Mining Weekly: Thinning crowd of junior miners provides both opportunity and risk

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Newstrike Capital CEO Richard Whittall was featured in an October 18th, 2013 Mining Weekly article discussing the growth potential of smaller exploration companies. Click here to read the full article by Henry Lazenby. 

Seasoned Vancouver-based investment banker and exploration junior Newstrike Capital director, president and CEO Richard Whittall believes that nowadays it is part of the junior business model to be acquired in the long run, which could potentially create significant value for investors.

“It’s a question of whether a junior can discover a deposit, how much of a mineral it can discover and at what cost the discovery comes,” he explains in an interview with Mining Weekly.

He points out that the normal investment rules for any business also apply to investing in the junior minerals sphere, which means taking a critical look at the margin at which the company would be, or is, producing goods.

“When assessing a junior for potential investment, the mantra ‘Have they got the likelihood of constructing a low-cost operation for low-cost capital expenditure?’ applies. Investors look for a rate of return,” Whittall says.

Among questions investors should be able to answer about any specific junior, before making an investment decision, are ‘can this be a low-cost mine?’; ‘what are the infrastructure requirements, such as roads, rail and electricity?’; ‘how stable and mining-favourable is the jurisdiction in which the project is located?’ and ‘can the company transform the discovery into an economical deposit with compelling enough character-istics to attract financing?’

He says these are the boxes juniors have to tick in order to raise capital through equity raises, which are, in general, the life force juniors need to survive.

In general, when a commodity price is high, one can afford to pursue a low-grade project, but when prices are low, high-grade projects tend to be the only saving grace.

Equally important to having a strong asset is to have the right management team in place. Investors should look to see whether the company has the expertise to bring a discovery into commercial production.

“You need ‘cradle-to-grave’ people in the management team. They need to have certain skills sets, such as the ability to raise cash, credibility and a proven track record and the ability to bring a discovery all the way through to production,” Whittall notes.

This is especially true in the face of the volatile commodity prices in recent months, underlining the need to have staying power in the team, which only comes with experience. Management needs to have been through several cycles to be able to know what to expect.

Dentons Vancouver partner Alan Hutchinson believes the management team is the most important element to look at when considering junior investment. He also advocates a thorough mix of senior management and young blood coming through the ranks.

“One would need an experienced team to know when not to panic in cyclical down markets. There also needs to be a changing of the guard as more senior staff step back. I believe a new generation of managers will lead the recovery phase, not assets,” he says.

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