Renaissance Gold's Fourth of July property west of Unionville in the Humoldt Range.
The mining boom has busted out — and exploration companies are paying the price for the industry’s poorly played hands.
As investor sentiment flocks to the social media and tech darlings of Wall Street, smaller hard rock miners and exploration firms are scrambling to access capital for drilling programs and to complete other geotechnical engineering work necessary to advance their projects.
Exploration companies play a critical role in developing early-stage gold prospects into producing assets, but they’ve have had little luck over the past few years raising exploration capital — and cash won’t be easy to obtain any time soon.
Rye Patch Gold, Bravada Gold, Renaissance Gold and Miranda Gold — exploration companies with various gold and minerals prospects in Nevada — have reduced claim holdings in the state and other mining jurisdictions, slashed corporate expenses and are hunkered down for another few years tough times.
Ron Parratt, executive chairman of Renaissance Gold, says coffers are running dry for many of the 1,206 gold exploration and mining companies listed on the TSX Venture Exchange: 449 companies had less than $100,000 in cash on their books in the third quarter. It’s an industry-wide problem for exploration companies, which typically have no revenue-producing assets to offset spending.
In January of 2011, there were 300 companies on the TSX Venture Exchange with $2 million or more in working capital, Parratt says, but by the third quarter of 2014 that number had pared almost in half to just 173 firms. In 2011, 54 companies had more than $10 million in their treasuries, but only 39 companies have that much cash available today.
“Clearly you can see that companies have less money going forward,” Parratt said during the Nevada Mineral Exploration Coalition general meeting at the Atlantis Casino Resort a few days ago.
Much of the liquidity crisis stems from the boom years, when large mining companies in the United States and overseas held poor hands yet pushed their chips to the center of the table in an effort to boost investor and shareholder sentiment. Even though $1,200 gold and $20 silver remains good pricing for commodities, exploration and junior firms are struggling to raise capital because the industry as a whole simply hasn’t delivered over the past decade, says Ken Cunningham, president and chief executive officer of Miranda Gold.
“It took in and spent a lot of money and put a lot of sub-economic project towards production. Some of that money was written off, and I think the investment community in general is fed up.
“As an industry, we need to deliver value to the shareholders, and we didn’t do that,” Cunningham adds. “Prices were good, but the costs to produce also went up, and the profit wasn’t as attractive as people thought.”
Richard Bedell, president and CEO of Renaissance Gold, says analysts and banks drove large gold miners to increase their reserves with little thought to project quality over quantity. And market sentiment isn’t there anymore because commodities simply have fallen out of favor to more fashionable investment opportunities.
Bill Howland, president and CEO of Rye Patch Gold, notes that investor sentiment lags because the value of an ounce of gold is almost the same as the cost to produce it. Gold last week traded under $1,232 an ounce. Why should people invest in a paper mining stock when buying an ounce of gold represents a better value, Howland says.
There also is increased competition for exploration dollars, adds Joe Kizis, president and director of Bravada Gold, which makes it harder for investors to determine between companies that have serious gold plays and those trying to push their stock prices.
There is a bit of hope for exploration firms, Parratt notes. Though the number of year-to-date financings are down — 508 deals compared to 624 through the end of September 2013 — the industry took in more than $835 million compared to $779 million last year.
“The money is there, but apparently it is much more selective than it’s been in the past,” Parratt says.
That selective nature from the investment community has junior miners and exploration firms laying the foundation for the next big mining boom, Kizis says, since smaller companies with limited balance sheets aren’t able to expand their claim holdings or advance current projects. And those companies that have received recent funding typically own pre-producing or producing assets rather than the long list of companies with strong prospects but no recorded revenues.
With no improvement on the horizon in the capital markets, small miners who need working capital in their treasuries are faced with some tough choices — sell off important assets or dilute shares by issuing more stock. Cunningham of Miranda Gold says his company reduced its expenses by closing its Elko office and is focusing solely on projects in Alaska and Columbia.
So when will things get better? A strong U.S. dollar, mining executives say, bodes negatively for the junior market, and it could be a few more years before the mining industry sees another uptick.
