Junior mine 2017: Confidence rekindled

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

Top 100 findings and analysis

Valuations within the junior mining sector rose for a second straight year in 2017, crystallizing a delicate recovery, as management teams opened battened hatches and considered a brighter future.

As a group, the 100 top mining companies on the TSX Venture Exchange (TSX-V) are in better shape than they have been in the last several years and showed more willingness to keep ahead of change. The rising number of exploration projects, financings and mergers and acquisitions indicates a renewed confidence in the sector.

Cash poured into the sector as investors embraced greater risk and some of the major mining companies turned to junior players to help replenish their reserves. But this enthusiasm remains selective—a reminder that recovery from the downturn is still a work in progress.

The recovery cycle will remain choppy and to a large extent will be driven by commodity prices, while growing demand for electric vehicles, mobile consumer electronics and power storage is creating new markets for old metals and fresh opportunities for junior miners.

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An interview with Rebecca Chan, Partner, PwC Canada, exploring the renewed confidence in the junior mining sector.

"We're seeing more capital flow into the market. With more money, the juniors are now able to do more transactions and grow both organically and inorganically."

Rebecca Chan, Partner, PwC Canada

 

Experts in the spotlight

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Anthony Milewski, Chairman & CEO, Cobalt 27 Capital Corp.

An innovative model opens the cobalt market to more investors
With a focus on generalist investors, Cobalt 27's hybrid approach marries physical cobalt holdings with the liquidity of a streaming model.

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Andres Tinajero, CFO, Barkerville Gold Mines Ltd.

Jump-start: Barkerville Gold gets out in front of the recovery
Barkerville credits its success to three essentials: a valuable asset, an experienced team and supportive investors willing to incur risk.

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Trent Mell, President & CEO, First Cobalt Corp.

Moving cautiously in a hot market
Electric vehicle demand is causing the price of cobalt to skyrocket, and First Cobalt Corp. believes it's uniquely positioned to respond to the supply side constraints on current cobalt production.

 

Market capitalization back to 2010 levels

The aggregate market capitalization of the top 100 junior miners hit CA$12.2 billion at the end of June, 2017—up 7% from 12 months earlier—and the combined valuation has now returned to a level not seen since 2010.

But the group underperformed on the TSX-V market as a whole—in part due to gold prices levelling off during the year and investors holding back until they see a sustainable recovery in other metal prices.

Despite the underperformance on the TSX-V market, mining remains the dominant industry on the exchange, accounting for 47% of the total value in 2017 and 59% of the trading volume.

 

TSX-V market capitalization 2010–2017 (CA$ billion)

Graph of global market intelligence graph on market capitalization 2010 - 2017

Source: S&P Global Market Intelligence, TMX website and PwC analysis

 

Equity raises soar, cash balances hit five-year peak

Cash balances increased 74% during the 12-month period and reached CA$1.57 billion, the largest amount in the last five years, thanks to a jump in equity financings and more caution among recipients about using the funds appropriately.

The cash increase happened even as the top 100 junior miners boosted their spending on exploration, development and mergers and acquisitions. Outflows rose to CA$1.15 billion, up from CA$268 million a year earlier. Money raised through equity soared to CA$2.04 billion (CA$746 million a year ago), and debt raises had an increase of 20% year over year.

The rising levels of cash along with some increases in spending are good signs, as they suggest confidence in the market is back. But the windfall was unevenly spread and many juniors continued to struggle to raise money, as more than one quarter of the total funds went to just a few companies.

 

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

Graph of equity raises vs. debt raises by stage of mining (CA$ million)

Source: S&P Global Market Intelligence, TMX website, SEDAR and PwC analysis

 

Major deals drive top five positioning

The top five junior mining companies in 2017 all made significant deals during the year to advance their position in the gold sector. But as a group, this year’s leaders had a substantially smaller market valuation than the top five in 2016—a class composed of several heavyweights that have since either graduated to the TSX or been acquired.

Gold Standard Ventures Corp. landed the top spot, moving up from fourth place a year earlier after securing backing from both Goldcorp and OceanaGold Corp. to explore and develop a Nevada project. Integra Gold vaulted up to second with news in May that Eldorado Gold would acquire the company for a 52% premium.

Leagold Mining Corp. was third and its ascension proved even faster, powered by the purchase of operating assets from Goldcorp. The junior has since progressed beyond the venture exchange, moving over to the TSX in July.

Barkerville Gold Mines Ltd. moved to fourth following equity raises of approximately CA$56 million. And Gold Reserve Inc. managed to maintain fifth place, even though its market cap fell by more than one quarter over the year.

TSX-V market capitalization—2017 top five companies (CA$ million)

graph for TSX-V market capitalization—2017 top five companies (CA$ million)

* Listed on the NEX board of the TSX-V as of June 30, 2016

Source: S&P Global Market Intelligence, TMX website and PwC analysis

 

 

Average market capitalization, top five (CA$ million)

graph of average market capitalization, top five (CA$ million)

Source: S&P Global Market Intelligence, TMX website and PwC analysis


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