Please note that tax, investment, pension and ISA rules can change and the information and any views contained in this article may now be inaccurate.
Junior miners are back
Share prices have rallied in many parts of the commodity space this year and confidence is spreading fast across the sector. First metal, energy and oil prices went up; now we’re seeing interesting corporate deals.
SolGold in September 2016 agreed a $33 million investment from Newcrest Mining and Canadian investor Maxit (plus clients) for 14.4% of the business, subject to shareholder approval.
BHP has now made an alternative offer of $30m for a 10% stake in SolGold and a promise to spend $275m to acquire 70% of the subsidiary company that holds the Cascabel project tenements.
What’s really interesting, in my opinion, is that the big companies are once again willing to put up cash to help fund work by juniors. We haven’t seen this type of action outside of the gold space for many years. Collaboration was standard practice until the commodity price crash in 2012. The majors then stopped spending and started selling their own assets to raise cash for debt repayments.
Majors now have to restock their growth pipeline. They have traditionally taken stakes in exploration companies as an option on the junior making a decent discovery. The amount of money isn’t too much to waste if exploration proves unsuccessful but is very material to the junior – it gives them a lifeline to continue working without worrying about whether they can pay the bills each month.
BHP clearly is eager to do deals. It signed up with Aston Bay (BAY:TSX-V) in May 2016 to earn a 75% stake in the junior’s Storm copper project in Canada.
FTSE 100 copper producer Antofagasta (ANTO) has numerous exploration projects with both public and private companies, although it does not provide much detail. However, its recent financial results include a statement about wanting to partner with experienced junior exploration companies.
The renewed interest by majors in exploration projects could help some juniors start to realise value from some large-scale assets that have essentially been stranded in their portfolios for several years.
Metminco (MNC:AIM) may have wished it hadn’t agreed in August 2016 to let CD Capital invest up to $45m for 70% of its Los Calatos copper project. The asset is very big and the price looks cheap – but at the time it didn’t seem to have many alternative options. Had it waited a bit longer, one could speculate it might have got a better price. (DC)