Gold prices have risen, but Canadian gold mining stocks have remained flat
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The rise in gold prices has meant little for Canadian companies struggling to replenish their reserves — and ETFs might be part of the problem.
As the price of gold has increased by more than 10% on the year, the S&P/TSX Global Cold Index has crept up a mere 0.47%. According to Pierre Lassonde, chairman of gold-streaming firm Franco-Nevada, the disparity is due to possible concerns over miners’ ability to restock reserves and maintain production levels.
“While the industry from a financial standpoint looks healthy, and it is, from a reserve standpoint they have an issue,” Lassonde told the Financial Post. “The only way [to increase reserves] is to spend money on exploration. Or buy your way out of it.”
He said that a period two years ago when gold nearly reached $1,000 an ounce inspired a round of belt-tightening among senior mining companies, and that has made it harder for them to do their own exploration. They could take over smaller companies, which account for around half of all new discoveries; however, Lassonde added, even the junior companies are having trouble getting financing to keep their output high.
PwC Canada has released a report on the top 100 junior mining companies by market cap listed on the TSX Venture Exchange. While the companies have reportedly been getting cash from more risk-tolerant investors and senior mining companies, “investors’ enthusiasm for the sector remains selective at this point, suggesting the market hasn’t fully recovered from the downturn,” the report said.
The junior-mining sector raised some $2 billion in equity and $487 million in debt over the 12-month period ending June 30, but more than a quarter of the funds went to just four companies. Many others still struggled to raise financing for their activities — a challenge Lassonde attributed partly to ETFs.
“The gold ETF is an interesting beast, and it ends up sucking a lot of the money that would go normally to juniors,” he said. “If you’re in the ETF, your valuation is like 50% to 100% more than if you’re not in the ETF. And that has had, I think, a big impact on the junior sector.”
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As the price of gold has increased by more than 10% on the year, the S&P/TSX Global Cold Index has crept up a mere 0.47%. According to Pierre Lassonde, chairman of gold-streaming firm Franco-Nevada, the disparity is due to possible concerns over miners’ ability to restock reserves and maintain production levels.
“While the industry from a financial standpoint looks healthy, and it is, from a reserve standpoint they have an issue,” Lassonde told the Financial Post. “The only way [to increase reserves] is to spend money on exploration. Or buy your way out of it.”
He said that a period two years ago when gold nearly reached $1,000 an ounce inspired a round of belt-tightening among senior mining companies, and that has made it harder for them to do their own exploration. They could take over smaller companies, which account for around half of all new discoveries; however, Lassonde added, even the junior companies are having trouble getting financing to keep their output high.
PwC Canada has released a report on the top 100 junior mining companies by market cap listed on the TSX Venture Exchange. While the companies have reportedly been getting cash from more risk-tolerant investors and senior mining companies, “investors’ enthusiasm for the sector remains selective at this point, suggesting the market hasn’t fully recovered from the downturn,” the report said.
The junior-mining sector raised some $2 billion in equity and $487 million in debt over the 12-month period ending June 30, but more than a quarter of the funds went to just four companies. Many others still struggled to raise financing for their activities — a challenge Lassonde attributed partly to ETFs.
“The gold ETF is an interesting beast, and it ends up sucking a lot of the money that would go normally to juniors,” he said. “If you’re in the ETF, your valuation is like 50% to 100% more than if you’re not in the ETF. And that has had, I think, a big impact on the junior sector.”
Related stories:
Good as gold – mint reassures investors over fake metal
Why more stock-pickers are studying ETF investment
