Cannabis craze weeds out junior mining competitors
CAPE TOWN 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 legalization for recreational use in October. Other jurisdictions are following suit or liberalizing 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, Tilray and Aurora Cannabis — have a combined market value of around US$30 billion. And consumers are expected to spend over US$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,pot 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 , 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. 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.
As early IPOs, once a rite of passage for exploration juniors, have slowed to a trickle with pot 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.
The CEO of Barrick Gold 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 said.
“(Mining) is just so fundamentally material to our everyday lives, whereas I can’t say the same of cannabis.” Looking to rev upyour life? Our Tuesday and Friday Driving sections have all the car news you need.