• Chief among the industry challenges is the timeline from discovery to production.
  • Price-to-earnings ratios for miners suggest low investor participation in the sector.
  • Lithium is the latest mining niche to take a beating.

Price-to-earnings ratios remain muted between 9 and 13 for most major mining companies – a far cry from the mid to late 2000s boom years. This lack of enthusiasm for miners has had massive negative impacts on the juniors within the space, leading to multi-year lows in financing and trading activity. Our latest podcast discusses the state of mining globally and at home in Canada.

Lithium’s price (spodumene concentrate) has dropped below $1,000 per ton. Because of this, battery metal mining stocks have seen their valuations decline dramatically in recent weeks.

Time from Discovery to Production Hurts Mining Sector

S&P Global Market Intelligence reported in the middle of 2023 that the average time from discovery to production is now 15.7 years.

Alex explains that because of this lag time, it is almost impossible for investors to time a cycle or stay invested in a specific mining company to see it through to production.

S&P Global Market Intelligence wrote,

“The lead time varies greatly based on a number of factors. For example, there are shorter lead times for mines in Africa compared with Canada due to the latter’s stricter regulatory frameworks, along with differences in the nature of deposits.”

Another interesting metric they uncovered is that nickel mines took the longest to bring into production, whereas gold mines were the quickest.

Alex references Rio Tinto, which finally, after 27 years, received approval to commence what may be the most challenging project it has ever embarked on.

Known as Simandou, named after the mountain range it calls home in south-eastern Guinea, the project’s subsoils contain the world’s largest untapped reserve of high-grade iron ore, estimated at over 2 billion tonnes. But, for a company like Rio Tinto, with virtually unlimited capital and expertise at its disposal, to take close to 3 decades to move into the construction phase is telling of an industry that needs an overhaul.

Aaron and Alexander also discuss potential catalysts that could bring the mining market back and some of the challenges industry investors face in the current environment.

Dilution Threatens Junior Miners’ Existence

Aaron outlines dilution risks and why drill programs are challenging for junior miners in this current environment. The example of a company with an approximate $10 million market cap issuing close to 50% of its outstanding shares to conduct a sizeable drill program leads to a debate on the importance of company share structure.

Uranium Remains Sole Bright Spot in Mining Wasteland

Despite gold trading sideways above $2,000, gold stocks remain depressed. With lithium and other battery metals prices crashing, uranium remains one of the few bright spots in mining. But uranium alone is not enough to lift the entire mining sector as the players are largely established, the global market isn’t that big (less than $5 billion), particularly compared to gold, copper or iron ore, and exploration programs always takes longer than anticipated.

Battery Metals Mining Companies Desperate for Improving Demand Fundamentals

Finally, the TSX Venture and CSE financing activity remains 60-70% below 2021 and early 2022 levels.

The narrative of the decarbonization of our planet and the move to renewables is on shaky ground, and this uncertainty directly impacts Canada’s venture capital space. As markets and consumers rebuke the policies laid out by governments, mining investors will have to recalibrate just how real the demand for metals like lithium and cobalt is.

The reality is, battery metals that drove mining gains since 2016 need a catalyst, likely in the form of higher prices, to re-ignite interest in the space.