Well-Financed Juniors Should Look for AcquisitionsWed, 10/21/2015 - 13:23
Q: You have stated that the current drop in metal prices is the worst the mining industry has seen in 30 years. How has the industry changed over the past two years?
A: At the beginning of 2013, the industry was on the cusp of a downturn. Typically, at that point, companies have a sense that they need to support the industry and take steps to survive, because if the downturn turns out to be short, they will be able to continue as before. However, when that downward pressure continues, companies resign themselves to the unfortunate reality that the downturn is official. This dramatically alters people’s perspectives. Instead of a collective will to overcome an obstacle, resignation sets in and is paired with an understanding that larger forces are at play and will ultimately determine when the downturn ends. Generally, suppliers such as drilling and geophysics companies are like the canaries in the coal mine - they let you know when a trouble is coming.
Q: Has this led to increased competition among junior companies to generate new projects?
A: I would say the exact opposite. Any well-financed junior should be aggressively looking to acquire projects. The industry will return as mining is a cyclical sector, so wellfinanced juniors can buy projects as others are trying to sell. There are great deals to be had at the bottom of the market. Any junior that still has confidence in the market has to see that now is the time to be a buyer.
Q: Why do you think it has become so difficult to find investors when good projects are available at good prices?
A: This is because the investors are not buying the projects, they are buying into companies. Many investors have already lost money in the downturn so the average investor in Vancouver may no longer have the disposable income to take a gamble on a junior mining exploration company. High-risk investments are the first to be removed from an investment portfolio when business goes sour, and they are the last to go back on the table when times are good. This puts many juniors in the mining industry in a position where they suffer first and benefit last. It is a vicious circle.
Q: What can juniors do to reduce investor risk?
A: Education and knowledge always help companies that can show a good history of ROI with proven management teams or with a track record of delivering on commitments will always fare better. Yet, the key aspect is to always show that you are being productive, as no investor will even look at a company that has keeled over. In this line, Alta Vista Ventures has kept its staff in Mexico and we have been aggressive in finding partners for our projects.
Q: What types of companies are you looking to partner with given the current operating environment?
A: Before the downturn, Alta Vista Ventures was very successful at optioning projects out with about ten project deals in the last few years. One of the reasons for this is that we made a number of deals with American companies. We have never focused on Canadian firms or on senior companies alone, we have always been happy to deal with companies that were of similar size to us. It all comes down to a joint commitment to execute on a deal and that commitment is not only found in Canada. Above all, our preference is to find a like-minded company that feels comfortable to let us operate our property. Having spent the most time on the Orofino property, for example, we feel we could spend the money more carefully than any third party could.
Q: How long do you think the current downturn will last?
A: Anyone who gives you a confident, definitive answer to that question is not telling the truth. Metal prices are much stronger now than during the previous downturn so, from a straight valuation of the commodities standpoint, it does not make sense that the downturn is as deep as it is. This means that larger factors are involved and that we are passengers on the bus, not the driver. A company like Alta Vista Ventures does not have the power to change the fate of the mining industry; no company does. One only has the power to control the fate of his or her own company. In these current economic times, we cannot have free-wheeling, open-budget exploration; we have to be careful with our cash. In this way, it is hoped that the general investing public will regain confidence in the junior mining market, and just like it always has, this industry will come back.