Categories: General Market Commentary
Topics: General Market Commentary

Riding Out the Storm: How Junior Mining Companies Survive the Downturn

Securing financing is, for obvious reasons, the most critical component for how junior mining companies survive the downturn of a market and advance an exploration project.

Not so easy a task for today’s junior resource companies, especially when exploration funding is so intimately linked with commodities prices, as evidenced by a recent Prospectors & Developers Association of Canada (PDAC) study.

“Commodity prices drive everything,” Glenn Mullan, president of PDAC, told the Investing News Network via phone. “That’s not just true on the down side … across the whole spectrum of commodities what this report really shows is that commodity prices drive first the level of financings and then as a consequence of the financings, more exploration.”

The ability of juniors to attract capital is also closely tied to the general risk appetite of investors which can ebb and wane with the commodity cycles. In today’s climate it is apparent that investors currently prefer less volatility, more security and higher rewards.

The 2008 recession brought about one of the most challenging financing environments for junior resource stocks in recent memory. The search for financing can be a matter of life and death. Unable to access capital, many found themselves culled from the herd. Those companies that have survived and are continuing to provide shareholder value even during a downturn have in common a number of specific qualities and survival strategies.

Qualities of strong junior resource companies

“I definitely think there’s money there. I think people have become more discriminating in who they give it to,” said Brian Leni, founder of Junior Stock Review, speaking about the challenging financial landscape in an interview with INN at the 2018 Sprott Natural Resource Symposium. Leni added that the companies “showing good targets or good potential — they’re going to get the money, it’s there.”

So how do you know which companies have the best potential to attract capital in a challenging financial environment? Most analysts will tell you to look for those with quality projects in favorable jurisdictions and a strong management team at the helm.

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