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 Prices for copper, gold, iron ore, coal and almost every other metal
have collapsed, stalling exploration work and hitting early stage
miners particularly hard. These firms typically find the deposits
that larger miners often then go on to acquire and develop into
mines. But there's scant demand for new sources of metal now.
Pivoting into other businesses has happened during mining funks in
the past, including a spate of defections into the tech sector
during the dotcom boom in the late 1990s. But now the concern is
that when prices eventually do rebound, there will be fewer junior
miners, and a reduced pool of new mine prospects.
"No one has any interest in a grassroots exploration project right
now," said Yari Nieken, chief executive of Chlormet Technologies <PUF.CD>,
which has bought an e-cigarette company and has a license to grow
medical marijuana pending.
Canada made it legal to buy marijuana from licensed producers with a
doctor's prescription in 2014. Regulator Health Canada estimates
that the Canadian medical marijuana industry will reach C$1.3
billion (US$987 million) in a decade.
Canada's Century Iron Mines <FER.TO>, whose mining projects are
backed by two major Chinese companies, Minmetals and Wuhan Iron and
Steel Corp (WISCO), owns development stage iron ore assets in
eastern Canada. In July, Century started a new independent venture
to distribute Australian eggs in Hong Kong, Macau, and potentially
mainland China.
Century aims to piggyback on Australia's move from a reliance on
mineral exports to shipping food and agricultural products to a
growing Asian middle class.
"Due to the downturn in commodity prices, Australia's moving its
focus from mining to dining," said Century CEO Sandy Chim. "We're
just an exploration company, but we have a solid balance sheet, and
we feel we can also do the same.
"We see a good opportunity to start a small, but meaningful food
distribution business that can capitalize on our network in China."
The shift to egg distribution will help create a cash flow
generating business until iron ore prices recover, Chim said. While
Century isn't turning its back on mining, it's considering buying
food production assets, such as fisheries, while it waits for the
sector to rebound.
This business shift by miners is most visible in Canada, home to the
majority of the world's publicly-listed miners, but is also seen in
other mining centers like Australia and Brazil.
ABANDONING SHIP
Century may be able to ride out the cycle, but some of its smaller
peers both in Canada and overseas have begun to abandon the mining
sector altogether, as it becomes increasingly difficult to raise
financing.
In January, Brazil's All Ore Mineração SA decided to end its
commodities operations and enter the cosmetics and hair-care markets
by buying Sweet Distribuidora, also known as SweetHair, in an
all-share, no-cash deal. The new company, renamed Sweet Cosméticos,
hopes to sell beauty products developed using biotechnology and
nanotechnology.
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In March, TSX Venture-listed Sabre Graphite bought DraftTeam, a
website offering fantasy sports games. It has since changed its name
to DraftTeam Daily Fantasy Sports Corp. Australia's Erin Resources,
which was previously exploring for gold in Senegal, has ventured
into the medical marijuana business.
Supreme Pharmaceuticals Inc, formerly a copper and gold explorer
with projects in western Canada, is also seeking a license to grow
medical marijuana in Canada and has bought a greenhouse facility in
Ontario.
"With the downturn that the mining industry has suffered, I think
the smart and innovative entrepreneurs in the sector are looking for
other asset types that can rebuild businesses and restore lost value
for shareholders," said John Fowler, Supreme's Chief Executive.
Australian-listed International Goldfields, which is investing in
medical marijuana assets overseas, has seen more trading activity in
its stock since it moved away from mining, according to director
David Tasker. The shares trade for less than a cent each.
The company said its gold investment in Brazil and joint venture in
the U.S. were offering limited value to its shareholders.
"Also, the level of support we could expect from the capital markets
was very, very minimal, if not all together non-existent," Tasker
said. “Once that reality dawned, it was incumbent on us to look for
alternatives."
The hundreds of largely TSX Venture-listed exploration companies
have been among the hardest hit in the current downturn, as
investors have fled the sector due to prolonged decline in metal
prices. Those tough conditions also mean that, cash-strapped larger
rivals aren't willing to invest in new projects.
Some institutional and retail investors, while dismayed by the
collapse in exploration company values, are sanguine about the shift
away from mining.
"I didn't buy this stock thinking I was investing in the egg
distribution, but I've no problem with them doing other things,"
said Ian Morrison, a retail investor who owns more than 500,000
shares in Century, the iron ore miner turned egg distributor.
"I look forward to seeing what their next move will be because I do
not think they are putting everything they have got into Aussie
eggs."
(Additional reporting by Jeb Blount in Rio de Janeiro and Susan
Taylor in Toronto, editing by Amran Abocar and John Pickering)
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