In times of global macroeconomic gloom, mining firms are facing an even harder time to get the money they need to operate.
By Karan Kumar – Exclusive to Resource Investing Newssilver if they are ready to part with their money.
“Starting with the Tsunami in March, there has been a huge shift away from risky investments,” said Benjamin Cox, managing director of Oreninc., a website that provides information to institutions and junior miners to make better financing decisions.
Cox, who is also chief executive officer of Roche Bay Plc, said: “Junior miners are traditionally the biggest hit. Starting in March, money has been flowing away from junior miners. Until the global financial panic reduces slightly money will not start flowing back into the junior miners.”
Traditionally, junior miners have raised money by selling equity but in the third quarter of this year, the “market went dead versus a slowing in the first quarter and the second quarter.”
Figures compiled by Oreninc show that until October 1, there were 1,695 “best efforts” deals worth CAD$7.7 billion and 313 “bought deals” worth CAD$12.9 billion issued. “Best efforts” deal means that if the bank is weak, it takes no risk if the offering fails. Unlike a “bought deal”, where a bank provides an insurance policy to the company as it is confident the shares can be sold. Oreninc compiles data for financing deals in the metals, mining, oil and gas and energy sector for companies listed on the Toronto Stock Exchange and the Toronto Stock Exchange-Venture indexes.
There, however, has been a glimmer of hope in October, when, for the first time since April, the Oreninc Canadian Resource Financing Index cracked 100 for two consecutive weeks. There was a “dramatic jump” in the total number of opened deals to 51, but that does not mean that uncertainty has left the market.
“The market has gotten much more selective. It’s about who gets the money,” Cox said. “That does not mean there is no money. If you need to raise more than $4 million this week, you’re going to have trouble. The deals we are seeing are companies getting small amounts of money to limp along. They are not funding next year’s work. They are maintaining status quo. We are seeing financings for the next three to six months, not 18 months. We are seeing relatively expensive financings.”
Maya Gold & Silver Inc. (TSXV:MYA), a Canadian-listed miner focused on the exploration and development of gold and silver deposits in Morocco, said October 14 it intended to complete a non-brokered private placement of up to CAD$6.3 million. In addition to shares, it will deliver two silver ingots each weighing 10 kilograms a few years down the road.
In a recent interview, Maya Gold Chief Executive Guy Goulet said the marketing intent behind the promise of near-pure silver was to attract those who want to hold their own silver. The idea, he said, came from the company’s board of directors, which has seen the strategy used in gold private placements.
“Junior miners are not bad gambles but they are gambles,” Cox said. “You are taking a bet on something unproven. People who lend money do not lend money unless there is a stream of income. Despite, for example, gold prices rising up, financing for gold miners is not that hot. Why are investors going to believe that even if you have gold mine in the Yukon that if the world comes to a crashing end that you are going to be able to get the gold out. To build a mine, you need a working finance system. So early stage projects are not where you put money if you think the world is going to come to an end.”
Cox said the main catalyst needed to change the financing scenario for junior miners is “global macroeconomic certainty. We need to figure out if we are going into recession or not. We need to know whether Greece is getting bailed out. Lots of investors have cash but the mentality right now is: why should I buy this week, if next week I can get it much cheaper.”