PwC releases report on junior miners

Exploration spending in the twelve months ended June 30 increased 115% year-on-year while total production costs have more than quintupled since 2006, rising more than 23% between 2010 and 2011, PwC concludes in its annual study of the top 100 junior mining companies listed on the TSX Venture Exchange.

But the significant drop in capital raising and IPO activity during the third quarter could spell trouble, Junior Mine 2011 warns. “The current decline of IPO activity and capital raises is similar to 2008 conditions,” says John Gravelle, PwC’s mining leader for the Americas. “If what happened in 2008 holds true than exploration spending could come to a grinding halt if things don’t pick up by the start of 2012.”

The good news for juniors is that larger mining companies are reducing their exploration expenditures, essentially outsourcing to the juniors. “Investing less of their money in exploration means the major mining companies must acquire junior mining companies,” the study says. “Acquisitions will play a key role in mid-sized and senior mining companies’ expansion plans.”

Another positive factor according to the study is that Chinese companies are continuing to invest in businesses in the mining industry. “This demonstrates that North Americans (outside of the mining industries) are much more worried about the state of China’s economy than Chinese companies are.”

PwC also noted that production costs continued to rise for the sixth year in a row. This year production costs rose 23% year-on-year. Since the first edition of Junior Mine in 2006, production costs for the Top 100 companies on the Venture Exchange quintupled from $162 million to $865 million. Among the drivers are oil prices, which have risen faster than base metals since 1999; rising electricity prices; and increasing royalties and mining taxes.

Among the juniors interviewed about the top challenges facing the industry or their companies, nearly 50% said the availability of people, or labour shortages, was the biggest concern. According to PwC data, half of the workforce in mining is eligible to retire by 2021.

Other interesting statistics about the top 100 companies on the Venture Exchange are that fifty of them are exploring for, developing or mining gold, down 5% from the same period last year.

The study also noted that the number of junior companies operating primarily in Africa has grown to nine from just one in 2009. Yet when asked what region mining executives thought had the most exploration potential over the next five to ten years–Africa or the Arctic–the most popular answer in the survey was the Arctic.