Five-year junior mining drought is over

But investment flowing back into junior exploration mining sector might bypass B.C. because of new government

Exploratory drilling at the Lamaque gold project in Val-d’Or, Quebec | integra gold

Initial public offerings, mergers and acquisitions, major financing deals – the signs are abundant that a five-year drought for the junior mining sector might be truly over.

And while B.C. hosts the majority of Canada’s junior exploration companies – not to mention commodities, like copper and gold, that they are prospecting for – at least one mining consultant fears that little of the investment now flowing will be spent on exploration in B.C.

The turnaround for the mining sector started about a year ago with a rebound in metal prices. Mining majors are typically the first to benefit from higher metal and mineral prices and renewed investor confidence. Investment in the higher-risk early-stage exploration sector always lags.

But money is again flowing to juniors with projects at the late-exploration or early-development stage, according to several reports and indicators.

According to PwC, there were five junior mining IPOs on the TSX Venture Exchange in 2017’s first half compared with none in 2016’s first half. PwC estimates that $39.2 million was raised on the venture exchange in the first half of this year.

“I think, for the most part, that really was junior mining related,” said Dean Braunsteiner, PwC’s IPO services leader. “That’s a pretty important statistic because if you look a year prior to that, the first half of the year, there was zero that was raised on the venture exchange.”

“One very interesting thing – comparing May 2017 and May 2016 – is how much more of a focus on junior companies that there is,” said Jonathan Buchanan, public affairs director for the Association of Mineral Exploration BC. “It’s been a very long time in coming.”

Much of the financing is coming from mining majors, like Goldcorp. (TSX:G), which has been on a buying spree, snapping up juniors like Vancouver’s Exeter Resource Corp. for $247 million in March.

Just last week, Integra Gold (TSX-V:ICG) shareholders approved its acquisition by Vancouver’s Eldorado Gold (TSX:ELD) in a $590 million deal.

And Hudbay Minerals Inc. (TSX: HBM) recently announced plans to acquire up to a 60% interest in the IKE copper porphyry district, 40 kilometres northwest of Gold Bridge, B.C. That property is owned by Vancouver’s Amarc Resources Ltd. (TSX-V:AHR).

Big banks and investment firms like Vancouver’s Haywood Securities are also showing renewed confidence in the sector. Haywood recently led the initial public offering of a new uranium junior called URZ Energy Corp. (TSX-V:URZ), which owns uranium properties in Wyoming.

“In 2017 alone, Haywood has either led or been in the syndicate on 22 mining equity financings for companies with market capitalizations less than $250 million,” said Kevin Campbell, Haywood’s managing director of investment banking. “We consider that a pretty good clip.”

It’s just one example of a junior company that had good prospects but was unable to attract investors.

“We had small assets that we could never, in a bear market for uranium, get people interested in,” said Mickey Fulp, who is publisher of the Mercenary Geologist and a founding shareholder in URZ.

While many of the juniors that are starting to attract investment are headquartered in B.C., that doesn’t mean they will be spending their exploration dollars here.

In March, S&P Global reported that Canada was leading the way in exploration spending, accounting for 14% of the global budget. But most of that exploration spending is going to Ontario, Quebec and Saskatchewan, which don’t have the same concerns as B.C. does when it comes to unsettled native land claims.

Lawrence Roulston, founder of the mining consulting firm WestBay Capital Advisors, said most of the investment is flowing to later-stage development projects, not early-stage exploration.

“At that level, there’s a huge amount of interest from mining companies and investors, but the early-stage stuff, it’s still very difficult.”

Roulston added that investors that had been interested in early exploration projects in B.C. lost interest as soon as the BC Liberals were unseated by a new minority BC NDP government.

“Since the change in government in B.C., there has been a dramatic change,” Roulston said. “There are a number of projects that I was following and pitching to investors here and around the world as very, very attractive projects – advanced-stage projects. And the response I’m getting is: ‘Not B.C., period. Don’t want to talk about it.’”

Stephen de Jong, CEO of Integra Gold, thinks the preference for Ontario and Quebec over B.C. has more to do with the fact they are more mature mining districts.

“The high-quality B.C. projects are still finding money,” he said. “I would say there’s just a lot more to look at in Ontario and Quebec.”