There is life in the junior mining space.
I don’t mean that shares are rocketing higher (yet). What I mean is that there is money coming back in. Companies can raise long-awaited and much-needed cash.
What I see right now, as I write this from the Mining & Investment Latin America Summit in Lima, Peru, is proof that a major bull market is coming. The kind of bull market that can make us rich.
To understand why, we need to look at the recent past.
A Disappearing Sector
Investors spent five years (from 2011 to 2016) fleeing the junior mining sector. You can see what I mean in the chart below:
This chart shows the Toronto Venture Index (TSXV). The TSXV is a Canadian stock exchange that holds over 1,649 small-cap companies. It holds 989 mining companies, about 60% of the listings.
Out of those 989 miners, there have been 918 financings so far this year. That’s where the companies raised money to do work. In all of 2015, there was only about half that many.
That’s important because these little companies have no way to generate cash themselves. They must go out and raise money by selling shares.
They pitch an idea to investors, who buy in. The companies then test the idea. Success drives the share price up, and investors win.
If there is no cash, nothing happens, and nobody wins. Companies faced a long, slow strangulation of the cash flow from 2011 to 2015.
They cut back staff and expenses. Then they cut again … and again. Many companies disappeared — through bankruptcy or otherwise.
Pulp and Paper
To put that in perspective, there were 2,500 issuers on the TSXV in January 2013. Today, as I said, there are only 1,649. As recently as March 2015, there were as many as 1,400 junior miners.
Back then, Rick Rule, the chairman of Sprott Global Resource Investments, called these companies “pulp and paper” manufacturers because all they did was produce paper filings to meet exchange listing requirements.