Mining Investment Goes to Pot

A flowering herb of the family Cannabaceae was widely blamed by speakers at the Mines and Money Americas conference for a shortage of investment into junior mining companies.

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The hemp plant Cannabis sativa, also known as marijuana, was legalised in Canada last Wednesday, October 17. This coincided with the final day of the three-day Mines and Money (M&M) Americas conference in Toronto, and there was general agreement amongst speakers that investor interest in cannabis has been a significant factor in the dearth of funds available for metals and minerals exploration.

The share prices of junior mining companies in Canada have under-preformed over the past year compared with their Australian counterparts. This has coincided with a surge in North American investor interest in cannabis companies.

Shares of Canadian cannabis companies Canopy Growth, Cronos and Tilray, which also trade in the US, have soared this year (although they plunged on Wednesday — a classic case of investors buying the rumour and selling the news, exactly as they do for mining equities). The share price of two other Canadian companies, Aurora Cannabis and Aphria, have also been on a roller coaster ride, mainly due to speculation that big consumer-products companies (including Coca Cola) may be looking to invest in them. Beer and wine giant Constellation Brands has already agreed to take a US$4 billion stake in Canopy.

The name marijuana dates back to the late 19th century and is thought to be derived from the Mexican slang for brothel, María y Juana. Pot is more recent slang, and only came into use in the 1930s as a shortening of the Spanish potación de guaya, a brandy in which cannabis buds were steeped. It literally means "the drink of grief", not inappropriately for Canadian mining companies.

Speakers Blame Cannabis

Several speakers at M&M Americas alluded to the shortage of 'good' mineral deposits in stable countries, and the dearth of exploration in recent years to replace dwindling ore reserves. Many blamed this situation on a decline in investor interest in junior mining companies, and in Canada this was attributed to the burgeoning interest, particularly by retail investors, in cannabis companies.

Michael Pickersgill, a partner at Torys LLP, was one of a number of presenters to lament the amount of risk capital flowing into cannabis rather than mining. Miranda Werstiuk, senior vice president at IBK Capital Corp., agreed that capital for "kick-start mining" was "extremely difficult" at the moment.

There was a lively panel debate on the second day of the M&M Americas conference over whether cryptocurrencies and cannabis were "killing mining" or whether there were more deep-rooted problems.

The panellists were generally agreed that cryptocurrencies were a 2017 story, and bit coins were for specialist investors. Cannabis, on the other hand, was appealing to the retail market, which had hitherto looked to mining equities for investment opportunities. Warren Irwin, chief investment officer of Rosseau Asset Management, was sanguine, pointing out that this had happened with the Dot-com bubble of the late 1990s. Investors would eventually return to mining, he said, especially with the low valuation of the sector's equities.  

Mike White, the CEO of IBK Capital Corp., agreed that investment in the recently legalised cannabis sector in Canada was damaging to mining valuations, and demonstrated this opinion by comparing the mining index on the TSX with the ASX, with the Canadian companies performing much worse that their Australian counterparts. He observed, however, that not everyone was allowed to invest in this new sector. David Stein, the managing partner of Aerecura Capital, agreed but noted that even so it was the larger mining companies that would benefit, rather than the explorers.


Chris Hinde

Chief Commentator, Mining Beacon

Previously editorial director of Mining Journal, and more recently head of S&P Global Market Intelligence's metals and mining team, Chris is now Mining Beacon's editor-in-chief and lead commentator. He posts two blogs every week, one on Monday reviewing market conditions over the prior week, and a second on Thursday looking at issues on the global mining scene. There is also a quarterly blog on business opportunities in the sector.