners in so-called reverse takeovers. Last summer, Lions Edge
brokered a deal in which tech company Smart Fleet bought Golden
Virtue Resources Inc, a lithium exploration company, and reversed
into its TSX Venture Exchange Listing.
Reverse takeovers have seen miners supplanted by tech companies,
retailers and potential suppliers of medical marijuana, as
companies in these sectors look for a cheaper way to get a
listing.
"You have a public company that cost $200,000 a year to keep
listed, with no money, drowning in debt, so it is easy to have a
conversation" said Mr. Cunningham, who attended the PDAC conference
this month.
Write to Alistair MacDonald at alistair.macdonald@wsj.com
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