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The Gold Stock Strategist analyzes leading junior gold producers and major gold mining companies.

Comments are welcomed!

Wednesday, April 8, 2009

Why Are So Many Junior Gold Miners Raising Capital Through Equity?

I've been following emerging junior gold producers for 5 years and cannot remember such a prolific level of secondaries and private placements as we have seen over the past four months.

I did a quick Google search and came up with the following list of gold producers and explorers that have recently raised money through equity rather than debt placements. Several of these companies are followed by the Gold Stock Strategist (in bold).

Acadian Mining
ATW Venture
Alamos Gold
Capella Res
Dorato Resources
Garson Gold
Great Basin Gold
Hawthorne Gold
Jaguar Mining
Kinbauri Gold
Luna Gold
Metanor Res
Novagold Res
Northern Tiger
Osisko Mining
Queenston Mining
Silvercorp Metals
Timmins Gold

Okay, I know Silvercorp (NYSE: SVM) is a silver producer. But I also own shares in and follow Silvercorp and the point of inclusion on the list is that the rush to equity financing is not limited to gold explorers and producers.

Kinross? IAMGOLD? Why are they raising capital?

In a nutshell, there are three takeaway points from this list.

(1) Bank lending has dried up due to the global financial crisis. Even if you are a top notch risk and banks want to loan you money, it will take months because of the higher due diligence standards and regulatory requirements needed to close the loan deal. Equity financing can be completed more quickly and miners believe time is of the essence.

(2) The gold mining sector believes this is a once in a lifetime opportunity to advance projects forward more quickly than earlier planned and they feel an urgency to maximize production within the next 12-24 months. The extraordinary monetary and fiscal policy measures taken by the largest and most productive industrialized nations in the world point to much higher inflation once the credit markets bottom out. More fiat currency chasing a stable amount of goods is a classic recipe for inflation and the price of gold as a store of value has historically risen in price during times of inflation.

(3) Quality projects are finding equity financing very easily.

I believe all these points, but especially the third point, is bullish in the long-run for companies that have raised capital through secondaries and private placements over the past 4 months.

As a final note, creative equity financing (including mergers like New Gold and Western Goldfields and Vista Gold selling Allied Nevada shares) are other non-debt approaches to finance development and are likely to increase in the emerging junior gold producer sector.

For more on this general topic, I recommend you read the following post.


Gold Stock Strategist

Full disclosure: I own shares in several of the companies listed above. The information provided in this post is believed to be correct, but not guaranteed. Investing in junior gold miners entails risks. Readers are responsible for their own investment decisions. Do your own due diligence.

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