Cannabis craze weeds out junior mining field

Zimbabwe and South Africa plan to issue licences to cultivate marijuana.

11 February 2019 | Business

It's a good thing ... You're going to have to be stronger and better. - Sebastien de Montessus, CEO: Endeavour Mining

Joe Bavier and Barbara Lewis - 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 legalisation for recreational use in October. Other jurisdictions are following suit or liberalising 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.

Africa

In Africa, where miners met last week for Cape Town's African Mining Indaba conference, cannabis 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," Downey said. "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.

Survival of the fittest

As early IPOs, once a right of passage for exploration juniors, have slowed to a trickle with cannabis 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.

Sebastien de Montessus - chief executive of Endeavour Mining, one of the most successful mid-tier gold players - considers it a process of natural selection.

"It's a good thing ... You're going to have to be stronger and better," he told Reuters in an interview at the Indaba.

The CEO of Barrick Gold, one of the world's biggest gold companies, 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 told Reuters. "[Mining] is just so fundamentally material to our everyday lives, whereas I can't say the same of cannabis."

Majors such as Barrick and companies with projects already in production can better weather the storm.

The newest juniors in the riskiest areas are racing to adapt. And some are getting creative.

Prospect Resources' executive director Harry Greaves on Wednesday won an award at the Indaba for his lithium project in Zimbabwe.

He said Australian and Chinese investment had helped. And he was also considering growing cannabis at his lithium site on the outskirts of Zimbabwe's capital Harare.

"We don't yet have a marijuana licence, but we have the land available," he said. – Nampa/Reuters

Similar News

 

FirstRand Namibia fights back

2 days ago - 15 February 2019 | Business

Jo-Maré Duddy – FirstRand Namibia bounced back to positive profit growth in the six months ended 31 December 2018 after taking a knock in the...

NaCC scrutinises fuel imports

2 days ago - 15 February 2019 | Business

The Namibia Competition Commission (NaCC) is requesting input from interested and affected parties on the reinstatement of the National Petroleum Corporation of Namibia's (Namcor) intent...

RA, Unam sign MoU

2 days ago - 15 February 2019 | Business

Justicia Shipena On 12 February, the Roads Authority (RA) and the University of Namibia (Unam) signed a memorandum of understanding (MoU) at the RA’s...

Company news in brief

2 days ago - 15 February 2019 | Business

Vodacom, Telkom welcome ECA bill withdrawalSouth African mobile network operators Vodacom and Telkom on Wednesday welcomed a government decision to withdraw a bill, which proposed...

Better half-year for FirstRand Namibia

2 days ago - 14 February 2019 | Business

FirstRand Namibia, previously FNB Namibia Holdings, made a profit of nearly N$552.7 million for the six months ended 31 December 2018 – an increase of...

Company news in brief

3 days ago - 14 February 2019 | Business

Heineken sees 2019 profit growth at similar pace to last yearHeineken, the world's second-largest beer maker, forecast its operating profit to grow at nearly the...

Company news in brief

4 days ago - 13 February 2019 | Business

Tanzania row overshadows Acacia's upbeat outputAcacia Mining beat forecasts on Monday with figures for its production and costs in 2018 that lifted the gold miner...

Namibian khalas hits market

5 days ago - 12 February 2019 | Business

Desert Fruit Namibia (DFN), one of only a limited number of date producers in the southern hemisphere, has begun to harvest Khalas – a new...

Company news in brief

5 days ago - 12 February 2019 | Business

Gushing profits for oil majors on crude priceThe world's top energy companies booked enormous profits last year thanks to higher oil prices and keeping a...

Cannabis craze weeds out junior mining field

6 days ago - 11 February 2019 | Business

Joe Bavier and Barbara Lewis - A boom in cannabis investment is siphoning capital away from mining and hitting junior miners hardest, forcing them to...

Latest News

Logistical problems force Nigeria election...

15 hours ago | Africa

Nigeria's electoral watchdog today postponed presidential and parliamentary elections for one week, just hours before polls were due to open.The two main political parties swiftly...

Hostel a threat to lives

2 days ago - 15 February 2019 | Education

The Kavango West education directorate continues to subsidise a dilapidated church hostel at Nkurenkuru, despite a 2010 directive by the health ministry that it must...

Foreign graduates protest 'unfair' tests

2 days ago - 15 February 2019 | Health

Dozens of foreign-trained medical and dentistry graduates took to the streets yesterday to protest against a pre-internship exam which they claim is unfair and discriminatory.One...

FirstRand Namibia fights back

2 days ago - 15 February 2019 | Business

Jo-Maré Duddy – FirstRand Namibia bounced back to positive profit growth in the six months ended 31 December 2018 after taking a knock in the...

Our people sustain our group

2 days ago - 15 February 2019 | Columns

Engaged employees help establish better relationships with customers, since staff are the ones who are actually in contact with customers. This is why FirstRand Namibia...

NaCC scrutinises fuel imports

2 days ago - 15 February 2019 | Business

The Namibia Competition Commission (NaCC) is requesting input from interested and affected parties on the reinstatement of the National Petroleum Corporation of Namibia's (Namcor) intent...

Our Achilles heel of accountability

2 days ago - 15 February 2019 | Columns

Enforcing greater accountability has always been an Achilles heel for the Namibian government over the years. Questions have been raised over whether there is indeed...

RA, Unam sign MoU

2 days ago - 15 February 2019 | Business

Justicia Shipena On 12 February, the Roads Authority (RA) and the University of Namibia (Unam) signed a memorandum of understanding (MoU) at the RA’s...

Mutorwa’s journey with science

2 days ago - 15 February 2019 | People

Justicia Shipena Marius Mutorwa is a lecturer at the Namibia University of Science and Technology (Nust) in the department of health...

Load More