Lawrence Roulston: Why Smart Investors Are Putting Money Into Junior Miners

To be sure, there’s been plenty of negativity surrounding the space as of late, but Roulston argued that things are not as bad as many think, going so far as to state that investors should be “feeling euphoria” about the opportunities ahead. That might sound overly positive, but the speaker made some convincing points.

First, Roulston noted that after three years of declines, the TSX Venture index has finally leveled off. At first glance, that might not seem like a reason to jump up and down, but he noted that the junior sector isn’t flatlining — the leveling is happening as positive performances from some companies offset the continued downtrend of others.

“The real story here is those companies that are doing well — the companies that are being funded and are enhancing shareholder value,” he said. “It doesn’t matter that a lot of companies are struggling if we can find a few companies that are compelling investments at this time.”

And some investors are already putting money into the space. Roulston stated that about $4 billion has gone into the world’s juniors over the past four months, adding that he himself is under plenty of pressure at Quintana to deploy money into the junior mining sector more quickly.

While he admitted that early stage exploration companies are still having a hard time in terms of funding, Roulston stated that “everything from post discovery to production is attracting funding.” Furthermore, he noted that over the same four-month period, there have been no fewer than 15 takeovers, citing deals such as Antofagasta’s (LSE:ANTO) buy of Duluth Metals (TSX:DM), Agnico Eagle Mines’ (TSX:AEM) takeover of Cayden Resources (TSXV:CYD) and Tahoe Resources’ (TSX:THO) bid for Rio Alto Mining (TSX:RIO).

“Clearly, management of the larger mining companies sees this as a good time to score some bargains,” said Roulston.

Speaking a bit more to why now might be the time to invest, he had other reasons to be positive as well. In the past, Roulston has stressed the importance of not getting hung up on the short term, and he brought up that point again, stating that smart investors “don’t base investment decisions on movements in metal prices over the past day.”

The strength of the US dollar was another interesting point. Roulston noted that the exchange rate has made many Canadian juniors as much as 20 percent cheaper, while mining costs have dropped for those operating in countries other than the US. Lower oil and energy prices have contributed to more competitive mining costs as well.

Overall, he was frank that “there are companies trading for less than cash value,” and that there are plenty of undervalued assets currently available in the space.

However, there are still challenges. “To invest successfully in this business, there has to be a high level of expertise in business, finance, geology and mining engineering,” he explained, stating that investment groups that may have gotten burned in the last crash are now taking extra time to build up expertise and to carefully conduct extensive due diligence.

That said, he was clear that investors are already getting exceptional value for financings happening now. “People who come in later will pay much higher prices for the good deals,” he stated.

Roulston went on to talk more about the specifics of financing in a depressed market and about alternatives to debt and equity such as joint ventures and streaming. One interesting example he gave was Quintana’s approach of streaming base metals while allowing juniors to keep the value of gold and/or silver — it’s already inked a zinc by-product streaming deal with Arian Silver (TSXV:ACQ) to allow the company to develop its silver mine.

Certainly, his message was clear; there is money available for good projects and good management teams with solid plans “to enhance shareholder value. ” No doubt, those are the stories that investors will want to look at. Finding those projects might be easier said than done, but Roulston’s statement was nevertheless encouraging for those with an interest in the sector.

“We should feel euphoria now, when there are opportunities for huge gains ahead of us,” he said. “Not the top of the market, when everything is overvalued and the only path is down.”

Securities Disclosure: I, Teresa Matich, hold no direct investment interest in any company mentioned in this article. 

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PDAC 2015: Notes from the Floor

Don’t Get Hung Up on Short-term Copper Prices: Lawrence Roulston