Australia's junior explorers - The ASIA Miner

By Krishnan Narayan, research analyst for Beroe Inc.
THE global economic downtur n in 2008/09
was terrible for junior mining firms. The global
exploration expenditure dropped from
US$14.4 billion in 2008 to US$8.4 billion in
2009, the largest ever year-on-year drop. During
this period, the share of total exploration
expenditure among junior mining companies
fell to 40%, the first time it had dr opped
below that of the global mining majors since
2004. The challenging market conditions and
turbulent global economy led to a sever e
shortage of equity financing for the mining industry
and junior miners found their ability to
raise funds severely curtailed.
Junior mining companies typically derive
the majority of their funding from investors or
by selling shares and are focused on the discovery
and development of minerals. Further,
their market capitalization is generally less
than US$500 million and they possess only
around one or two pr oducing operations.
Currently, there are more than 1200 junior mining
and exploration companies listed on the
46 | ASIA Miner | July/August 2011
Toronto Stock Exchange (TSX), mor e than
500 on the Australian Stock Exchange (ASX),
more than 150 on the London Stock
Exchange (LSE & AIM) and more than 20 on
the Johannesburg Stock Exchange (JSE).
The vast majority of mineral deposit discoveries
are made by junior mining companies
with the key reasons being a thorough knowledge
of local geology, access to equity and
land, the availability of experienced experts,
and an ability to execute decisions rapidly
since they ar e not bogged down by bureaucratic
red tape. Consequently, a large
number of mineral deposits, which ar e the
world’s future mines, are owned by junior mining
companies. When global mining majors
seek to replace existing reserves or expand
their asset base, a key strategy is to acquir e
low cost, long life deposits fr om juniors or
simply to acquire the juniors. Rio T into’s acquisition
of Riversdale Mining in 2011 for
US$3.9 billion and BHP Billiton’s acquisition
of Athabasca Potash for US$341 million in
There are many challenges facing Australian junior
explorers and miners, who in many ways are the
backbone of the global mining industry.
CHALLENGES FACED BY
Australia’s junior explorers
2010 are examples of this trend.
In 2012, as other industries continue to face
challenges caused by uncertain r ecovery
from the global financial crisis, the demand
for commodities is being driven primarily by
emerging markets. The historic lack of investment
in exploration, coupled with the fact
that established mines have started to run out
is leading to a supply constraint. The demand/supply
equation continues to drive the
prices of commodities and as a result the mining
industry as a whole is emerging financially
stronger and poised for growth.
FINANCIAL ROADBLOCKS
In spite of steady commodity prices, Australian
junior miners face the challenge of financing
their projects. Junior mining shares are still
being traded in sluggish volumes which act as
a deterrent to investors. Banks and shareholders
prefer to invest in better capitalized companies
as long as the global outlook r emains
uncertain. Since junior mining firms need to