Headline performance of miners since 2016 has been sterling. The ASX100 Resources and Small Resources have both posted strong gains, with capital returns of 2x from both Indices in 3.5 years. Even so, aggregated performance of large cap, operating miners masks a two-speed market for miners. There are almost 600 aspiring junior miners that don't rate inclusion in any index, and more than 60% of them are at lower share prices than they were in January 2016. The median performance for that group is a 20% capital loss versus the multiples observed at the larger cap end of the mining market. 

Risk tolerance and distraction

"Big money" still has a very low tolerance for risk. It is not possible to price risks like funding, permitting and commissioning - they have binary outcomes, and so big money manages that by avoidance which favours larger cap, operating miners. Raising development capital for juniors wanting to build a mine, who traditionally would have begun to tap into the larger institutional pools of money to do so, is currently very difficult. 

For investors who do have a tolerance for pre-development risk, there is an issue of distraction. There have been a number of themes over recent years: crypto (which looks like it captured money that might have ordinarily been an investor in gold), tech, and more recently cannabis which has seen investors flock to companies benefiting from a regulatory platform legalising marijuana in some jurisdictions of North America.

Big deal? Yes - in 2018, "Life Sciences" companies listed on the TSX and TSXV collectively raised over C$9B, which was 22% of the equity raisings conducted on Canadian markets - most of this was for cannabis stocks. The Life Sciences sector doubled its Quotable Market Value in 2018 to almost 2% of the Canadian market - making the equity issuance all the more remarkable. Miners in contrast only managed to raise C$6.5B, which was a decade low, and miners account for more than 15% of the Quoted Value of the Canadian market. 

Whilst this phenomenon is largely restricted to the places where a regulatory platform has been provided, when a large pool of capital that has been a big supporter of junior aspiring miners is distracted, the effect on sentiment is global. 

Growth-oriented thinking - M&A now in the outlook

Distraction of investors is only one side of the coin, peering within the mining industry we can see the other side which is likely to lead investors strongly in time. In 2015, major miners globally were engaged in balance sheet repairs and were sellers of projects rather than buyers. This trend is reversing, the industry has become a buyer. 

The three largest gold deals of the last five years have occurred in the last six months. 

In late 2018 Barrick acquired Randgold in a US$6.5B deal to become the world's largest gold miner. Shortly after, Newmont announced the largest ever gold acquisition: US$10B deal to acquire Goldcorp, and create the new world's largest gold company. Leapfrogging has paused for now, but in March we heard that Newcrest (ASX:NCM) was to buy 70% of the Red Chris mine in Canada for US$806M, this time in cold, hard cash.

Growth oriented thinking has re-emerged - these examples are from the gold space, and there are plenty more across the industry. We've seen a healthy trend of large miners investing in growth via equity or joint ventures with juniors, and juniors getting together to obtain crucial "market relevance" - these themes have a sniff of value creation (for target shareholders) about them, and are likely to enthuse equity investors in time.