Canada, a country with nearly 1,500 listed small-cap mining companies, is often seen as the heart of junior mineral exploration - so it’s important to keep one’s finger on the pulse there.
Unfortunately, both for Canadian companies and for small-cap resource investors the world over, the financial landscape for Canadian junior mining stocks is bleak.
Many junior explorers based in Canada are currently struggling to raise money after the heady days of 2009, 2010 and 2011 - and their share prices have plummeted alongside their balance sheets. Research by respected newsletter writer John Kaiser shows that, by the end of the summer, just under half of all junior mining companies listed on the TSX-V were trading at under 10¢ a share with a median working capital of a paltry C$100,000 (£63,000); another 23 per cent trade under 20¢ a share with a median working capital of $700,000; while the next 10 per cent trade under 30¢ a share with a median working capital of $1.3m - hardly enough for even a small drilling program.
Since then, Canadian miners’ belts have only got tighter as capital markets remain closed off to the vast majority of speculative explorers. Many have delayed fundraising efforts to the new year. As North American newsletter writer Brent Cook puts it: "A persistent theme from many of the companies at the various resource conferences I attend is: 'When the markets pick up in January we will finance'. I doubt it."
Consider this, adds Mr Cook. "It costs in the order of $100,000 just to cover the public company filing fees, pay for the financial audits, and share an office and phone line. If you have a secretary, president, and geologist on staff you’re looking at around $400,000 a year minimum. Add to that property payments, a few field trips, and samples and you’re nearing $800,000. Drilling and serious work using consultants or staff puts your junior company over the $1m mark just to do a little work on a long-shot exploration property."
While it’s a similar situation here in Britain, it’s perhaps not so dire, according to new research conducted by the Investors Chronicle using data from S&P Capital IQ. Of the 145 junior mining companies listed on London's Alternative Investment Market, a miserable 24 per cent had less than £100,000 in working capital as of their last reported quarter. That said, 60 per cent still had more than £1m in working capital, suggesting severe financial distress is limited to the worst crop of companies for now.
Nevertheless, shares prices remain depressed across the board. Nearly 45 per cent of Aim-listed explorers trade for less than 5p a share; another 15 per cent trade for less than 10p; all told, 77 per cent trade for less than 25p a share.
There will be a very long line of small-cap explorers seeking money early next year. Not all of them will get it, so be certain any resource companies you're invested in have a large enough treasury to last them at least a year - just in case 2013 turns out to be even worse for mining micro-caps than 2012.