It’s time for junior miners to shine

The junior mining sector is enjoying a rebound in market conditions as a result of a healthier appetite for risk among investors and strengthening commodity prices, particularly for precious metals.

PwC’s latest Junior Mine report shows market capitalization for the top 100 junior mining companies on the TSX Venture Exchange (TSX-V) soared to $12.7 billion for the 12 months ending June 30, 2010. This represents a significant 49 percent increase from the $8.6 billion achieved for the same period in 2009.

Although the global economic recovery remains fragile, there has been substantial growth in the junior mining sector, demonstrating that junior miners are benefitting from a strong commodity market, improved access to financing and growing investor confidence.

The steady climb of gold prices captured the attention of investors and media worldwide and has made a positive mark on the junior mining sector as nearly two-thirds reported gold or silver as their principal commodity.

Rising commodity prices helped boost the top 100’s revenues by 21 percent to $801 million. Gold remains the main commodity of interest with 55 percent of companies either exploring for, developing or mining the precious metal, up from 50 percent in 2009 and 42 percent in 2008.

Interestingly, the top five junior miners were all gold companies for the first time in the report’s five-year history. Each company at least doubled their market capitalization year-over-year, totalling $3.45 billion on June 30, 2010-an increase of 27 percent from the top five of 2009.

Although gold prices are volatile in nature, demand will likely remain strong into 2011 and gold producers will continue to reap the benefits well into the foreseeable future.

While market capitalization for the junior mining sector rose, exploration spending declined. For the 19 percent of companies that expensed exploration costs, spending dropped 29 percent to $66 million and cash used in capital expenditure investing activities dropped 44 percent to $835 million. This trend is concerning since such spending is required to discover new world-class deposits.

At the same time, cash used for acquisitions soared 350 percent to $270 million. The juniors were also better equipped to finance their own exploration and acquisitions as market conditions recovered from the crash and credit markets loosened. Share issues increased by 51 percent to $2.2 billion while debt financing was up 148 percent to $402 million year-over-year.

Overall, the report findings have shown the junior mining sector is poised for continued recovery in 2011 as demand increases in an era where new world-class mines are rare. Precious metals companies, in particular, are in a position to reap the benefits of strong commodity prices and increasing demand.

Investors are also returning to the TSX-V. The exchange’s volatility largely kept investors at bay during the recession, but a growing appetite for risk among investors will continue to benefit the junior mining sector.

For more information or to read the full Junior Mine report, visit: www.pwc.com/ca/juniormine.