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Canary indicates life in the tunnel for junior miners

Good news for junior miners and explorers, which make up approximately a third of all ASX listed companies, as investor interest finally returns to the sector on the back of a sustained six month market improvement; according to the latest JUMEX Survey from Grant Thornton.

“We’re seeing a strong improvement in fund raising success. Investor interest initially concentrated on certain commodities, but has started to reach out more broadly, particularly to those with low risk, advanced stage assets,” said Holly Stiles, National Head of Energy & Resources, Grant Thornton Australia.

As predicted last year, Gold has been the definite winner amongst investors, but it was interesting to see lithium emerge in the limelight unexpectedly. Only 3% of last year’s respondents saw it as one of the most attractive commodities.

“The recent boom in Lithium interest is a great example of how rapidly perspectives on commodities can surge and a testament to the flexibility and speed at which junior miners are able to respond to demand, given so many juniors tapped into that interest over the past year, refocusing their businesses by acquiring lithium projects or discovering lithium potential on their existing tenements over the past year,” said Ms Stiles.

While investor sentiment is increasing,[1] the competition for capital will be extremely high for junior miners and explorers.

“Many junior miners are still very cash constrained[2] with half the respondents anticipating a need to raise funds within the next 6 months, meaning around 350 companies of similar nature will be capital raising in the same period and therefore competition for investor capital will remain extremely tight,” said Ms Stiles.

In addition to project selection and commodity pricing, there are other key, but less often considered, factors that can make a significant difference when it comes to differentiating from other juniors and maximising appeal of investment propositions to investors. These include the company’s approach to innovation, the diversity of skills at board level and project focus.

“It’s important for juniors to take a balanced approach to innovation in order to attract investment. While investors don’t want to see high risks on unproven technologies, they are looking for increased adoption of technologies employed during exploration, combined with innovative approaches to project development and business model diversification. To stand out from the crowd and attract the investor dollar, look for opportunities to collaborate with suitable partners like the majors or mining service companies,” said Ms Stiles.

Investors also look closely at the quality and overall diversity of thought at the board level. This very broad concept of diversity includes experience, location, potential networks, age, gender and culture. Disappointingly a significant number of junior miners are yet to embrace the benefits of diversity of thought.

“When looking at diversity in all its forms, over a third of respondents[3] didn’t value diversity at board level. When it comes to improving investor appeal, juniors must be able to demonstrate that they have the right board and management team to successfully manage a project through its various stages, in a rapidly changing operating environment. Having a diverse board, with broad skills, experience, networks and perspectives is imperative to success,” said Ms Stiles.

In terms of project success, a focus on quality and on setting milestones and delivering on them will allow juniors to gain investor trust and long standing support.

“For directors and managers of junior mining companies, now is the time to position your company for its next phase. Those with existing assets, focused on attractive commodities with no significant negative factors, focus hard on those projects. Raise funding as quickly and as efficiently as possible and fast track development to deliver the best shareholder outcomes.

“Juniors looking for new projects, be selective and get it right – focus on mainstream commodities and quality jurisdictions. Minimise risk and you will maximise your funding options in the future,” said Ms Stiles.

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For more information please contact:

Rebecca Morrow
Head of Marketing
M  0406 580 343

[1] Survey found 26% of respondents that needed to raise funds during FY2016  reported no challenges in raising capital or strong investor interest, compared to just 10% in FY2015. Report also found 60% are seeing signs of improvement in investor interest or even strong investor interest, compared to just 15% in 2015.

[2] Report indicates that 71% of respondents experienced working capital constraints during FY2016 and one in four respondents are operating with less than $500,000 of cash.

[3] Survey found 36% see diversity of the board as not at all or only slightly important.