Agnico Eagle’s Alden Greenhouse does not expect a repeat of 2010 exploration spending spree.
Greenhouse was speaking at the Financing in the Junior Markets on Monday at the Prospectors & Developers Association of Canada’s (PDAC). Greenhouse is VP of corporate development and business strategy at Agnico Eagles Mines (TSE:AEM).
2010 was an exuberant year. With government stimulus to help the economy recover from the 2008 financial crisis, commodity prices spiked. Globally, nonferrous exploration budgets in 2010 totaled $11.2 billion, up 45% from 2009, according to a study done by Metals Economics Group.
This time around, expect less froth.
“There is much stricter financial capital allocation,” said Greenhouse during his talk.
Greenhouse said juniors are a necessary part of the mining ecosystem and fill many niches that miners are unable.
“Do we need junior companies? The answer is obviously yes. We can’t do it all. Juniors are a key incubator for the start of the pipeline for a lot of the senior companies,” said Greenhouse.
“One of the less obvious roles is that juniors provide a first contact point for a lot of key stakeholders,” said Greenhouse who noted that communities with no knowledge of mining may first encounter juniors as their first experience close-up with the resource sector.
Juniors also provide seniors with more flexibility. For example, Greenhouse said that Agnico’s focus is to search out opportunities in low-risk regions. Greenhouse said Agnico can use juniors to test out regions where Agnico chooses not to work yet.
“It allows us to dip our toes,” he said.
In the investing commmunity, juniors also attract a different type of investor with a different type of risk profile. A junior can provide returns that a miner is not able.
“[Juniors] tend to attract investors with a little more risk tolerance… You can’t really expect to get 10-, 20-, 30-times returns from a senior.”
Asked how a junior can get a senior company’s attention and potentially get a deal, Alden said Agnico already has teams in various jurisdictions and keeps tabs on the junior space.
“We probably know about you already,” said Alden.
Rather, deals need to happen through communication. Even if it is a great project, there are many demands on capital and timing may not be right.
Greenhouse said juniors just need to concentrate on keeping the lines of communication open for when the time is right.
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