Volume 94 Number 33The Global Mining NewspaperOct 7 - 13, 2008
Daily News Tuesday, October 07, 2008
Tough days ahead for juniors
The Northern Miner TV, 10/03/2008
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Companies in this story
Geodex Minerals Ltd
Journey Resources Corp
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The president of Geodex Minerals (GXM-V) has voluntarily cut his salary in half; just one of many cash-saving tactics to make sure the company is still standing when the markets rebound.
When that happens is anyone's guess. Analysts say junior companies could be in for a long and bumpy ride before the industry recoups its losses from the current financial crisis. The TSX Venture Exchange is down more than 60% compared to this time last year, with the bulk of the loss since the summer.
It's been since May that speculative capital has been avoiding the junior stocks, says Wendell Zerb, a senior mining analyst with Canaccord Capital in Vancouver.
"It's been brutal," Zerb says of the financial crisis. "When you have blue chips stocks acting like penny stocks there isn't a lot of additional capital that's flowing to the illiquid junior miners."
Zerb points out that it took nearly four years for the junior market to recover losses from the 1987 crash and almost as long for the 1997 BreX fiasco that sent investors fleeing from the junior mining industry.
"You can have some prolonged periods of time where you have some very big corrections," Zerb says.
While raising money right now is tough, it's not impossible. Geodex has just completed two flow-through financings totaling about $1.2 million 30¢ per share but that was less than half of what the company would have gone after if market conditions were different.
Instead the company has pared back, stopping exploration programs on its non-core projects, focusing instead on finishing a prefeasibility study at its flagship Sisson Brook tungsten-molybdenum project in New Brunswick by next spring.
"We skimmed the budget back," explains vice president of development Christopher Anderson. "We're trying to put ourselves in a financial position to ride out the storm for a year while still advancing our projects."
The president isn't the only one who took a pay cut; all management agreed and Anderson says they are doing all they can to conserve.
"We use both sides of the paper and you can't throw a pencil out unless its' an inch and a half long," Anderson says, and he's not kidding. "If you're doing all those things then it's plausible to raise a little money."
Journey Resources (JNY-V) had to cancel a brokered private placement this month, settling for a non-brokered financing at 8¢ per share compared to the original 12.5¢.
"Six months ago it was very easy to do a financing and today it's gotten infinitely more difficult," says Journey president Jack Bal.
Bal says Journey is also scaling back on its work programs and that the company is now considering buying smaller projects – "Things we wouldn't have actually looked at a year ago."
Investors like companies with cash flow, Bal says, and because of this he believes there could be dark days ahead for those who don't have it.
"I believe possibly half of the companies out there will go bankrupt or get merged with other companies," Bal predicts.
Zerb says what happens in times like these, is some companies do delist while others go into hibernation.
"They stop spending, pare back on all corporate and property commitments, burn rates, you name it. They just wait for a turn around until they're able to refinance," Zerb says.
BeaconRock analyst Mike Niehuser says there could also be company creation going forward as large companies spin off their assets that aren't adding value to the company. There's also buying opportunity for the bigger companies.
With many companies share prices at bargain prices, he says companies that are producing metals profitably will be in a solid position to pick and choose the best juniors for their own rosters.
"Everybody knows who the majors are but who the real winning emerging producers are is probably the next important opportunity for investors," Nuihuser says.
But before any good news happens on the Venture Exchange, Zerb says stability is needed in the United States and the rest of the world.
Once you get some stability along those lines that vies you the opportunity going forward to get the risk capital starting to come back into the juniors," Zerb says. "Until wee see that you're going to see a period of difficulty for the junior miners."
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