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Things looking up for exploration sector

Financings, market caps of TSX venture junior miners doubled in 2020
david-elliott
'Junior explorers and developers are starting to gain some traction' -- David Elliott, Haywood Securities. | AME

In the mining world, junior explorers and developers have, in recent years, been the last in line to raise money.

So the results for junior sector financings in 2020 for TSX Venture listed companies are encouraging, says David Elliott, a legendary resource financier and co-founder of Haywood Securities.

In a keynote speech Wednesday at the Association of Mineral Exploration (AME) virtual Roundup conference, Elliott, who has been behind the financing of more than 400 resource companies, pointed to high base and precious metals prices and an increase in equity financings in 2020 as positive signs for junior exploration sector.

“Junior explorers and developers are starting to gain some traction,” Elliott said.

Copper prices were up 25% in 2020, he said, while gold was up 25% and silver 47%.

“With proper global growth, copper could make new highs by 2023,” Elliott said.

According to the TSX Venture exchange, there were 1,450 financings of junior mining and exploration companies with $4.1 billion raised in 2020, up from $2.1 billion in 2019.

“That’s the best performance of the TSX Venture in recent years,” Elliott said. “This indicates new capital coming into the junior explorers and developers.”

He added that the total market cap of TSX Venture listed companies was up to $41 billion in 2020 – more than double the $18 billion for 2019. There were 48 new listings in 2020, compared to 28 in 2019.

Elliott, who is being inducted into the Canadian Mining Hall of Fame this year, said smart lenders and investors don’t just look at drill results when deciding whether or not to invest in a project or company. They also look for strong management teams, technical expertise and “reasonable administration costs.”

More and more these days, he said investors are also looking at ESG (environmental, social and governance) culture.

“Investors are monitoring ESG performance more these days in clearing their investment decisions,” he said, adding companies should also consider diversity on their boards of directors.

“There is a growing amount of investor capital that want to invest in strong ESG companies,” Elliott said. “Do good work on the ESG side, and use it as your social competitive advantage.”

Following the end of the last commodities supercycle, which was driven largely by China, investors began shunning mining equities and junior companies found it particularly hard to raise capital.

Since that downturn, new alternative forms of financing have become popular, notably streaming agreements.  Elliott added that mining majors now have bigger exploration budgets. He urged junior miners to seek partnerships with majors.

“These companies have large global exploration budgets that they didn’t have several years ago,” Elliott said. “It leaves opportunities for junior explorers and developers to joint venture their projects. These mining companies have strong geological and engineering resources.

“A balance of equity, debt and alternative financing are good options for construction production financing. Projects close to cash flow or shovel ready are very good candidates.”

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