Chasing the Majors: A Look at the Junior Mining Producers

Junior mining producers are generally single-asset companies operating within a single political jurisdiction. The lack of diversification can create significant risk when the operation faces business disruptions either from internal or external forces and can quickly impair a company’s ability to service its debt obligations. In addition, this subset of producers is generally highly leveraged because of the initial capital required to either build a new mining operation or restart a past producing operation. As a consequence, junior producers can have weaker financial metrics when compared with well-established intermediate or senior producers. Overall, in order for a junior producer to materially improve its Business Risk Assessment profile, it has to acquire a second operating asset in a new geographical location that will allow it to achieve some diversification from single-asset risk and reduce country risk. Additional sources of operating cash flow will also allow the company to more quickly reduce financial leverage, leading to stronger Financial Risk Assessment metrics.