Junior mining companies face many challenges, but new technological developments and a strong recovery in most commodity prices could boost the sector going forward, says mining and minerals advisory firm Fraser McGill co-founder Cobus Fraser.
“In the project pipeline globally, juniors’ projects are looking more attractive to investors – with project-level economics that are generally improved due to a higher pricing outlook.”
Statistics from S&P Global Market Intelligence indicated that mining financings for March 2021 totalled about $3.2-billion. Fraser highlights that this is the highest amount on record on a monthly basis since 2011, which demonstrates the positive sentiment in the market and the increase in potential for investment in junior mining companies and their projects.
Fellow co-founder Rob McGill explains that there are several new technological opportunities for junior mining companies to explore and “to do things differently”.
“We've been involved with evaluating several new ideas and technologies and have done various studies to investigate how these technologies can be implemented. The introduction of battery electric vehicles in underground mines, the use of alternative tunnelling methodologies and conserving water through dry stacking of plant tailings are some of these initiatives.
Furthermore, these technologies present “an effective means of improving the underground environment by removing diesel emissions fumes, ultimately moving towards a greener and cleaner environment”, adds Fraser.
The Fraser McGill studies have shown that it is possible to improve the underground working environment whilst creating a more cost-effective operation. Included in these assessments are electrification and mechanisation opportunities in traditional, labour-intensive narrow-vein operations.
Fraser says the need and propensity to do things differently, coupled with higher commodity prices and positive market sentiment, enables juniors to approach the market with more confidence.
One of the main issues facing juniors is attracting investors and funding, states Fraser. “Juniors typically enter the value cycle in the early stages during exploration and early-phase studies, and so, to develop an attractive investment opportunity or business case generally requires many years of study work, and exploration and permitting activities.”
The predominance of early-phase, greenfield projects in often remote locations, has contributed to the perception that investment in juniors is risky and has given-rise to an environment where junior mining companies or projects could be undervalued from an equity perspective, resulting in the need to consider alternative means of funding.
Fraser McGill aims to help juniors better understand and evaluate various funding mechanisms and scenarios to provide fit-for-purpose solutions at project and shareholder level. This requires a dynamic modelling approach that maps, illustrates and determines the flow of funds and the value distribution amongst all stakeholders.
By the time a project is ready to enter the construction phase, juniors are generally cash strapped because they have probably “gone to the markets several times already” to raise funding for the exploration and study activities.
McGill adds that, Fraser McGill has fashioned its offering specifically for the junior mining sector and is supporting several juniors in the base, precious, and ferrous metals space in South Africa and abroad.
“We are guiding our junior mining customers . . . through the process of defining, evaluating and developing their projects, from a technical and financial perspective to ensure the best possible chance of success and value-realisation,” McGill says.