Sometimes investing in junior mining companies means a gold rush, and sometimes there’s a gold rout.
Demand isn’t high for Ottawa-based junior miner Everton Resources Inc. right now. The share price was down 3 cents on the TSX-V and 2.1 cents US on the OTC Pink exchange in New York on Dec. 4, where the company’s market capitalization was down to $1.02 million US, a reflection of fallen gold prices since 2011.
“People are not particularly interested in investing in gold junior companies because the price of gold is low,” says Rod Thomas, president of the Prospectors and Developers Association of Canada. “Things don’t look as prospective as they did a few years ago.”
Most industries have highs and lows, but as Thomas says, a bear market on gold is a major threat to smaller exploration companies, which don’t have a steady cash flow and instead rely on investors to support new potential projects.
Publicly traded companies like Everton also have to pay high fees related to their public listings, and retain accountants and auditors.
“If they can’t raise money, they have a problem,” says Thomas.
Reached on his mobile phone while travelling abroad to court new investors, Everton CEO André Audet is almost too busy working on that problem to talk to the media about the company’s future.
“We’re just trying to save the company right now. It’s a very bad market for gold,” he says in a rush after listing the meetings and dinners he has planned for the day. “It’s not very positive news right now. The message is, ‘we’re going through challenging times.’”
Everton has seen some dramatic changes in its stock price over it’s 10-year public listing, achieving an all time high of $7.05 in 2007 following massive a private placement investment and increased drilling on its properties in Quebec and the Dominion Republic.
Since then, the stock price and media interest in the company has continued to sink.
Back home, at the company’s eastern Ottawa office, CFO Sabino Di Paola agrees the market is poor but he’s confident that Everton can survive.
The company’s third-quarter financial statements reflected it had close to $850,000 in cash, up from $531,174 in the same quarter of the previous year.
Di Paola says that’s enough for the company to continue its normal operations for another 24 months. In the meantime, it’s an uncomfortable waiting game for management and investors hoping for a rise in gold prices.
“We have to kind of sit idle and twiddle our thumbs and hope things get better,” he says. “But that is more than enough to survive a 24-month period should gold continue to drop and the world drop along with it.”
If investors are brave enough to play along with that waiting game, they could stand to make high profits off the low share price.
“Buying low is a good plan, and all things considered, companies that manage to get through this time of reduced expectations will get to the other side,” says Thomas. “Things invariably will improve. We just don’t know when.”
K.C. Grainger, an analyst who focuses on Canadian gold exploration companies and writes for Montreal Analyst and Canadian Mining Analysis, agrees that the demand for gold will return.
“It’s very hard to find gold, but people are always going to want gold,” he says. “It has cycles up and down, and right now you’re in a down cycle.”
On Dec. 3, gold prices had closed at $1,208.4–up from early November but still generally low since 2012.
Everton was recently successful securing a $325,000 flow-through shares private placement.
“The fact that they’re able to raise money in this market, I would say, shows that people are willing to invest in the company,” says Thomas.
While investors might eventually get a pay-off for holding onto the stock, Grainger warns that gold enthusiasts need to keep in mind that even if companies like Everton survive the downturn and gold returns to a higher level, there’s no guarantee stock prices will follow.
That’s because the mineral needs to be found and brought to the surface, and that’s the hardest and most expensive part for any company.
A current focus for the company is 300 km of land in the central Dominican Republic. While the property is located beside a lucrative 29 million ounce Barrick/Goldcorp deposit, nothing has been found yet.
Completed drilling includes 10 holes between 200 and 300 metres deep, with samples still being tested, according to the latest company releases.
“They have a lot of drilling they need to do. There’s a lot of work that needs to be done,” says Grainger.
Both Thomas and Di Paola also point to a trend in many junior mining companies of drastically changing commodities during a market slowdown.
“It was a bear market for junior mining from about 1997 to 2003 and dot-com was going gangbusters,” Thomas says. “Junior miners basically changed hats and became dot com companies in order to survive.”
One of those companies was Vancouver-based Mount Hope, which later changed names and operations to become Ottawa-based 3Net Media Inc. When the dot-com boom went bust, the company returned to its exploration roots, becoming Everton Resources.
Asked if that is an option for the company again, Di Paola says it would be something the company would consider, mentioning the medical marijuana craze as an option. But he says, for now, Everton hasn’t given up on gold.
“Should an opportunity come up that is advantageous to the company and beneficial to our shareholders, we will definitely explore it,” he says. “As of now, we’re confident that a gold upturn is in the cards, and we’ll continue with our current activity.”