Junior Mine 2018: A period of opportunity

Our analysis of the top 100 junior mining companies on the TSX Venture Exchange

In Junior Mine 2018, we’ve analyzed the top 100 junior mining companies by market capitalization on the TSX Venture Exchange for the 12-month period ended June 30, 2018. The report offers a snapshot of the sector’s overall health for that period, and our analysis shows Canada’s junior mining sector is faced with many possibilities.

Rising fortunes

After several years of financial turmoil and a gradual recovery, the junior mining sector experienced a relatively quiet year in 2018. It was defined by moderate changes in most commodity prices and growing investor enthusiasm for business models built on royalty streams and new technologies.

The aggregate market value of the sector climbed for the third consecutive year, but at less than half the rate of the overall TSX Venture Exchange (TSX-V). The leaders among this year’s top 100 junior miners on the TSX-V illustrate the market’s preference for mines moving out of development and into production. They also indicate a desire among investors for new opportunities that rely more on innovation than the volatility of the commodity cycle to produce healthy returns. Two of the top five companies—Cobalt 27 Capital Corp. and Maverix Metals Inc.—use a business model that seeks to replace risk from operations with steady streams of royalty payments.

With coffers at their fullest in seven years, equity and debt financings on the rise and commodity prices relatively stable, the industry has entered a long-awaited period of opportunity.

Market capitalization continues steady rise

Market valuations of junior mining companies continued to climb in 2018. The aggregate market cap of the top 100 listings on the TSX-V rose 6% to CA$12.9 billion at the end of June, up from CA$12.2 billion 12 months earlier. The broader industry group, consisting of 987 mining companies, saw its value increase by a collective 5%, to CA$21.1 billion.

The sector hasn’t seen valuations this strong since the heydays of 2011, but the gains failed to keep pace with the valuation growth in other sectors. As a result, mining companies’ share of the TSX-V’s total value declined to 43.8%, down from 47.4% a year earlier. Nevertheless, mining remains by far the dominant sector on the exchange, with life sciences (13%), finance (11%) and technology (9%) representing the next largest industries by valuation.

New markets bring new demands

One reason for the modest performance of the top 100 was the flat price of gold, which increased only 1.1% over the year. The precious metal remains the most important commodity on the TSX-V, with 56% of the exchange’s valuation coming from mining companies with exposure to it.

But a new market is emerging for old metals as stronger demand for mobile consumer devices and electric vehicles creates a greater need for power storage. The battery metals nickel, lithium and cobalt have caught the attention of commodity investors looking to capitalize on the technology boom. The number of companies with exposure to lithium, for example, rose to 10, up from nine the previous year and just one in 2015. And Cobalt 27 Capital Corp.—a royalty streaming company that buys and stores cobalt—jumped to the No. 1 spot on the exchange, up from No. 10 a year earlier, displacing gold players in the top rankings.

“2018 was a relatively quiet year for the junior mining sector but it’s clear that we are coming out of the bottom of the economic cycle and there is more optimism as market capitalization rose 6%. We hope to see more of an upswing in 2019.”

Dean Braunsteiner, National Mining Leader, PwC Canada

Setting the stage

Exploration-stage mining companies continued to dominate the top 100 in 2018, accounting for almost two-thirds of the listing. Development and production firms comprised 20% and 15%, respectively, in line with the previous year’s breakdown.

It was a different story in terms of valuation changes. Production-stage companies, on average, saw their market cap increase by 20.3% to CA$161.8 million, and explorers enjoyed an average gain of 10.5%, totalling CA$126.3 million. But developers took an overall hit of 22.1%, and their aggregate valuation declined to CA$114.7 million.

Rising cash reserves bring opportunity

One of the most positive signs in the latest top 100 is the steady rise in companies’ cash balances, which rose 21% to CA$1.9 billion over the 12-month period. Just three years earlier, many players faced liquidity challenges as the industry downturn caused the equity and debt markets to dry up. Today, the sector is on a more secure financial footing, and development and production companies are better positioned to weather uncertainties ahead.

Balance sheets improved even as the sector increased spending. Cash outflows increased gradually by 4%, to CA$1.2 billion, which suggests that as management teams look for new opportunities, they continue to impose financial discipline after emerging from the industry downturn in 2016.

As opportunities begin to re-emerge in the sector, investors are more willing to put up capital, but junior miners must compete for attention. The industry raised CA$2.7 billion in the 12 months leading up to June 30, 2018, which is 6.5% more than the previous year. And almost CA$2.2 billion came from equity financing. Exploration and development-stage companies consumed the majority of this amount, as production-stage miners came to rely more on debt financing, which increased by 65.9%

Equity raises versus debt raises by stage of mining (CA$ million)

Innovating boldly to create new value

Junior miners are beginning to embrace digital technologies with a level of enthusiasm that did not exist prior to the industry downturn a few years ago. Many are investing in automation, artificial intelligence (AI), 3D modelling and the digitization of historical data. They’re looking at these tools as a means to boost efficiencies, control long-term costs, navigate through volatile commodity prices and differentiate themselves in the competitive marketplace for investor capital.

What’s more, Goldcorp President and CEO David Garofalo says it’s easier than ever for mining companies to commercialize existing technologies rather than developing something new: “With the availability of fibre optics and super computers like Watson, we have the ability to take these technologies that are available to society generally, adapt them to the mining industry and drive costs down dramatically.”

Here is a cross-section of innovation and digital transformation efforts across our top 100 junior miners:

Novo Resources Corp.

Novo Resources Corp. (No. 2) is developing a 3D model of a mineral bed at its Comet Well project in the Karratha region of Western Australia.

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Garibaldi Resources Corp.

Garibaldi Resources Corp. (No. 6) is using remote-sensing technology to explore more than 1,000 square kilometres of land for gold, silver and base metal deposits in the central and northern parts of Mexico’s Sierra Madre. The company says it’s also using “cutting edge technology and innovative new exploration concepts” in its drilling campaign at Nickel Mountain in northern British Columbia.

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Maya Gold & Silver Inc.

Maya Gold & Silver Inc. (No. 17) has invested in the digitization of historical data from the Boumadine polymetallic deposit, in the Anti-Atlas Mountains of eastern Morocco, to help the company in its mineral resource calculations at the former silver and gold mine.

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First Cobalt Corp.

First Cobalt Corp. (No. 24) planned its initial drill holes near Kerr Lake, in Eastern Ontario, using a 3D geological model based on a digital compilation of historic mine workings. Similarly, 3D modelling of an airborne magnetic survey helped Cornerstone Capital Resources Inc. (No. 41) define large gold and copper targets at its Bramaderos project in southern Ecuador.

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Falco Resources Ltd.

Falco Resources Ltd. (No. 42) turned to AI programs from Albert Mining Inc. to help it find new gold, copper, zinc and silver targets on its land in the Rouyn-Noranda Mining Camp in Quebec. The AI software analyzed historical data and learned the signatures of positive and negative targets, leading to 11 new exploration areas for Falco. The company also says it’s considering remote-controlled transportation equipment to automate operations at a future mine on the site.

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Experts in the spotlight

Matt Fargey

Maverix Metals Inc.

Matt Fargey, Chief Financial Officer

A royalty and streaming company fresh out of the gates has its eyes on the big board.

Learn more

Luc Lessard

Falco Resources

Luc Lessard, President and CEO

We’re going to build a prosperous and efficient mine, certainly the most state-of-the-art platform in North America.

Learn more

Contact us

Dean Braunsteiner

National Mining Leader, PwC Canada

Tel: +1 416 869 8713

Liam Fitzgerald

Competency, Innovation & Legal Tax Leader, PwC Canada

Tel: +1 416 869 2601

Mark Patterson

BC Mining Leader, PwC Canada

Tel: +1 604 806 7160

Rebecca Chan

Partner, Tax, PwC Canada

Tel: +1 416 365 8831

Maxime Guilbault

Partner and Mining Leader for Quebec, PwC Canada

Tel: +1 514 205 5448

Lauren Bermack

Vice President, Consulting & Deals, PwC Canada

Tel: +1 416 815 5323

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