WHERE TO NOW FOR JUNIOR MINERS AND EXPLORERS?

by Brian Barrett
Daphne Mashile-Nkosi, Executive Chair of Kalagadi Manganese Exploration companies are very difficult because you struggle with funding mechanisms. Its funding, funding, funding for exploration companies.

The Role of Junior Explorers

Minotaur Explorations managing director Andrew Woskett said There is nothing more serious confronting juniors than the complete absence of risk capital. The consequences to the overall well-being of our resources sector are intensely serious. Junior exploration companies are essential to the ongoing viability of the resource sector as greenfield discoveries add to the stock of proven reserves. Junior explorers generate a significant proportion of total resource discoveries and are particularly important at the earliest stages of the exploration process. Discoveries by junior miners are usually sold to larger operators with the scale and expertise to exploit a deposit. The Roulston Resource Opportunities Fund (RROF) states the case for Junior Mining Companies as being

the life-cycle of junior companies provides shareholder gains as metal deposits evolve towards production; Juniors offer superior leverage to commodity exposure compared to majors.; increased demand for commodities and the need for reserve replacement forces major producers to acquire juniors at significant premiums; there is a strong demand for juniors with quality projects. The junior markets are not closely followed by analysts and therefore offer opportunities to identify inefficient share valuations.

Funding of Junior Explorers

Junior explorers rely largely on listed equity to fund themselves. The diversified investor base helps support the capital intensive nature of resource exploration activities. The risky nature and the lack of a stable revenue stream make it almost impossible for Juniors to obtain debt funding, and shareholders dont like their capital being used to service interest payments. However, if these companies make a discovery, the payoff is usually very large indeed. It is this high-risk/high-return profile that makes these companies attractive to some investors who will typically spread out their investment over a number of companies in the expectation that at least one or two of them will make discoveries and provide a large payoff. In a weekly series of posts written exclusively for Total Mining (which Ill call BJs {now now it stands for Blogging for Juniors} well explore the following topics in more detail: BJ1 BJ2 BJ3 BJ4 BJ5 BJ6 BJ7 Are junior miners worth the investment? Can Venture Capital / Private Equity create value? The role of Banks and DFIs The role of equity analysts and Professional advisors Government sponsored initiatives Is over-regulation hindering progress? Creative and unconventional solutions

Brian Barrett is Chief Executive of RBS Consolidated Investments Ltd a boutique investment house that provides bespoke knowledge-based services to select clients in the natural resources sector and a leader in the financing of pre-resource definition and early stage mining projects.