Analysis: As Canada's junior miners flounder, long-term damage looms

Thu Jul 25, 2013 1:07am EDT
 

By Allison Martell and Euan Rocha

TORONTO (Reuters) - Hundreds of small mineral exploration companies may have their stock delisted by Canada's TSX Venture Exchange in the coming months, choking off a development pipeline that has long supplied major miners with new projects.

As commodity prices boomed in the last decade, a flood of new issuers swelled the ranks of the Venture, TMX Group Inc's exchange for small-capitalization companies, burnishing Canada's reputation as the center of global mining finance.

But the money has dried up over the past two years, thanks to a slump in metal prices and a spike in costs. Hardest hit are the Venture-listed, exploration-stage companies that depend on equity financing to develop their properties to the point where they can build a mine or sell the asset to a major.

"There's a crisis that's looming," said Joe Groia, a securities lawyer and former head of enforcement at Canada's top securities regulator, the Ontario Securities Commission.

"If we continue to not address it, what we're going to end up with is literally hundreds of companies where boards are either going to walk away or hundreds of companies that are going to run out of money."

The disappearance of a large number of small companies would affect the global mining sector for years, given that it is juniors that typically find world-class assets that big players later build into producing mines.

It can take years to estimate the value of a mineral asset, plan a mine and start the permitting process, and it is neither quick nor simple to resume work on a mothballed early-stage project.

And while the mining sector has always been subject to boom and bust, the potential shake-out could be especially damaging this time. A dearth of companies with proven assets could hit future supply of many different resources and drive up prices.   Continued...

 
Buildings are seen in the financial district in Toronto, January 28, 2013. REUTERS/Mark Blinch