March 7, 2010 / 3:31 PM / 8 years ago

BAY STREET-Gold, copper juniors poised to shine in 2010

* Exploration spending likely to rebound in 2010

* More M&A likely as equity markets return to normal

By Euan Rocha

TORONTO, March 6 (Reuters) - Shares of gold and copper exploration companies are the most likely to shine in the Canadian junior mining sector this year, as large miners raise their exploration budgets and scout for promising projects.

Small-cap stocks on the TSX Venture exchange enjoyed a strong run last year with the S&P/TSX Venture Composite Index .SPCDNX gaining more than 90 percent through the course of the year.

While 2010 is unlikely to be a banner year for the sector as a whole, analysts say companies with advanced copper projects and those with promising gold assets will probably outpace the pack.

“We like the overall environment for the junior mining space,” said Canaccord Adams analyst Wendell Zerb. “But we see 2010 as being more mixed, mostly because you typically don’t just have everything go straight up -- you do have periods of volatility.”

Zerb argues that above-average metal prices and a low interest rate environment bode well for the sector, while the overall weakness in the U.S. dollar translates into support for dollar-denominated metal prices.

The price of gold, which peaked in December at over $1,200 an ounce, continues to trade at historic highs, while the price of copper has rallied after the commodity crash of 2008 to well above $3 per pound.

“There has been a lot of interest in advanced copper assets and there also interest in gold-copper assets,” said Zerb, who touts the prospects of Exeter Resource XRC.TO and Copper Mountain CUM.TO.

Exeter owns the Caspiche gold-copper deposit in Chile, adjacent to Barrick’s ABX.TO Cerro Casale and Kinross Gold’s K.TO Maricunga deposits. Copper Mountain has already begun construction at its namesake project in the Canadian province of British Columbia, with copper production expected to begin in April 2011.

FOCUS INTENSIFIES

The focus on small-cap miners will intensify as large players race to secure promising assets. Barrick’s recent suit against Goldcorp G.TO over the El Morro copper-gold project in Chile points to the looming scramble for assets. [ID:nN13225887]

Moreover, the global economic crisis and credit crunch forced most majors to slash capital expenditure spending last year. The Metals Economics Group estimates that exploration spending plummeted 42 percent to $7.7 billion in 2009.

“We expect to see a rebound in exploration spending in 2010 and more interest on the part of producing companies to look very closely at high quality juniors,” said Dundee Securities analyst Ron Stewart.

Hundreds of juniors will vie to attract the interest of investors and large miners at the upcoming PDAC Convention, one of the sector’s largest annual gatherings that opens in Toronto on Sunday.

INCREASED M&A

The return to normalcy in equity markets and a slew of equity financings through 2009 have led analysts to believe that we will see more M&A deals in 2010.

“In a vibrant equity market joint venture deals, where majors option into a project are less common than equity stakes, or acquisitions,” said Stewart.

Versant Partners analyst Anthona Curic sees Far West Mining FWM.TO, which owns the Santo Domingo project in Chile, as a potential takeover target. Quadra Mining QUA.TO has already acquired an 8 percent stake in the company.

Curic also touts the prospects of Nevada Copper NCU.TO, which owns the Pumpkin Hollow copper project in the United States. Capstone Mining CS.TO has bought an 11 percent stake in the exploration company.

“We didn’t see an overwhelming amount of M&A transactions last year. But now that everyone is a little bit more comforted with the economic environment, companies will start looking at their growth profile,” said Curic. (Reporting by Euan Rocha; Editing by Frank McGurty)

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