Cannabis craze weeds out junior mining field

Orezone Gold

07/02/2019 12:22

* Cannabis liberalisation spreading globally
    * Miners suffering from lack of investor trust
    * Fundraising increasingly difficult

    By Joe Bavier and Barbara Lewis
    CAPE TOWN, Feb 7 (Reuters) - A boom in cannabis investment
is siphoning capital away from mining and hitting junior miners
hardest, forcing them to up their game and potentially improving
the quality of projects in a sector long rife with cowboy
speculators.
    Canada's relaxation of cannabis laws culminated in
legalisation for recreational use in October. Other
jurisdictions are following suit or liberalising their laws on
medical or health use, creating an industry that has lured a
breed of high-risk, high-return investors.
    The world's top three listed cannabis companies - Canopy
Growth  WEED.TO , Tilray  TLRY.O  and Aurora Cannabis  ACB.TO  -
have a combined market value of around $30 billion. And
consumers are expected to spend over $7 billion on cannabis
products in Canada alone this year, according to Deloitte. 
    In Africa, where miners met this week for Cape Town's
African Mining Indaba conference, cannabis companies are setting
up projects in Lesotho, while other countries, including
Zimbabwe and South Africa, plan to issue licences. 
    "Raising money is extremely difficult," said Patrick Downey,
head of Canadian junior gold exploration company Orezone Gold
 ORE.V , who compared the cannabis boom to the headwinds juniors
faced during the dot-com bubble of the late 1990s. 
    "It's a cyclical business, and it will come back," Downey
said. "But you have to have a good project." 
    The rise of cannabis comes at a time when investors were
already turning away from mining. 
    "The biggest problem in mining is that it destroys
shareholder value," said Philip Hopwood, Deloitte's global
mining and metals leader. 
    Miners operating in Africa - already viewed by many
investors as a particularly risky bet - have been doubly hit. 
    "It's like the straw that broke the camel's back," said one
explorer at the Indaba.
    
    SURVIVAL OF THE FITTEST
    As early IPOs, once a right of passage for exploration
juniors, have slowed to a trickle with cannabis stocks
delivering better short-term returns, miners are increasingly
turning to private equity. 
    And as active investors replace passive stockholders,
companies are having to sell the merits of their projects to
more discerning potential backers.  
    Sebastien de Montessus - chief executive of Endeavour Mining
 EDV.TO , one of the most successful mid-tier gold players -
considers it a process of natural selection.  
    "It's a good thing ... You're going to have to be stronger
and better," he told Reuters in an interview at the Indaba.
    The CEO of Barrick Gold  ABX.TO , one of the world's biggest
gold companies, said mining's struggles to fend off the
challenge from cannabis reflected the poor state of the industry
in the eyes of prospective investors. 
    "We should be embarrassed that somebody is prepared to make
a choice between those two options," Mark Bristow told Reuters.
"(Mining) is just so fundamentally material to our everyday
lives, whereas I can't say the same of cannabis."
    Majors such as Barrick and companies with projects already
in production can better weather the storm. 
    The newest juniors in the riskiest areas are racing to
adapt. And some are getting creative. 
    Prospect Resources'  PSC.AX  executive director Harry
Greaves on Wednesday won an award at the Indaba for his lithium
project in Zimbabwe.
    He said Australian and Chinese investment had helped. And he
was also considering growing cannabis at his lithium site on the
outskirts of Zimbabwe's capital Harare.
    "We don't yet have a marijuana licence, but we have the land
available," he said.       

 (Editing by Dale Hudson)
 ((joe.bavier@thomsonreuters.com; +27 664877766; Reuters
Messaging: joe.bavier.thomsonreuters.com@reuters.net))