Dave Erfle, Founder and Editor of The Junior Miner Junky, joins us to review some of the key resource investing takeaways from the Precious Metals Summit in Beaver Creek, Colorado last week. We start of reviewing the low volume trading and poor sector sentiment translating over into many gold and silver companies struggling to finance their work programs, and simply doing their best to survive long enough for sentiment to turn higher again.
Many of the more advanced exploration and development projects are juggling options of taking on large amounts of debt relative to their current market caps, or giving up part of a project to a larger producing strategic partner, or taking on royalties or streams that may limit future acquisitions, or issuing share dilutive equity raises to advance or build projects. Overall most investors are not that excited about any of those options where they’ll essentially own less of the project moving forward, especially when these deals are being negotiated after very large drawdowns in share prices and market cap valuation over the last few years of the bear market action.
The other concern that Dave highlights is that we may see more “takeunders” where longer term shareholders don’t get their expected returns and get clipped off near lows after sticking with companies through their value creation efforts. This is in stark contrast to the more takeovers for nice premiums and solid valuations that we’ve seen in prior bullish cycles. He points out that it would be more constructive to see more mergers of equals between single asset companies, to bulk up into larger more attractive and liquid companies, with better costs of capital and market participation.
We also address the question of if we even need most of the thousand explorers perpetually starting new drill projects? It’s hard to rationalize more companies drilling out new targets, when the best of the mature assets and most derisked development projects aren’t attracting investor interest, or M&A deals, nor are they getting valued anywhere close to where development project have been in prior cycles.
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