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Top 100 TSX-V-listed juniors' market cap falls 44% in 2013

4th November 2013

By: Henry Lazenby

Creamer Media Deputy Editor: North America

  

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TORONTO (miningweekly.com) – The market capitalisation of the top 100 junior miners listed on the TSX-V fell by 44% to $6.49-billion in 2013, the seventh yearly 'Junior Mine' report has found.

Published by professional services firm PwC, the report on Monday noted that the cash position of junior miners had also steadily declined.

Among the top 100 on the TSX-V, cash and short-term investments fell by $695-million in 2013 to $1.2-billion compared with 2012's balance of $1.9-billion.

"It's the same theme across the entire sector – miners are facing a confidence crisis and juniors are the ones hardest hit. When the recovery does come, investors will most likely put their money into the senior producers first, given their stronger balance sheets and proven production and profit-making capabilities,” PwC's Global and Canadian mining leader, John Gravelle, said.

Developers were the only junior mining category that had increased capital expenditures in 2013 by a modest $74-million.

"Some juniors, particularly at the exploration stage, have been forced to stop work on their properties. Others will decide their only survival tactic is to merge with another player or accept a takeover offer,” Gravelle explained.

Write-downs were also a necessary drawback to the current volatile market environment. Write-downs among the top 100 junior miners increased 175%, or by $55-million, in 2013 compared with last year.

In total, 2013 saw the top 100 companies take $87-million in write-downs for the period ended June 30.

These adjustments to mineral properties were not isolated to a few projects or companies, but instead spread out across 37 of the top 100.

Overall, the cash generated from financing activities fell 34% year-on-year in 2013  – that's after a 52% drop in 2012 from 2011.

"Investors are shying away from the high risk-reward proposition of junior miners – turning instead to those that pay dividends or have more assets to support them,” Gravelle noted.

According to the report, only three companies in the top 100 paid a dividend in 2013, these are: Sierra Metals, Callinan Royalties and Midway Gold (to preferred shareholders only).

PwC said the top 100 raised $795-million in equity financing during the year, which was down by half when compared with $1.59-billion in 2012. Producers saw the biggest drop in equity financing, with only 4 of the 15 producers in the top 100 raising more than $1-million.

Further, the number of initial public offerings (IPOs) had fallen by more than half in the past three years to 24 in 2013, down from 52 in 2011. There were 45 mining IPOs in 2012.

The report found that the average market cap for the 24 companies that went public in 2013 was $2.2-million – demonstrating that while there were several IPOs in the current year, no one raised a substantial amount of cash.

While mergers and acquisitions across the sector had fallen, juniors were targets for opportunistic senior players seeking future growth.

"Having the flexibility to advance projects until the market turns is critical. Patience is important – many seniors aren't looking at buying new projects now, but concentrating instead on cleaning up their own balance sheets before they start buying again," Gravelle noted.

Meanwhile, many juniors had cut costs and some had achieved their goal of graduating to the TSX, as Vancouver-based Sierra Metals did this summer.

According to the report, costs of production fell 58% for developers and 26% for producers. Exploration expenses also fell 42% across the board.

House Mountain Partners founder and coauthor of Morning Notes Chris Berry recently told Mining Weekly Online that he believed those companies with the strongest balance sheets and with no debt offered the best opportunities to survive the current market environment. Cash flow is what investors want and those companies generating positive cash flow stood to weather “this current malaise” the best.

Gravelle agreed.

"Many juniors need to be watchful with their plans, and have as much cash on hands as possible to wait out the uncertainty. The ones that raised money when the markets were good must now protect every penny as they move forward – longevity is essential.

"If a junior can survive this tough financial market, chances are it will succeed when the recovery inevitably arrives,” he said.

Edited by Creamer Media Reporter

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