OTTAWA — Junior resource companies looking to raise cash may be having a more difficult time amid the turmoil on North American stock markets, but unlike 2008 when the credit markets froze, deals are still being signed, experts say.
Marshall Auerback, a director at financial advisory and venture capital firm Pinetree Capital, which is focused on the junior resource sector, says good projects will find the cash.
“With the markets experiencing unprecedented forms of volatility, I think it certainly has put a damper on the whole junior resource sector,” Auerback said Monday.
“I think what’s likely to happen is that the markets will soon activate some sort of quality filter and you’ll find the good companies or companies with viable projects will still be able to get some funding done.”
Auerback noted that in 2008 and 2009 even good projects couldn’t find financing.
“We’re nowhere near that right now,” he said.
The resource sector has been one of the most volatile during the recent upheaval as investors worry about the strength of the global economic recovery.
Copper prices have fallen sharply on concerns about the strength of the global economic recovery, but remain much higher than the lows they hit in the aftermath of the financial crisis. The price of copper remained close to US$4 a pound, well higher than the less than $2 it traded for during the financial crisis.
Meanwhile, gold has been a star as investors have flocked to the precious metal looking for shelter. The price of gold is closing in on US$2,000 an ounce as it continues to set new record highs. Gold closed up $39.70 Monday to US$1,891.90.
Junior miner Selwyn Resources Ltd. (TSXV:SWN) cancelled plans Monday to issue 24 million shares that would have raised around $6 million due to what it described as “market conditions.” Shares in the company have fallen from around 25 cents a month ago to 19.5 cents in trading Monday.
However the company announced plans to raise at least US$30 million in an offering of secured bonds to help fund the restart of its ScoZinc mine in Nova Scotia.
Last week, Cavan Ventures Inc. (TSXV:CVN) cancelled a brokered private placement of up to 16 million subscription receipts that would have raised up to $2 million. However, Cavan was able to raise $500,000 in a non-brokered private placement earlier this month.
Jonathan Baird, a vice-president at NexGen Financial where he manages the NexGen Global Value Funds and NexGen Global Resource Funds, said the market for many of the junior companies looking to issue shares is often retail investors, and they may be spooked by the recent downturn.
“This kind of volatility and headline risk in terms of what is going on in Europe and so on is causing people I think to increase their risk aversion,” he said.
“I think that may well be a temporary phenomenon, but it is certainly very real right now.”