Capital markets insufficient to fund critical minerals projects – junior miners

Capital markets are shifting too slowly to support junior explorers and miners of critical minerals who fear not having enough funding to meet the needs of the energy transition, junior mining companies told S&P Global Commodity Insights at the 121 Mining Investment conference in New York on June 5–6.

New investors such as institutional funds and investment bankers are slow to enter a niche and technical industry that carries a long lead time for returns on investments, industry participants said. The sector must instead largely rely on increased interest from retail investors, partnerships with major mining companies and offtake agreements with automakers, along with a mix of debt, to carry out projects.

"Junior miners in general are capital constrained," Richard Pearce, president and CEO of junior miner South Star Battery Metals Corp., told Commodity Insights. "We're in a supply and demand situation where everybody is saying they want more supply and there's not a lot of financing alternatives available."

Junior miners said they would like to see more deep-pocketed investment banks get into the game. A junior mining company is one that generates under $50 million in annual revenue, according to Commodity Insights classification.

"Bankers haven't wrapped their brains around battery metals aside from lithium," as the energy transition narrative "would have you believe that there is only lithium in a lithium-ion battery," Pearce said.

Low valuations often mean these early-stage projects are overlooked by large investment funds, according to Darren Collins, CEO of US Critical Metals Corp.

"You have a very limited spectrum of [mining projects] which would be of sufficient market capitalization for these companies to participate as large institutional managers," Collins said.

Investors also appear unwilling to wait for returns from small companies with long lead times before they can be sold or made profitable, according to industry participants.

"It's about getting the new investors that don't necessarily have a long-term view to think of the mining industry from a long-term perspective," said Stuart Harshaw, president and CEO of Nickel Creek Platinum Corp.

Michael Williams, executive chairman of Aftermath Silver Ltd., reiterated the sentiment and called mining "a tough industry." Williams added that, "when you do make these discoveries and bring them forward, it's a very rewarding industry for everyone."

A slowing global economy is also tightening the capital pools available to junior explorers and miners.

"The retail side gets slower and a bit more sluggish putting money in," Harshaw said. "That's really the big impact for the smaller companies like us. There's just not as much money available to fund our ongoing needs. And that's been the case for the last six months to two years."

The number of major company investments in early-stage exploration through project earn-ins and purchases, and junior company acquisitions and financings fell to a seven-year low in 2022, according to a research report by Commodity Insights' mining analysts. Major early-stage exploration investments halved year over year to a total of 67 deals and financings in 2022.

The strongest month for funding in 2023 so far was February, when financings surged to an 11-month high of $1.14 billion, Commodity Insights analysts said. Financings by junior and intermediate mining companies have declined every month since, reaching $570 million in April, the most recent research report shows.

"You're going to start to see projects stalled, if we have a significant deterioration in global capital markets as a result of inflation, interest rates increasing and overall general debt issues," US Critical Metals' Collins said. This could lead to shortages for materials crucial to the energy transition, pushing prices up further, thereby motivating more exploration.

"The longer explorers aren't able to do any exploration, the less product that's going to be available and therefore the higher the price will go," said Harshaw.

Lithium is the most successful of the battery metals in garnering investor interest thanks to historically high prices and its central role in the energy transition, junior explorers and miners said.

"Retail [investors] are huge on lithium," said David Christie, president and CEO of Orford Mining Corp.

Such attention on lithium is starting to pull in much-coveted institutional and strategic investors.

"We've seen excellent interest institutionally, from the retail investment community and from strategic [investors] over the last few years as this unprecedented demand for critical minerals, in particular lithium, has taken place," said Steve Hanson, president and CEO of ACME Lithium Inc.

Battery manufacturers and automakers are also providing support upstream to secure supply amid projected deficits in several key battery metals. Ford Motor Co. in May signed long-term lithium supply agreements with Albemarle Corp., Sociedad Química y Minera de Chile SA and Nemaska Lithium Inc., while Chinese battery-making giant Contemporary Amperex Technology Co. Ltd. in October 2022 agreed to take a 24.68% stake in China-based copper-cobalt miner CMOC Group Ltd.

In addition, several China-based companies are increasingly processing nickel in Indonesia to supply electric vehicle manufacturers and battery-makers in China.

"I think that a dramatic shift is happening where we're seeing larger, well-known corporations look to earlier-stage companies to secure supply. And I've never seen it to that degree in my career," ACME Lithium's Hanson said.

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