trending Market Intelligence /marketintelligence/en/news-insights/trending/s7D32e1Aop8T8LUEf5NgXQ2 content esgSubNav
In This List

As gold-producer shares surge, Canadian gold explorers lag

Blog

Insight Weekly: US stock performance; banks' M&A risk; COVID-19 vaccine makers' earnings

Blog

Insight Weekly: LNG exports surge; investors unfazed by inflation; neobanks drive VC funding

Blog

Essential Metals Mining Insights November 2021

Blog

[Infographic]: 2021 World Exploration Trends


As gold-producer shares surge, Canadian gold explorers lag

While the recent rise in the price of gold has fired up the share prices of industry miners, many earlier-stage Canadian explorers have failed to benefit from the market surge, experts said, noting that they face broader investor disinterest for higher-risk equities.

In the past three months, the price of gold has climbed about 17.98%, recently breaching US$1,500 per ounce, and shares in gold producers have jumped in response. The VanEck Vectors ETF Trust - VanEck Vectors Gold Miners ETF, which tracks a broad spectrum of larger gold producers, is up 38.58% since May 21, while the VanEck Vectors ETF Trust - VanEck Vectors Junior Gold Miners ETF, which largely encompasses smaller-cap gold miners, is up 38.87% over the same period. However, the S&P/TSX Venture Composite Index, which is heavily weighted to earlier-stage exploration companies in Canada, is down about 6.07%.

SNL Image

While the rise in the price of gold has boosted the share price of some earlier-stage gold equities and lifted interest in funding them in recent months, experts noted that the appetite for gold explorers remains focused on a small number of companies backed by better-known exploration teams. Indeed, gold-sector financing has climbed with a slew of new private placements in the past couple of months. S&P Global Market Intelligence's gold Pipeline Activity Index jumped from 76 in June to 151 in July, bolstered by project financing, according to Market Intelligence data.

Sprott U.S. Holdings Inc. President and CEO Rick Rule tied the lackluster performance of earlier-stage gold equities to a handful of factors, including a lack of compelling projects to invest in and a market that is "gun shy" about higher-risk equities. "One of the things that troubles the market right now is that, as a consequence of 10 years of a hiatus in exploration, there aren't a lot of great exploration results to tease the market."

Exploration funding in Canada, among other countries, dropped off in the past decade as the price of gold deflated after reaching highs of over US$1,800/oz in 2011. Financing, while showing some signs of life recently, is still well off boom-time highs. Canadian exploration expenditures reached US$3.24 billion in 2012, fell to US$987.4 million in 2016 and have since climbed to US$1.44 billion in 2018. Gold-related exploration has dominated the total over the years, comprising about two-thirds of the budget in 2018, according to S&P Global Market Intelligence data.

Rule said the Canadian exploration market is not constrained by lack of funding but by eye-catching targets. "I wouldn't say that the system is short of capital or interest. I'd say it's short of excuses."

He noted that veteran teams have been able to access funding when they need it and that the better-known gold explorers trade with strong market caps. He said the result of a market lacking strong projects to back is that money has flowed to select companies.

"All the attention gets focused on good discoveries," Rule said. "And good discoveries are commanding a lot [of] attention."

Joe Mazumdar, an Exploration Insights partner, noted that the Canadian exploration sector, a dominate force globally, lacks appeal from more generalist funds and institutions. In the past, they may have invested in the earlier-stage names but are now reticent to deploy capital in lower-liquidity, higher-risk names, Mazumdar said. "They don't have the money, maybe, and the money they've been given is not for that anymore."

As an example of the narrow interest in the sector, Mazumdar and Rule noted that Eric Sprott, a veteran entrepreneur in gold exploration, drove a significant proportion of the recent slew of financings.

"If you take him out, it doesn't look as good," Mazumdar said. Rule and Mazumdar estimate that Sprott accounted for about a fifth of financing funds that flowed to Canada's earlier-stage gold sector over the past couple months or so.

Exploration CEOs have told S&P Global Market Intelligence that in recent years, they have increasingly turned to family funds and private equity, among other sources of capital, rather than institutions and more generalist retail investors for funding. That appears to remain the case for Canadian-listed explorers even as the price of gold climbs.

"The money has not fallen down to the lame, the halt and the blind yet," Rule said.