The most important takeaways from PDAC for me are my new investment ideas.
But alongside the stock picks, people always ask about sentiment and conversation. So here’s what I thought this year.
I used a phrase two years ago to describe how juniors in the mining space were faring: the Haves and the Have Nots. When the new gold market started in 2016 the rising tide lifted all boats, but before that year ended the fleet divided into a small group riding above the waves and a much larger group struggling to stay afloat.
Haves are the companies with access to capital. That access usually stems from a combination of proven management (with previous wins and therefore loyal shareholders), strong projects, and good jurisdictions.
I could fill pages with more detail on each of those points – and the details matter. For instance, projects need not only be strong but must also be at an attractive stage, which usually means recent discovery or near/new production. Anything in between, from growing a known resource to (heaven forbid) planning and permitting a mine, has gotten no love.
Moreover, the fact that available investment capital has been very limited in the last few years means only companies combining the very best of each of those characteristics have made the cut. Discoveries have to be not just good but stellar. A new mine has to not just work but have reliable, lowest-in-class production costs and carry almost no jurisdictional risk.
The select group of companies that clear this bar can raise capital and get things done. The rest can’t. Access to capital then perpetuates the divide – without money, the Have Nots can’t advance their projects, which means they don’t have news to report, which means their stories get stale, which makes raising money even harder.
I’m repeating myself here because my phrase seems to be catching on.
At least two post-PDAC write-ups used the Haves and Have Nots description to capture the junior sector right now. I didn’t copyright it, so fair enough :) Seriously though, I liked seeing others point to the Haves-Have Nots divide as the most important issue facing explorers and developers today. I talked to many companies at PDAC with interesting projects, projects that I might well be interested in following…in a better market.
In the current market, however, unless projects are with a Have company, there is basically no point. The struggle for capital means Have Nots progress very slowly, which means weak share prices, which means dilutive financings when they do occur.
And financing at a weak price is not only dilutive; is also adds a whack of investors with the same low entry point who will likely sell into whatever strength transpires, killing that strength, to book small gains while hanging on to their warrants. And if the company succeeds despite all of that, the warrants then represent another barrier to share price appreciation.
It’s such a tough battle that unless I see a strong likelihood of near-term news with the potential to recast the story – a discovery, a strategic investor, a significant asset sale – I can’t get interested.
I hate that such is the case. Often the teams in question are good – perhaps not the absolute best, but good – and they are working their butts off just to stay afloat. They’ve spent years thinking about what they would do to test their targets if only they had the cash to do so, which means their ideas are often well developed and darn interesting.
And yes, sometimes these teams pull it off: they find cash, drill the holes they’ve been planning, and make a discovery. If they’re lucky, it’s a strong enough discovery to bridge them over to the Haves category.
The potential to identify one of these winners is why I keep looking. But standards have to be high because it’s easy to like too many stories. (Falling in love with, or at least developing serious curiosity about, a geologic concept is a real investment danger in this sector!)
Those high standards mean I need very strong management, a good share structure, a high potential project in a place people will like, near-term catalysts, and good valuation upside. A Have Not company needs all of these characteristics to stand a chance of attracting Have-level attention.