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Junior explorers in 'bust' market
Spending tightening in response to "dreadful" capital climate

Thandiwe Vela
Northern News Services
Published Saturday, May 11, 2013

To say the mining industry, particularly junior explorers, are not feeling the love in the capital markets right now is an understatement.

NNSL photo/graphic

An aerial view of Prosperity Goldfields Corp.'s Kiyuk Lake gold project camp, located west of Arviat. - photo courtesy of Prosperity Goldfields Corp.

The markets are being described as "dreadful" as at least one project advancing in Nunavut has shut down and many other programs are being reduced.

Last week, Prosperity Goldfields Corp., the junior exploration company advancing its Kiyuk Lake gold project, released glowing results from its 20-hole, 4,427-metre winter drill program.

Despite promising drill results, CEO Adrian Fleming confirmed the company will return to the field this summer, but the program will be reduced.

"The results from that program are very good. We're very happy with the results from that work but it's the mining industry -- and particularly I think the junior sector -- we're kind of a very unloved part of the world at the moment and we're not quite sure why that is," Fleming said.

Elgin Mining Inc., the company that was advancing Lupin Gold Mine toward a restart, recently shut down its Lupin camp, citing the current market turbulence and weakening of the price of gold.

Catherine Farrow, CEO of TMAC Resources, the company which acquired Newmont Mining Corp.'s Hope Bay gold project, said the recent gold price volatility did not not immediately impact the company's operations, but the market conditions are "very concerning.

"Really for us the issue isn't so much about the immediate gold price because we have pretty much settled on our program for this year, although we've taken a slightly more modest approach to how that program goes," Farrow said.

"But that's not really because of the current gold price as much as the difficulties in the capital markets right now," she said. "They're dreadful. So that to us is more of the mid-term impact to what we're trying to do."

The private company, which is majority owned by Newmont, is going ahead with its initial public offering (IPO) this fall.

Shares of Prosperity Goldfields Corp., which are traded on the TSX Venture Exchange, closed at $0.07 on May 9. They were trading at $0.60 a year ago, Fleming said.

"We're not just an anomaly. All of the small explorers have had their stock price really hammered," Fleming said.

Fleming said the current market climate, which he called a "bust," is a function of several factors.

"Like a lot of things it is cyclical and it goes through low cycles and high cycles. We're definitely in a low cycle. We're very much in a bust at the moment," Fleming said. "We are in a situation where people aren't very eager to invest in mining companies."

While gold, which was selling at more than US$1,450 per ounce last week, is still much higher than where it has been priced in past years, costs for producers has also risen rapidly, including the price of drill rigs and rubber tires, Fleming said.

On the positive side, living standards in countries like China and India are continuing to improve, he said, and demand is going to be increasing in the long term in those markets for gold, commodities such as steel, and uranium resources.

In the short term, exploration spending in the NWT and Nunavut is projected to drop by 29 per cent this year, according to the recent Exploration and Deposit Appraisal Expenditures figures from Natural Resources Canada.

Earlier this year, the department reported spending is forecast to fall in Nunavut to $312.7 million from preliminary figures of $443 million spent last year. Spending in the NWT is projected to be $81 million this year, down from $114.5 million in 2012.

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