It's tough times for B.C.'s junior miners. Capital is hard to come by, exploration activity is down and low company valuations are dampening deal-making.
"The hardest thing is the inability to raise money in the market," said Gavin Dirom, president and CEO of the Association for Mineral Exploration BC. "That's what was hurting the juniors through the spring and summer now, and [it] continues to be tough."
He said struggles to secure capital are a key reason behind an estimated 30% drop in exploration in the province thus far in 2012.
Meanwhile, a new Ernst & Young LLP report shows that Canadian mining mergers and acquisitions have dropped significantly in 2012's first half compared with the same period last year. Deal value and volume are down by 41% and 26%, respectively.
Richard Crosson, a partner in Ernst & Young's transaction advisory services practice, said those figures point to challenges B.C.'s junior miners are facing.
"The problem today is, if you are [valued] at 35% or 40% of your 52-week high, a takeover premium of 30% is not particularly attractive. So [in the M&A market], if you look at the foundational shareholders, many of them don't see this as a good time to exit."
However, echoing Dirom, Crosson said local juniors are having a hard time securing the crucial capital to fund projects.
"They are spending a lot of time in the market talking to a lot of potential investors," he said. "There are some very good projects out there that – if you believe in the long-term fundamentals – should proceed. But they're not getting financing today."
Dirom said some local juniors are reducing their budgets to wait out the rough patch.
"They're already tightening their belt for the last quarter and into this quarter now, in some cases."
But Dirom added that low company valuations have made local companies vulnerable to hostile takeovers.
"Some of these companies are essentially devalued, and they're ripe for the picking."
Both Crosson and Dirom said it's unclear whether better times are ahead.
Crosson said a rising tide of resource nationalism could revive some M&A activity in B.C., as large mining companies seek acquisitions in safe jurisdictions.
But Dirom said he doesn't see any signs of the current malaise waning.
"There's no fundamental shift right now that I can see, other than analysts looking to commodity prices rising in copper and gold [in late 2012 and 2013]," he said. "And part of that is back to the euro crisis. As things turn there more favourably and those issues are addressed, that should see stronger support for the commodity prices and then that should translate into stronger fundamentals for the juniors – if they can weather this storm." •
