PDAC 2024: Some junior miners must die so others may live, panel says

Canada’s once-mighty junior mining sector crumbled after governments squeezed the middle class and let multinationals buy the country’s big miners, a panel of finance experts told mining’s biggest conference this week.

Large Canadian miners such as Falconbridge, Inco and Noranda (all gone by 2007) would use much as $200 million each a year to shepherd perhaps 100 junior level companies because they made half of the discoveries, Franco-Nevada (TSX: FNV; NYSE: FNV) co-founder Pierre Lassonde said on a panel at the Prospectors and Developers of Association of Canada convention in Toronto on Tuesday.

The industry’s poor performance and high interest rates that have made it easier for investors to make money with little risk are just parts of the equation, delegates heard. Retail investors, traditionally the biggest source of funding for juniors, have also disappeared. Lassonde tied the state of retail investing to high taxes.

“Back in the ’80s, the disposable income that the middle class had, it was far better than it is today with 54% maximum tax rate here in Ontario,” he said.

“They would say, ‘I’ll take $1,000 or $2,000 and instead of going to Vegas, I’m just going to bet on a junior — it’s more fun and if there’s a discovery, I’m part of it.’ That group of people have been completely washed out by our government.”

Jacqueline Murray, a partner at Denver-based private equity firm Resource Capital Funds, said there are now far too many juniors competing for cash, comparing the task of sifting through them as akin to finding something good to watch on TV.

“I think sometimes for investors they just see so much crap that they miss the good opportunities and it just looks a little too hard,” she said. “In the true junior and explorer space, sadly I think some just need to die so the good ones can survive and attract the funding.”

Lassonde advised the same for “lifestyle” companies in the sector that exist just to pay management salaries.

“Shut it down. Go work for someone else. Put yourself out of your own misery,” he said. “That company is not going to create return for its shareholders. You gotta always think how do you create a return, because at the end of the day it’s the only thing that matters.”

Retail role

Some 80% of the money for juniors comes from just 12,000 investors subscribing to flow-through shares on the TSX Venture exchange, according to Toronto-based PearTree Financial. But two thirds of those people are over age 80.

“Given these terrible demographics, is retail over?” an audience member asked.

Not entirely, according to Adam Lundin, whose grandfather Adolf Lundin founded the Lundin Group of companies. Most of the group was listed in Sweden because retail investors there were such a big source of capital.

“Retail is always going to play an important role, but it’s not the source to rely on when you’re raising capital,” the chair of Lundin Mining (TSX: LUN) said. “But especially when you’re getting up and going, they can really help your liquidity.”

Diverse funding

Murray, who said RCF’s 10-year funds invest for about four to five years in projects, suggested that companies need to diversify their funding sources and educate themselves on other options outside of retail.

“There are other sources of capital across the full capital stack. We’ve named quite a few of the different sources — the issue would be that the junior companies are not aware of that, not connected into that. That is the next step — to not rely on the public markets.”

Companies that have been able to raise money have tapped other sources, including family offices, private equity, streaming and royalty deals, offtake agreements and in the battery metals space, automakers and battery manufacturers.

However, most of these sources won’t consider early-stage exploration.

Outliers

Even in this environment, some companies are getting funding. Generally, they’re those that are led by teams with past successes under their belts, and have truly good deposits in workable jurisdictions.

“You have to have scale and you have to have grade,” Lundin said. “And you have to prove that you have something that your peers don’t have. It’s tough to do.”

Lundin, previously CEO of Lundin Group companies Josemaria Resources and Filo Corp. (TSX: FIL), acknowledged that he’s been fortunate in raising money with the support of family investment and his father Lukas usually providing the lead order in financings.

The group’s track record of adding value and ability to keep share dilution at a minimum is also key, he said.  

Capstone Copper (TSX: CS; ASX: CSC) CEO John MacKenzie said the company, which operates mines in the United States, Mexico and Chile, started off in the private markets where there was more patience to stick with the company through permitting and invest during a down cycle.

“The public markets weren’t really open. They’d just been through the period of 12-15 years ago, when the industry heavily over-invested and had massive writedowns,” MacKenzie said. “A lot of mining companies lost their licence to reinvest. To me, that was unfortunate, because that is the right time to be starting the next phase of projects. Being private allowed us to do that.”

Aussie advantage

Australia’s mining sector, both at the junior and senior levels, has been much stronger than Canada’s despite the same tough financing conditions because pensions invest more and timeframes for permits are more predictable, said Murray, an Australian who recently moved to the United States.

“I see a big difference between Australia and Canada in the sense that every Australian owns the biggest mining company in the country (BHP),” Murray said, referencing The Northern Miner’s March cover story on Lassonde and Frank Giustra’s critique of Canadian pension funds for their lack of support of domestic mining. “The mining industry is such a huge part of the Australian psyche – we know how important it is to the country.”

Canada’s federal government, which now wants to build up the country’s critical mineral supply, is clueless about what’s been lost and how to shorten timelines, Lassonde said.

“They really have no idea of the impact of their own policies on their country’s industry,” he said. “First of all, you’ve got to have miners, OK? You’re not going to get a critical mineral policy without mines.”