Sprott’s Thoughts: Who is making the few significant mineral discoveries?

POSTED ON December 11, 2015 BY Sprott's Thoughts
CATEGORY Stories,

Sprott Global Investment Executive Steve Todoruk inspects drill core at Skeena Resources’ Spectrum property in Northern BC – Sept 2015 (Tommy Douglas photo)

With the four-year-plus bear market in the natural resource sector, we are all well aware that funding has dried up severely for junior mineral exploration companies wanting to raise money to do what they do best – drilling in pursuit of new discoveries. New discoveries are then often taken over by bigger mining companies which then build them into future mining operations.

The small ray of sunshine in the mining industry for 2015 centers on the fruits of labor from a small handful of Australian exploration companies.

The year started with Australian based Mariana Resources (MARL-LN) announcing a new high grade gold-copper discovery in a joint venture partnership with Turkey’s private Lidya Madencilik Sanayi ve Ticaret A.S. (“Lidya”) on their Hot Maden property in eastern Turkey. The companies have already announced a total Hot Maden Mineral Resource (all categories) of 3.01 Million Oz AuEq** for a gold equivalent grade* of 11.2 g/t with drilling ongoing.

In mid-September, Australia’s Azure Minerals (AZS-ASX) announced a new high grade silver discovery on their Mesa de Plata project in northern Mexico. Step out and in-fill drilling are currently ongoing on this exciting new prospect.

In late November, another of Australia’s juniors – Cardinal Resources (CDV-ASX) announced several good drill holes of significant gold mineralization dramatically increasing the size of their mineralized footprint following up on encouraging drill results they had been getting nearby to the south since late last year on their Namdini project in Ghana, West Africa.

Why are the Canadian junior mining exploration companies not making any of the new discoveries and are they being ignored and/or left behind by investors wanting exposure to these kinds of companies?

The typical Australian junior has at least 500,000,000 shares outstanding and it’s not unusual to see more than 1,000,000,000 shares outstanding. Their resultant market capitalization is usually quite small meaning they commonly trade for pennies. The Australian investors who finance these companies and the investors who buy shares in the market are very used to this practice and therefore the junior mining companies management teams are quite happy to keep raising money at very low share prices.

Many Australian investors believe that at the end of the day, it all comes down to the asset in the company and that the market will value it accordingly – i.e., if a small junior that has nothing one day then makes a significant new discovery or makes a significant new acquisition, the market will re-rate the company and push their share price and market cap higher.

Transactions of significant new mine acquisitions by Australian companies like Northern Star Resources (NST-ASX), Evolution Mining (EVN-ASX) and Oceanagold (OGC-CA) have similarly provided significant market re-ratings.

Conversely, in North America, investors believe that keeping the number of shares a company has outstanding to an absolute minimum is a paramount part of the successful investing equation.

To this end, a number of well-regarded natural resource investors are puzzled to no end as to why more of the Canadian juniors have not yet capitulated by reaching out for much needed exploration funding at their current low share prices. It’s as if the Canadian juniors are happy keeping their heads stuck in the sand hoping that when they come up for air, gold prices will have risen taking their share prices much higher which would allow them to raise the money they want creating less share dilution in their company.

As this current four year bear market is playing out by dragging on much longer than anyone foresaw, when those Canadian company CEOs come up for air, their share prices have slid even lower than the last time they looked up and more of their cherished money has now been spent meaning even less is in the treasury. Their backs are even pressed further up against the wall meaning even less exploration is being carried out.

The longer this bear market drags on, more and more of the Canadian companies that are serious about staying in this business should capitulate and do their much needed financings at lower prices moving more in line with their Australian counterparts who are enjoying some success.

As investors, keep a closer eye on the Australian junior mining scene for more opportunities where smaller companies are more cashed up to carry out exploration programs that might result in new discoveries or significant material transactions while we wait to see if the Canadians follow suit.

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Steve Todoruk has 30 years of industry experience and is an exploration geologist.

Should you have any questions about this article you can contact Steve by dialing 800-477-7853 or stodoruk@sprottglobal.com.

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