Could you explain how the Australian mining sector managed the consequences of the 2008 financial crisis and the measures used by PCF Capital to mitigate its impact?

The Australian mining sector was initially protected from the effects of the global financial crisis (GFC) in 2008 due to a large influx of Chinese money. However, by 2011, the industry had begun to feel the impact of the crisis and experienced a challenging market for the next four to five years. PCF Capital, like other companies in the sector, struggled during this time. Nevertheless, PCF Capital was able to navigate this period more successfully than others by leveraging its core business of selling mines. The company has a platform called Mines Online, which operates like an eBay for mines, and provides an effective budget service for mine sales, with an average transaction size of around A$3 million. This business has underwritten PCF Capital for the past 20 years, and in the last decade, the company has sold 115 mines across every continent.

How would you describe the current state of the market for the mining sector?

I note that the market for the mining sector is currently on the rise, with indices up by 90% from where they were a year ago. However, most of the money has been focused on producers and developers. Demonstrating a clear pathway to production and cashflow is essential for gaining support from financiers, but the exploration sector is still struggling to raise capital. The appetite for risk is currently low, with investors focusing on less risky projects due to the impact of the GFC, the rolling Euro crisis, and concerns about China’s ability to sustain its current levels of growth. Although global GDP is on the rise, investors are still hesitant to take on significant risks.

Is the lack of finance in the exploration sector a fundamental shift in the market or a cyclical pattern within the industry?

When the market turns, all the value goes into the producers. As they become overvalued, the focus shifts to developers, and then when they become overpriced, the attention shifts to explorers. Currently, the exploration sector is highly saturated, and investors need a way to discern where to put their funds. However, some interest is emerging in explorers that can demonstrate a defined resource, and the valuation for juniors with strong exploration potential has increased materially over the last 12 months.

What investor profiles are currently key to the market?

The increasing role of Exchange Traded Funds (ETFs), where algorithms are used to buy shares with little or no regard for a company’s exploration or development pipeline. ETFs have come to the fore over the last three to four years and have allowed the share prices of producers to take off. However, issues arise when the algorithm changes. For example, Van Eck, an ETF provider, sold off many junior companies when it announced that its investment algorithm was being re-calibrated to only include companies with market caps of $3 billion or more. Institutions still have a role to play, but ETFs’ dynamics will increasingly influence the market. Juniors must learn how to cope with new shareholders that are not interested in their management teams or their development pipelines but are investing only because of a computer-driven program that seeks matching criteria such as market cap and whether or not the company is in production.