Mining M&A wave set to lift juniors, investor predicts
Michael Gentile sees major mining companies increasing their interest in buying juniors, as they look for more growth.
Major and junior mining companies are poised for a significant surge in mergers and acquisitions (M&A) over the next few years, according to Michael Gentile, a partner and senior portfolio manager at Bastion Asset Management. Gentile explained that the strong balance sheets of larger mining firms have given them increased capital to pursue growth opportunities. Over the past year, three of the 35 resource companies in his portfolio have been acquired, indicating a growing interest from these larger producers.
Gentile predicts that this trend will lead to fresh investment in the junior mining sector, resulting in higher valuations. He stated that major mining companies are becoming more aggressive in M&A activity, as they can return capital to shareholders. Their substantial cash reserves and dividends allow them to pursue growth projects more aggressively.
The influx of capital from these M&A activities is expected to improve the financing landscape for junior mining companies, ultimately increasing their valuations. As an investor focused on long-term assets and strategies, Gentile has observed that the market has become more receptive to junior mining companies in recent years. However, he cautioned that access to capital has tightened in the past three to five months, following a period when junior miners were generally able to fund their exploration programs.
Gentile advises junior mining companies to raise capital before they need it, rather than waiting until their exploration budgets run dry. He emphasizes that having two years of funded exploration programs allows companies to have their drill programs fully funded for the next two years and generate positive results, making them more attractive to potential investors.
Gentile suggests that these companies should accept financing on favorable terms, such as low dilution and attractive financing, as they are a cyclical business.
One key lesson he has learned over the years is that junior mining companies can be a great opportunity for long-term investors willing to wait. Gentile highlighted the importance of having sticky, stable long-term capital, as it takes three to 10 years to go from a discovery to a producing mine or an exit. He stated that companies need shareholders who are willing to commit to a long-term journey, rather than a short-term one.
Gentile adds value to his companies by helping them think beyond just building a mine; they should aim to make shareholders significant returns throughout the company's journey.
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