Resource World Magazine

a u g u s t / s e p t e m b e r 2 0 1 5 www.resourceworld.com 19 T here is little doubt that as of mid-July, 2015, the world of junior mining com- panies is facing some truly difficult times. Price quotes, as measured by indexes such as XAU and GDX are now at 10-year lows (or longer); the regulatory world is becoming steadily more complex – and expensive – and the time horizon involved in advancing mineral projects from discov- ery to actual production is continually being extended, thereby requiring increases in expenditures, which leads to one of the most vital problems now facing many juniors – that of raising additional capital. For several decades, one of the major sources of new capital for junior mining companies has been issuing new shares of company stock. For example, a junior miner whose shares trade for $0.35 might float a new issue of 10,000,000 of their shares and receive $3,500,000 – less all costs of marketing the issue – which then becomes available for exploration, devel- opment and other corporate purposes. Presumably, with the discovery of min- erals, these expenditures should result in adding to the value of the enterprise, thereby helping to advance share prices or at least allowing them to stay firm, thereby allowing for the marketing of subsequent financings. One of the key considerations in this process is to have the company shares listed on an exchange where quotes are reliable and trading can be accomplished quickly and efficiently. For Canadian junior min- ing companies with no sources of ongoing revenue and with projects which are in relatively early stages of exploration and development, the exchange of choice is the TSX Venture Exchange, owned by TMX Group which also owns the Toronto Stock Exchange itself. The Venture Exchange, as it is most com- monly known, has two groupings known as Tiers for its listed companies with more established and financially secure compa- nies being listed on Tier 1 and more junior companies listed as Tier 2. Each tier then has two specific requirements for listing; initial listing requirements and continuing listing maintenance requirements. My focus is on the continuing listing requirements, a portion of which is item- ized as follows: "For Tier 2 industrial or technology issuers, they will have to show a two-year management plan demonstrat- ing a reasonable likelihood of revenue within 24 months. For all Tier 2 issuers, they must have adequate working capital to carry out their stated work program and execute their business plan for 12 months and have an additional $100,000 in unal- located funds." It is the exchange listing maintenance requirements that are a source of diffi- culty for many juniors which at present do not meet these conditions. If they lose their Venture Exchange listing, then it will become even more difficult to raise suffi- cient capital to continue operations. The growing concern regarding the ability to raise future capital was a hotly- debated subject at the recent PDAC (Prospectors and Developers Association of Canada) convention in Toronto this past March. A Financial Post article published in that time frame notes that Tony Simon, co-founder of Venture Capital Markets Association, was concerned regarding, "… how hundreds of tiny resource companies can continue to exist." The article also notes that, this past February, Simon pub- lished a report which suggested, "…there are about 600 zombie resource companies on the TSX Venture Exchange that are not meeting listing requirements and should be de-listed." One of the TSX Venture Exchange`s problems is that if they purge all these zombie companies, the future of the exchange itself could be jeopardized. The TMX Group is aware of the juniors' capital- raising problem and in June of this year announced they would assist companies by, "Energiz(ing) and expand(ing) our 'capital community' to better facilitate capital raising for issuers of all types at all stages of their development and providing access to alternative sources of capital." Even government departments which typically promote mining within their jurisdictions are beginning to sound notes of caution. For example, in Ontario, the Ministry of Northern Development and Mines noted that it was aware of the chal- lenges junior exploration companies face in the midst of a global downturn and that spending on mining exploration and development was in decline, with diffi- culties in raising new capital being cited as one of the major hurdles to be over- come. According to figures released by the Ministry, "…exploration spending in Ontario is down. Spending totalled $600 million in 2013 and $507 million in 2014, compared with $962 million in 2012…" However, despite all the negative back- ground, it should be remembered that the junior mining industry has faced difficult times in the past, but has always emerged with new vitality and optimism when the cycle turns positive. I confidently expect that that will be the case yet again. n This material is taken from sources believed to be reliable and is provided for information only. Any investment decision should be made only after prior consultation with investment professionals. Leonard Melman is a financial and political writer who focuses on issues relat- ing to the resource sector. Mr. Melman lives in Nanoose Bay, British Columbia, Canada and can be reached at lmelman@shaw.ca Junior miners and raising capital s p e c u l a t i o n s L e o n a r d M e l m a n

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