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CANADIAN MINING PERSPECTIVES: Juniors hit hard by market mess

Junior miners are feeling the effects of uncertainty in the stock markets and the rising cost of borrowing. Their s...


Junior miners are feeling the effects of uncertainty in the stock markets and the rising cost of borrowing. Their sources of financing are drying up quickly. As the United States struggles to dig itself out from the collapse of its housing market and the greed of its banks, investors are spooked. Stock markets around the world are bouncing up and down (often more down than up). Commodity prices are under pressure due to fears that growth in the BRIC countries (Brazil, Russia, India and China) is slowing. The world banking community is, if you want to be pessimistic, on the verge of a melt down. This is a lousy time for a junior with no cash flow to go looking for new money.

As investors tighten their purse strings, watch for drilling programs to be postponed. For example, URAVAN MINERALS said on Oct. 6 that its planned winter drill program at the Garry Lake uranium property will be delayed until 2009. Likewise CROSSHAIR EXPLORATION & MINING will not proceed with its winter drill program.

Conserving cash is of paramount importance. According to a report in The Northern Miner, Jack Maris, president of GEODEX MINERALS, has voluntarily cut his salary in half. Other members of the management took cuts, as well.

Jack Bal, president of JOURNEY RESOURCES, was quoted in the same article as saying, “I believe possibly half of the companies out there will go bankrupt or get merged.”

That is a truly frightening thought.

For juniors to raise money is not impossible, but it certainly has become more difficult over the last six months. Journey abandoned a brokered private placement in favour of non-brokered financing, and at a discounted share price. PMI GOLD CORP. has postponed its bond offering “pending a return to more stable market conditions.” How difficult it is for CONSOLIDATED THOMPSON IRON MINES to raise $100 million in debt financing to complete development of its Bloom Lake iron ore project might be worth watching.

To compound the difficulty of raising exploration funds comes a drop in major metals prices. Uranium, zinc, nickel and copper are all down from their highs. Copper, frequently seen as an indicator of economic health, is down from its US$4.00-high to the US$2.50-range. The market price is nearing the production price, if Bart Melek of BMO NESBITT BURNS, is correct in what he told a Globe & Mail reporter earlier this week.

Brace for shutdowns of higher-cost producers and delayed development projects. BLUE ROCK RESOURCES has temporarily shut down its J-Bird uranium mine to conserve cash. CANADIAN ROYALTIES is seeking new financing and considering taking on a partner to complete its Nunavik nickel project.

Is there any good news? Yes. Some companies are committed to bringing new mines into production. POTASH ONE insists it will be able to complete its Legacy potash project by designing a cheaper solution mine. In an interview with the Globe & Mail, John Ing, president of MAISON PLACEMENTS CANADA, said he expects gold to move upward as much as US$200 an ounce shortly, and he recommends buying shares of senior producers and some juniors as well.

No matter how rough the ride is now for Canada’s mining sector, if a company can stay afloat through these times, the resources will be still be in the ground when prices and confidence take an upswing in the future.


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