(Reuters) - The value of the top 100 mining companies on the TSX Venture Exchange has nearly halved in the last year, making it increasingly difficult for junior miners to secure financing through traditional means such as debt or equity offerings.
As a result, Canada’s smaller mining companies are turning to alternative forms of financing to fund growth, a PwC report released on Monday said.
“Investors are skittish; wary of the volatile market. They aren’t looking to add more risk to their portfolios,” the Junior Mine 2012 report said. “Unfortunately for juniors, this is their ‘sweet spot.’”
Canada is home to some 60 percent of the world’s public mining companies, with the TSX Venture Exchange providing a source of capital for junior mining companies.
Despite historically strong metal prices, the broader mining industry has sagged this year, as slowing growth in China and economic uncertainty in Europe and the United States weighed on investors. The cloudy outlook has hit smaller miners particularly hard.
Equity financings by the top 100 juniors fell 41 percent to just C$1.6 billion ($1.6 billion), in the 12-month period ended June 30, 2012, down from C$2.7 billion in the year-earlier period, the report from the global tax and accounting firm said.
Market capitalization plunged 43 percent, with just 13 mining companies on the TSX Venture Exchange worth more than C$200 million in 2012, compared with 36 companies in 2011.
Not surprisingly, stream deals and other alternative financings rose to 14 percent all financings in 2012, up from just 8 percent 2011, according to the tax and accounting firm.
Stream financing is so hot that Sandstorm Gold Ltd SSL.V, which provides upfront money to miners in exchange for the right to purchase a percentage of future gold production at a fixed price, took the No.1 spot on PwC’s top 100 list in terms of junior mining company market capitalization.
Sandstorm shares rose 40 percent over the 12-month period ended June 30 and the company currently has a market cap of C$1.16 billion. It is the second largest company on the TSX Venture Exchange after Africa Oil Corp AOI.V.
Foreign investment is also gaining momentum, partly as Asian steelmakers invested heavily in Canada’s Labrador Trough iron ore region, securing a mix of off-take, joint venture and equity deals with exploration-stage companies. Off-take agreements reserve a percentage of future production.
That trend is now expected to move into gold companies.
“Foreign investors are being strategic in the way they structure investments - acquiring substantial economic interests without having to acquire the public company that owns the asset,” said John Gravelle, PwC mining leader for the Americas, in a statement.
Copper Fox Metals Inc (CUU.V), last year’s top mining junior by market cap, slid 46 percent to land in the No. 3 spot this year, behind Sandstorm and Iberian Minerals Corp, a copper producer.
Rounding out PwC’s top 5 of 2012 were Aurcana Corp (AUN.V), a silver producer, and Dia Bras Explorations Inc DIB.V, a base metal and silver producer.
“Overall in 2012, producers were the only group who did not face a significant decline in market capitalization,” said Gravelle.
($1 = 0.9965 Canadian dollars)
Reporting by Julie Gordon; editing by Andrew Hay