![]() ![]() I think the spark that gets the juniors moving again, as it has in many past cycles, is new discoveries. That puts in a bottom but doesn't cause a turnaround. People who wanted out of gold equities are largely gone there is a huge amount of money on the sideline. Can you explain that?ĮC: One reason is that the market is running out of sellers. TGR: You observed recently in HRA Journal that the currently depressed junior gold explorer market is showing signs of life. The days of cheap metals, in most cases, are over. If the world wants ever increasing amounts of metals it will have to pay up and pay the mining industry to supply them. While I'm not a big believer in things like "peak copper" (at least not any time soon), supply is very much a function of price. As the "low hanging fruit" is picked and the industry moves to tougher terrain with less infrastructure and deposits with lower average grade, the cost of production rises. The final piece of the cost equation for many metals is grade. The situation will improve over time as more professionals are trained and the production capacity of industry suppliers is increased, but this takes time. As the price of metals rises, so does the price of a geologist, the price of an engineer, the price of a ball mill. The mining sector was not going to turn around and suddenly start producing twice as much copper, zinc or whatever at the same cost. Part of the reason why we expected this to be a long secular bull market was because we knew how short the industry was on all kinds of skills, material and equipment. For a long time that was because there was a skills shortage. ![]() Costs have gone up very rapidly in the mining business. So the P/Es have normalized.Īnother concern is profit margins. We can't just assume that gold is going up another 400≥00%. ![]() Now investors are taking a harder look at how much money these firms are actually making. It was all about the amount of gold resources on hand. The earnings part didn't matter very much. In the past, gold companies could trade at 80≩0 P/E. What we are seeing now is that the P/Es for the gold firms are returning to the market average. I'd be really happy if it does, but I'm not expecting it. I'm not going to assume that gold is going to $10,000/oz. They were as interested, if not more interested, in the leverage, the "ounces in the ground per share" that gold stocks represented. Goldbugs at the start of this cycle expected gold and silver prices to go up 500%. It was not the price-earnings (P/E) ratio that was determining the value of a lot of mining companies, it was the P/E ratio plus a very large amount added for in-the-ground resources. At the start of this major cycle, gold prices were $300/oz. It sounds as if I'm being ironic, but I'm not. On the gold and silver side, the real issue is that gold is over $1,700/ounce (oz) and silver is now over $30/oz. There are simply a lot of people concerned about the economy in general, and, specifically, the growth economies where metals are keys to industrial development. Most important, weakening numbers out of China scared off a lot of investors, particularly from the base metals. One was fear of the fiscal cliff as the politicians in Washington argued about raising the debt ceiling. Two problems have slowed things down during the last year. It often indicates a user profile.Įric Coffin: Post-recession, there was a good bounce for commodity stocks. ![]() Account icon An icon in the shape of a person's head and shoulders. ![]()
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