WEATHERING
THE STORM
Presentation to IGWG Finance &
Taxation Committee
March 6, 2013
Prospectors & Developers
Association of Canada
Responding to
the Capital Crisis
in the mineral
exploration
industry
2
CONTEXT
PDAC ESTABLISHED A CAPITAL CRISIS COMMITTEE IN
DECEMBER 2012 TO ASSESS THE STATE OF THE INDUSTRY
GOAL #1:
ASSESS CURRENT CONDITIONS
•
•
•
•
•
•
•
•
•
•
•
Industry financings, 1998-2012 (Gamah International)
Exploration expenditures, 2003-2012 (SNL - MEG)
Stock market activity (TMX Group)
John Kaiser
Intierra RMG
Bloomberg
PWC
Richard Schodde
Stockwatch
InfoMine
Oreninc
GOAL #2:
BRAINSTORM AND PRIORITIZE POSSIBLE SOLUTIONS
GOAL #3:
ADVOCATE ON BEHALF OF THE INDUSTRY
Source: Metals Economics Group
3
ANALYSIS - 1
THE TRIPLE WHAMMY
1. Reduction in Working Capital
2. Reduction in Capital Raises
3. Decline in Share Prices
Source: Metals Economics Group
4
ANALYSIS - 2
WHAMMY #1: REDUCTION IN WORKING CAPITAL
5
ANALYSIS - 3
WHAMMY #2: REDUCTION IN FINANCING LEVELS
Source: Gamah International
6
ANALYSIS - 4
WHAMMY #2: REDUCTION IN FINANCING LEVELS
Source: Gamah International
ANALYSIS- 5
7
WHAMMY #3: REDUCTION IN SHARE PRICES
2004
2007
2008
2009
2010
2011
2012
0.45
0.63
0.14
0.30
0.53
0.31
0.21
Issuers with Share Price </= $0.05
7%
3%
47%
15%
5%
19%
38%
Issuers with Share Price </= $0.10
20%
13%
71%
37%
19%
40%
60%
Issuers with Share Price </= $0.20
44%
35%
84%
63%
42%
66%
79%
Issuers with Share Price >/= $0.50
24%
31%
5%
14%
26%
14%
8%
Average Price ($)
TSX Venture Exchange Statistics
Share Price Distribution
Source: TMX Group
ANALYSIS- 6
8
WHAMMY #3: REDUCTION IN SHARE PRICES
2004
2007
2008
2009
2010
2011
2012
12,300
34,495
8,804
20,440
40,117
28,357
19,251
12.41
22.43
8.17
18.14
34.08
22.25
14.71
Bottom 25% of Issuers
2%
2%
2%
2%
2%
2%
1%
Bottom 50% of Issuers
7%
8%
7%
7%
7%
7%
5%
Top 25% of Issuers
78%
77%
81%
78%
79%
81%
84%
Top 10% of Issuers
57%
58%
64%
59%
58%
61%
64%
Total Market Cap ($million)
Average Market Cap ($million)
Share of Market Cap
TSX Venture Exchange Statistics
Market Capitalization of Mining Issuers (2004-2012)
Source: TMX Group
9
ANALYSIS- 7
SUMMARY
 Working
Capital - about one third of all
junior companies with less than $200,000
 Financings
- a sharp increase in the
number of very small raises
 Share
Price - 60% of issuers on the TSXV
with a share price of 10 cents or less at the
end of 2012
10
ANALYSIS- 8
CONTEXTUAL FACTORS
 The
downturn is not restricted to the smaller
exploration juniors as we see sharp deceases
across both the TSXV and the TSX in terms of
market cap and share price.
 Major companies have also been passive on
the investment and acquisition of juniors as a
result of their own financial issues over the
past couple of years.
 Disconnect between metal prices and share
prices
11
ANALYSIS- 9
IMPLICATIONS
It may not make good sense to
simply wait for higher prices to
naturally rebalance the junior
sector.
12
SOLUTIONS- 1
WHAT CAN BE DONE?
1. Facilitating Capital Raising
Top Request: Extension of METC
2. Retaining Professionals (HQPs)
Top Request: Funding to F/P/T Surveys
3. Maintaining the Viability of Companies
Top Request: Jointly studying compliance costs
faced by exploration companies
CAPITAL RAISING
13
SOLUTIONS - 2
CASH GRANTS
 Increase grants being offered to prospectors /
government share (e.g. NL government increased its
grant share from 50% to 66%)
SECURITIES REGULATIONS
 Convince regulators to expand existing exemptions
from the prospectus requirements for private
placements
TAX POLICY
 Renew/augment the Mineral Exploration Tax Credit
RETAINING HQPs
14
SOLUTIONS - 3
Boost short-term funding to Geological Surveys /
universities in all jurisdictions to provide short term
contracts for geos laid off from juniors
Public incentives for companies to keep
geoscientists employed (e.g. wage subsidies,
internships)
Work with major mining companies to boost
exploration programs during the downturn
15
SOLUTIONS - 4
MAINTAIN COMPANY VIABILITY
INDUSTRY ACTIONS
 Facilitating
consolidations
 Facilitating collaborative financing solutions
 Educating members
 Developing a “survival toolkit” for members
 Negotiate “bulk” rates for legal/accounting fees
16
SOLUTIONS - 5
MAINTAIN COMPANY VIABILITY
GOVERNMENT ACTIONS
 Work
with PDAC and regulatory commissions to
study regulatory compliance costs for exploration
companies and identify solutions that protect
investors while enhancing capital markets
 Help
us educate the exploration industry about
claiming costs related to community consultation,
environmental assessments and feasibility studies as
Canadian Exploration Expenses (see Annex I and
handout)
ANNEX 1 - 1
Although companies are aware of the
guidelines and find them helpful…
Awareness of guidelines
73%
Knowledge of guidelines
14%
Excellent
38%
Good
43%
Fair
Poor
5%
27%
Helped determine eligibility of
expenses
No
Yes
78%
14%
Yes
The Prospectors and Developers Association of Canada
No
8%
Depends
ANNEX 1 - 2
… many companies are not claiming eligible
expenses
Claimed consultation costs as CEE
Those who consulted with Aboriginal and other
communities
Yes
Yes
77%
Consider preliminary planning and
head office work as eligible for CEE
No
Those who conducted an environmental assessment
23%
No
Yes
Claimed assessment costs as CEE
29%
No / Don't Know
71%
Planning costs claimed as CEE?
80%
No
33%
67%
The Prospectors and Developers Association of Canada
Yes
20%