Interactive Investor

Junior miners to watch in 2024

Industry experts and analysts discuss exploration, mining majors, joint ventures and what to look at when investing in junior miners.

28th March 2024 07:49

Lee Wild from interactive investor

At the recent Mining Indaba in Cape Town, South Africa, we spoke to industry experts and analysts about the big issues, including exploration, mining majors, joint ventures and what to look at when investing in junior miners.

John Meyer, head of research, SP Angel: It's very interesting and unusual, Indaba. There are a lot more investors than normal, and they are focusing on some different and unusual materials. So they're more open to graphite, they're focused on battery minerals. They are still looking for copper, if they can find it. They're a bit turned off a couple of the more traditional things, particularly nickel, where China has been overproducing. 

But, in general, there are new pots of money. Germany just announced another billion euros of funding for critical minerals. There's a big US delegation here. I think they're looking at rare earths. So there's quite a lot going on in areas that we didn't used to see.

Charlie King, CEO, Tribe Technology: As we know, there was the 2012 slowdown in the mining industry. Limited drilling was done for a number of years. Looking at, particularly for the world's green ESG targets, we need a lot more resources than what we've currently got in the ground. And there's a long life cycle from early stage exploration through to an operating mine. That could be a 10-year journey. So we believe a lot more exploration needs to be done, not only from the majors but from the juniors as well to prove up more resources. 

And we believe our technology by drilling more productively and getting better quality data faster to the miners and the junior explorers will help shorten that journey. And get new resources into production to help us meet the green targets that we need to go forward.

Sheldon Modeland, mining analyst, Shore Capital: We haven't seen it for a few years now where the majors have basically turned their attention to the juniors. Not buying them, but buying into their projects as a minority interest, at the project level. So in the past, they would just buy these whole companies at whatever cost and blow up their balance sheets. But now, they've learned a lesson, they've been burned, and they're a bit more clever, and now they're coming in looking for good projects. So what you're looking for really, it doesn't matter which commodity, you're looking like for scale, jurisdiction, obviously that's very important. Management, do you have the right team? Can you build it? 

And then valuation, it’s the economics. Is it worthwhile? Again, it doesn't really matter what the price is. It's how much does it cost to get it out of the ground, right? You want to be the lowest cost producer in any commodity. It's been an unloved sector for a long time. But you do see some activity, a little bit, a few companies raising money, some of the majors going into joint ventures with the juniors.

Charles Bray, chair, Aterian: We recently signed a joint venture with Rio Tinto Registered Shares (LSE:RIO), and that came about as a result of our CEO geologist who is a remarkable individual when it comes to discovering new regions and new exploration focus areas. We were working and are still working on tantalum in Rwanda. 

And he was the one who determined that the correlation between lithium and tantalum existed in Rwanda, like it does in most other places thanks to these LCT pegmatites. And decided that it would be advantageous for us, and for Rwanda as a country, if we actually explored the country and explored at depth. So with some geological techniques that I couldn't even tell you about, he was able to dig a bit deeper and determined that there was the likelihood of a very strong lithium presence.

And following that, I think there's been quite a bit of press from Rio Tinto, who recently signed a transaction with the Rwandan government to expand the exploration across a significant portion of the country. As well as our own press where we've announced a number of joint ventures and MOUs with various mining companies in the country.

Julien Bosche, vice-president EMEA, Trident Royalties: Looking at 2024, I think it should be quite interesting for Trident Royalties (LSE:TRR) specifically. We see equity markets are fairly difficult for junior mining companies right now. And so they are turning to alternative forms of financing, royalties included. As we look at these opportunities to the extent they aren't necessarily very close to production, we need to see a very strong geology that would lend itself to being a good project, easily financeable, in good jurisdictions. And so that's what we're going to be keeping an eye out for.

I think certain commodities have bifurcated from others in terms of their performance. So right now, lithium and nickel are depressed, whereas gold is still holding up relatively well, for example. So I think in those commodities where we can invest counter cyclically, I think there could be some very interesting opportunities there. Rare earths is the same way. We've looked at a few and continue to look at a few rare earth opportunities, which could be quite exciting for our investors.

Kieron Hodgson, mining analyst, Panmure Gordon: When considering mining equities and then considering size of companies on offer, one shouldn't forget that they also exist in a market that is trading on a discount. If you consider the discount that the UK market trades against global peers, that gives you a starting point of trying to understand why mining equities trade at such discounts to peers seen in Canada, Australia, etc. And you start to unpack the fact that the UK market trades on a material discount to equivalent peers. 

And then you drill down into the underlying sectors. And we take the resource sector as an example. Mining companies, even the largest, most diversified mining companies trade on a discount to peers. And this is despite the fact that they are on reasonable valuations. They offer incredible cashflow yields and above average market average dividend yields. And they are the lowest risk assets listed in the UK. So when you go up the risk scale and you go to small cap mining companies, the discounts only grow exponentially from that point on.

For junior mining companies, the outcomes have to be understood and they have to be clearly defined by the companies for investors to understand. One of the issues we've had with the junior mining space is a lack of clarity over the investment case. When we see junior mining companies that we work with, it's about clarifying that position. And investors tend to be more comfortable with the higher risk opportunities, the earlier stage companies when the investment proposition is clear.

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