After several years of financial turmoil, followed by a gradual recovery, the Canadian junior mining sector has experienced a relatively quiet year in 2018, but advisory group PwC believes the sector is coming out of the bottom of the cycle and that optimism has returned.
According to PwC Canada's ‘Junior Mine 2018’ report, the year was defined by moderate changes in most commodity prices and growing investor enthusiasm for business models built on royalty streams and new technologies.
The report analysed the top 100 junior mining companies by market capitalisation on the TSX-V for the 12-month period ended June 30.
The aggregate market capitalisation of the top 100 listings rose 6% to C$12.9-billion, up from C$12.2-billion 12 months earlier. While the sector has not seen valuations this strong since the heydays of 2011, gains still fail to keep pace with the valuation growth in other sectors, such as cannabis and FinTech start-ups.
"2018 was a relatively quiet year for the junior mining sector," said PwC Canada national mining leader Dean Braunsteiner. "However, it is clear that we are coming out of the bottom of the economic cycle and there is more optimism as market capitalisation rose 6%. We hope to see more of an upswing in 2019."
The report shows that junior mining investors are placing a premium on successful royalty and streaming businesses. For example, two of the top five companies listed in the report – Cobalt 27 Capital and Maverix Metals – use a business model that seeks to replace operating and exploration risk with more predictable cash flows from streaming and royalty arrangements. These arrangements, PwC states, could offer investors diversified exposure to the metal, while limiting their exposure to operational risks.
Junior miners are also beginning to embrace digital technologies with a level of enthusiasm that did not exist prior to the industry downturn a few years ago. PwC states that many are investing in automation, artificial intelligence, three dimensional modelling and the digitisation of historical data.
“They are looking at these tools as a means to boost efficiencies, control long-term costs, navigate through volatile commodity prices and differentiate themselves in the competitive marketplace for investor capital.”
This year also marked the end of gold as a dominant precious metal among the top five junior mining companies, as investors shifted their focus to lithium, cobalt and nickel. The battery metals continue to capture the attention of investors looking to capitalise on the technology boom, as stronger demand for mobile consumer devices and electric vehicles creates a greater need for power storage. The trend is likely to continue as long as the metals remain a key ingredient in battery technology.