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Sentiment in mining sector improving but more work is needed - PearTree Securities

Kitco News

The world has been turned upside down because of the COVID-19 pandemic but the mining sector appears to be weathering the storm as one fund sees capital slowly flowing back into the sector.

In an interview with Kitco News, Lisa Davis, chief executive officer at PearTree Securities, said that larger producers, due to increased cash flow and higher gold prices, are in better shape than junior explorers. She added that one thing that could help the junior exploration sector is a few changes to the flow-through funding program.

Flow-through funding is a tax-based financing incentive that exploration companies can use to raise capital. The company can issue common shares with the full amount of the investment being tax-deductible against all sources of income. About 70% of Canadian resource companies rely on flow through funding to raise capital.

One big issue that has come up with the flow-through regime is the deadlines by which companies have to spend that capital. Government lockdowns in the last two months have made it difficult for companies to access their projects, putting their project deadlines at risk.

“In normal times, like 99.9% of the time isn't really an issue,” said Davis.

Along with lobbying the government to extend the deadline, Davis said that her firm is also asking the government to relax some of the rules around how the flow through money can be spent.

Davis added that it could take some time for the Canadian government to address the issues faced by the exploration sector.

“I think that the proposals are good ones. I just think that there's been so many emergency measures that have taken priority. They've had to triage and, and this one hasn't been one that they've been able to get to the top of the list as quickly as the industry would like,” said Davis. “Having said that, I'm quite confident that we're going to get the results that we're hoping for.”

Looking at activity in the sector, Davis said that her firm has been fairly busy in helping companies raise capital; however, she warned that one quarter doesn’t make a trend.

“I don’t want to say that we’ve dug out of the hole yet, but indicators are actually quite good,” she said. “I am optimistic, but, you know, at the same time, I'm, I'm realistic and it's, there's still lots of challenges and the flow through share regime is really a critical part of this whole ecosystem to make it all work.”

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.