By Mercedes Ruehl
Australian Financial Review
Junior mining exploration companies could be poised to benefit from renewed investor interest next year, spurred by rising demand from China for raw materials.
The share prices of junior or “small-cap” resource exploration companies have taken a hit since commodity prices fell and big players like BHP Billiton started cutting production, signalling the end of the mining investment boom.
But the latest manufacturing survey from China shows activity has expanded for the first time in more than a year. When coupled with other signs of revitalisation in the world’s second-biggest economy, this has prompted many investors to expect a rise in demand for raw materials.
“If we argue China is turning around, investors will take the flight to quality to begin with,” RBC Capital Markets head of equities Peter Main says. “From there we should see a trickle-down effect into the more leveraged miners and small- to mid-cap producers, and a flow of funds into the junior explorers should follow. Given the depth of the downturn, the time frame for investors to return to the juniors could be up to six months.”