SME THRIVE: Retail investors still elusive

"A lot of investment is really the insiders taking equity out of companies where they have had success and recycling it back into other ones. It is remarkable that we haven't been able to attract new investors despite seeing record gold prices and bullish prices on silver," said David Awram, SVP at Sandstorm Gold.Awram said the phenomenon was personified by the investment spree by Eric Sprott. "Eric is coming off a huge success in his investment in Kirkland Lake Gold and he is rolling that into all sorts of different stories. When you take him out of the equation you are left with companies that really have to be the best in breed to be able to be able to complete and get financings done," Awram said.Normand Champigny, CEO of Quebec Precious Metals, said retail needed a spark of excitement to be attracted back to the sector given the rise of passive exchange traded funds and the reduction in the number of retail brokerages since the last cycle."Part of it needs to be M&A driven. We need fewer companies and better projects to be better funded by those more sophisticated retail investors," Champigny said."We are seeing a higher degree of sophistication from retail investors. I think they have learned good and bad what to look for in an exploration company: management, projects, capital structure, jurisdiction so they are asking those questions and are more selective before making a decision."Despite the flurry of financings, brokered action and bought deals so far this year, Awram said financings in 2020 were still far behind the levels they reached during the high point of the last gold bull cycle. "What is interesting is that the overall total amount of equity dollars coming into this area is surprisingly low considering where we see ourselves in the market and where the gold price is," he said. "We are sitting at somewhere around US$2-2.5 billion of total equity raised which is a far cry from 2009, 2010 and all the way through to 2013 where you saw $4 billion and sometimes [more] of total equity raised, which was a period when we saw a similar run in the gold price."Hugh Agro, president and CEO of Revival Gold, which raised C$15 million in recent months, echoed Champigny's observation about increasing investor sophistication and observed that investors are being more selective."The message is from the good brokers is that if we are going to put our clients' money into this space we want to do it in a way that manages risk, which means being in a good geography, being in brownfield assets and being in situations that are permitted, where drilling can proceed and results come into the market sooner rather than later are the sorts of things brokers are looking for," Agro said.Panellists agreed that with the sector heating up, there was a need for explorers to be working at a pace to remain relevant in the market."We are trying to encourage with the companies where we have made investments in on equity basis over the last several years with the intent of making sure they remain relevant within the space," Awram said."When you have that [financing] window open up like it has, which has rarely happened in the last few years, you want them to really take advantage of that and make sure that they are getting as much capital as they possibly can at a reasonable dilution rate and be able to deploy that. If we are big believers in the potential of their exploration assets we want to make sure they are accessing capital appropriately and then deploying that capital effectively on the projects themselves."Brett Beatty, partner and investment team leader at Resource Capital Funds, commented that many junior explorer management teams were still traumatised by the difficulty of raising equity in the extended bear market, which impacted the rate at which they advanced their projects."Given the market has been quite capital starved for a number of years we find a lot of management teams can be reasonably conservative," Beatty said."I had a conversation with a management team last year and they were getting good drill results but were uncertain where the next financing was coming from. They were prepared to put the project on ice and walk away from some of the successes they had had. We managed to encourage them to push forward and the results have been fantastic but there is a conservatism in some groups that is hard to overcome out of the back of the last cycle."The prevailing gold production trends mean that juniors who are successful in advancing their projects have a shot at getting their day in the sun. While the number of producers and global gold production has grown, the discovery rate has fallen, creating pressure on producers to maintain production and replace depleted resources."I think the pressure is on the senior and intermediate companies," Agro said."There is a need to be relevant in the space and with Northern Star and its merger with Saracen, we see more of this MOE [merger of equals] activity to stay relevant in the space and these bigger entities are going to need more growth projects to fuel their production. I thought it very telling that two Denver Gold Forum's ago when the industry had been talking about MOEs and rationalisation [Mark Bristow, president and CEO of] Barrick Gold stood up and talked about exploration. Flash forward to this past Denver Gold Forum and he was talking about the dearth of projects and people and all these things we take for granted to fuel future gold production."For explorer developers, this is our day to make hay."

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