Gold is metal of choice for juniors: survey

Vancouver Despite soaring uranium and molybdenum prices, gold remains the junior explorers metal of choice, according to a PricewaterhouseCoopers review of trends in the sector.

Gold was the primary target last year for 39% of the top 100 TSX Venture Exchange-listed mining companies surveyed by PricewaterhouseCoopers.

It was also the key reason why the market capitalization of those companies rose to $27.6 billion in 2006, an 86% increase from $14.8 billion the previous year.

Four of the five largest mining companies on the exchange list gold as their commodity of focus. They include Aurelian Resources (ARU-V), Northern Dynasty Minerals (NDM-V, NAK-X), ECU Silver Mining (ECU-V), and Seabridge Gold (SEA-V, SA-X).

In its report, PricewaterhouseCoopers attributed the popularity of gold to a sharp rise in the price of the yellow metal during the past three years, which has led to a raft of mergers, and left many companies flush with cash.

The Vancouver market has always had a bit of a romance with gold, said Paul Murphy, a partner with PricewaterhouseCoopers mining practice.

By comparison, silver was the target for 15% of the top 100 Venture exchange companies, who were measured according to their market capitalization as of September 30, 2006.

Of the companies surveyed, 11% listed uranium as the main target, 9% were exploring for copper, and 6% were targeting diamonds.

But regardless of which metal listed companies were choosing to look for, 2006 was a tremendous year for the TSX Venture Exchange, according to the PricewaterhouseCoopers report.

By issuing stock, the top 100 companies raised $1.2 billion for exploration last year, marking a 206% increase from 2005.

During 2006, four companies earned mining revenues that didnt make any in 2005. They include North American Tungsten (NTC-V) and Century Mining (CMM-V).

Murphy said the study targeted TSX venture companies because that market is traditionally a hotbed for junior mining investment and capital raising.

Still, the news wasnt all good.

General and administrative expenses rose to $203.8 million in 2006, a sharp increase from $118.4 million in 2005.

This is likely a result of the larger corporate presence that is needed as businesses grow the way junior mining companies did in 2006, said PricewaterhouseCoopers in the report.

Stock compensation expenses for TSX venture companies also rose noticeably to $135.2 million in 2006, an increase of $79.6 million, from the previous year.

This is a reflection of the growing value of companies in this sustained boom and the need to attract and retain qualified people – and give them an incentive to stay with the company, the report said.

People in leadership roles often accept stock options in place of a higher base salary so that more cash can be used for mining efforts.

Meanwhile, Murphy said he expects the trend towards rising stock values and exploration spending to continue in 2007.

Metal prices are still very strong, he said. This bodes well for the exploration side of the business.