TORONTO (miningweekly.com) – Having fewer junior firms in British Columbia’s mining sector could help to breathe new life into an ailing industry segment, a group of 15 senior executives told a study commissioned by the British Columbia Securities Commission (BCSC).
The report compiled by professional services firm KPMG and entitled ‘BC Junior Mining at a Crossroads: Executive Management's Perspective’, found that senior mining companies should also clean up their balance sheets to increase investors' confidence in the mining sector, after which a recovery of junior mining companies would follow.
From the start of the year to August, about 85, or 5%, of the 1 673 mining companies listed on Canada’s TSX and TSX-V failed, compared with about 6% in the oil and gas industry. These did not include companies taken off the exchanges owing to merger and acquisition activity, going-private transactions or those companies that have graduated to bigger exchanges.
Author of the Mercenary Geologist website Mickey Fulp recently told Mining Weekly Online it would take a lot of time to “wash out the bad” companies and many were, by now, merely hanging on, creating danger for the unsuspecting investor.
KPMG interviewed 15 senior executives on a confidential basis to get their thoughts on the current state of financing in the industry, and in general, the participants confirmed that the major issues were the cyclical nature of the mining industry, and current economic and market conditions.
Significant contributing factors identified included metals prices, slow economic growth, global financial issues, the need for senior mining companies to rid themselves of ‘toxic assets’ and problematic projects, and resistance to higher-risk investments from both institutional and retail investors.
Of lesser importance were regulatory costs and policy barriers.
Participants generally agreed that while these regulatory and government policies should be addressed, it would not solve the current fundamental problem of raising capital.
Several interviewees also noted that it was possible that Vancouver would lose some of the infrastructure (geologists, lawyers, independent brokers, accountants) that had traditionally served this sector and made the region a mining centre of excellence.
The report found that there were opportunities for securities regulators to improve and streamline their oversight going forward to make sure that there was consistent review and compliance for all companies and, to look for flexibility to reflect the disparity in the size and nature of companies in the mining sector.
The BCSC commissioned the report to get a better understanding of why there is such a significant downturn in British Columbia's junior mining sector, and to help inform a discussion with industry about what can be done to support its recovery over the coming years.