Financial slump has returned Venture market hits lows not seen since 2008
Northern News Services
Published Monday, December 15, 2014
If you are involved with mining or mineral exploration projects in Nunavut – whether as an investor or as a field worker – you are implicated in the rise and fall of the TSX Venture (TSX.V) exchange.
An aerial view of Jericho diamond mine, which past owner Tahera Diamond Corporation closed in 2008, and filed for bankruptcy protection that same year. Shear Diamonds agreed to purchase the mine in 2010 for $38 million. By 2012, Shear was no longer operating. - photo courtesy of Tahera Diamond Corporation
The TSX.V is where many of the small mining and exploration companies operating in Nunavut go to raise the cash they need to keep projects moving forward.
Last week, the exchange had its worst closing day in its 15-year history.
On Dec. 8, the TSX.V closed lower than it ever had, dropping below the previous record low set on Dec. 5, 2008.
The years following 2008 were infamously difficult years for exploration companies in the North. If the past is any indicator, some companies will not make it through the current downturn.
For example, Starfield Resources Inc. was developing a $1.35 billion nickel-copper-cobalt mine 240 km west of Rankin Inlet. By September of 2009, the company had spent $107 million on the project. Mine construction was expected to begin by 2012.
Instead, 2009 was essentially the last year of spending on the project due to a difficult capital market. By July 2013, Starfield Resources had filed for bankruptcy.
Some developers were unable to sustain their projects but instead of going bankrupt were bought out by larger companies taking advantage of the bear market. Comaplex Minerals Corp., for example, was developing the Meliadine gold deposit before Agnico Eagle bought them out.
In the middle of 2010, the TSX.V started to regain ground it had lost. By March 2011, the exchange had regained more than half the value it had lost in 2008, but since then, all that value has been lost again.
Most was lost in a slow but steady decline since 2011 that roughly paralleled the decline in gold, which went from higher than $1,800 per ounce in 2011, to where it sits now at around $1,200 per ounce.
But it took oil's recent slump to push the market back into 2008 numbers. The drop in the price of oil on world markets has been blamed by many analysts on a basic problem of over-supply meeting declining world demand. Whatever the cause, energy stocks represent approximately 30 per cent of the TSX.V (mining stocks represent 40 per cent), it was enough to reduce the exchange to 2008 levels.
There are approximately nine venture exchange listed junior companies active in Nunavut. None of them have escaped the overall market decline, each one trading substantially lower than it did in early 2011, when the market seemed to be rising back to pre-2008 levels.
Without trying to rub salt in any wounds, it's illustrative to note that Forum Uranium (TSX.V:FDC) dropped from $6.30 per share in early 2011, to closing at $0.08 per share last week.
Aura Silver Resources (TSX.V:AUU) was trading at $0.56 per share in 2011, and now sits at $0.03 per share. Northquest Inc. (TSX.V:NQ) was at $1.10 in 2011, and now sits at $0.10.
Even companies that have been consistently posting strong exploration results have been carried along in the market decline.
Take Peregrine Diamonds (TSX:PGD) for example. Although traded on the broader Toronto Stock Exchange rather than the TSX.V, its stock chart tells the same story as those listed on the venture exchange.
Peregrine Diamonds is developing its Chidliak property, the company's advanced stage diamond project near Iqaluit.
It could be the richest undeveloped diamond deposit in the world and the company has been getting positive nods from industry analysts, but neither fact has helped the company's share price, which has dropped from $2.76 a share in 2011 to $0.16 per share now.
Established producers haven't escaped the general decline either. Agnico Eagle Mines Ltd. (TSX:AEM), 100 per cent owner of the Meadowbank gold mine near Baker Lake, has seen its share valuations drop from $72.04 per share in 2011 to $29.33 per share now. This 60 per cent drop in AEM stock value outstrips gold's 30 per cent price decline over the same time.
Jon North, Northquest Inc. president and CEO, said there is little exploration companies can do given the current market other than keep their heads down and ride it out.
"I am not surprised about the TSX.V index at all," North said. "This is what happens at the bottom of the cycle, perfectly natural and very painful. The venture companies get way oversold at the bottom, and way overbought at the top."
Despite the slump, Northquest has been successful twice this year in raising capital for its Pistol Bay gold project near Whale Cove. The company is financed to commence another season of exploration this spring.
Dunnedin Ventures Corp. (TSX.V:DVI) has seen its share price fall from $8.90 in early 2011 to $0.09 last week. Despite the drop, the company has not only redefined itself as a diamond property developer, but has taken advantage of the bear market to pick up some historically interesting and promising property.
"Many majors got their start in just such a business climate, accumulating high quality projects when they finally become available," said Chris Taylor, Dunnedin Ventures president and CEO.
"That's our goal at Dunnedin Ventures, for instance, to build a strong foundation in the lean times based on the Kahuna diamond project, which we never could have gotten several years ago during peak market cycle."
Dunnedin picked up the Kahuna diamond deposit after Shear Minerals – itself a victim of the post-2008 decline – let its claims on the property expire.
"Our business is like a game of musical chairs but with a difference," Taylor said.
"In the early stages of an expanding market cycle, there are actually more chairs than there are players, and every time the music stops people have their pick of where they're going to sit. Everyone gets to play and everyone thinks they're a success. Once the industry peaks and starts to contract, it turns into a Darwinian contest, and each time things ratchet down more players are left standing out on the fringes."
Whether the industry will expand or contract going forward is on open question. For every bear analyst you can find a bull. What can be said with certainty is the return to 2008 has been a return to the wilderness for some.
"It (the market) has been ratcheting down for more than three years now and a lot of people are standing out there in the cold," Taylor said.
"Many of these people simply leave the industry and find other ways to support themselves."