Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
Markets have been lousy for so long that it’s easy to keep putting off putting money down. But juniors are finally starting to rise on good news. Missing a rally or two is enough motivation for me.
It can be hard to keep caring. Day after day, it feels like the same story: gold moves up or down a touch, pundits keep fretting over interest rates and earnings and the strength of the dollar, a few explorers or developers release news to muted response, and perhaps a junior gets taken out for a small fraction of what it was worth three years ago.
It feels boring, repetitive, like everyone is in a holding pattern until the markets improve.
Until you pay closer attention.
Up close the mining sector is busy as, adding value to current assets and positioning new projects for startup. Sure, there are lots of inactive companies with little to no money. But there are many companies determined to maintain momentum no matter how long this bottom lasts.
I will admit: I was starting to feel a bit nonplussed by it all, a bit bored by the lack of activity and a bit annoyed by the endless wait for the next bull. But a stream of interesting news over the last few days broke me out of that funk and reminded me of two vital considerations:
Seeing share prices rally on good news is heartening. For years, good news has been treated as a liquidity event as often as not, meaning share prices fell even when announcements were positive. That tide seems to be turning.
Goldquest Mining is a good example. The company released a revised PEA for its Romero project in the Dominican Republic outlining a mine that would produce 117,000 oz. gold annually for nine year and generate a 34% after-tax internal rate of return on a $143-million capital cost.
Key points: the new PEA cut capex requirements in half and almost doubled the rate of return compared to the initial Romero plan. This is a huge improvement, a game changer for Goldquest – and the market took note, boosting GQC shares more than 80% in recent days. (The study only came out yesterday but pre-news promotion meant the official announcement just validated expectations.)
Seeing GQC’s rise feels good – and bad. It’s great in a general sense: we need the mining markets to start operating effectively again.
It’s bad only in the selfish sense: I hadn’t bought GQC.
It was my own fault. I knew the revised PEA was going to reframe the story and give reason to re-rate the stock. But I got complacent – convinced myself that the market would once again fail to react to news, so there was no rush.
It’s an easy mindset to get mired in. Markets have been lousy for so long that it’s easy to keep putting off putting money down. For years, mining investors have been rewarded for procrastinating: share prices kept declining so there was never any rush.
But now that mentality is dated. Things are as cheap as they’re going to get, in general, and good news is getting rewarded. Missing a rally or two is a good reminder.
And a good impetus to start putting money into that list of companies you have been gathering. I have a list. It’s time for my subscribers and me to start buying into it.
After this long, lousy market, the absolute worst would be to miss the ride back up. I still don’t expect that ride to start tomorrow. But the best explorers and developers start ascending before the pack and that is underway.
Need another example? UEC. Uranium Energy Corp, an in-situ leaching uranium producer in the US southwest, popped 80% in the last two weeks following positive news on the potential to restart nuclear reactors in Japan. Uranium prices still haven’t moved – for good reason, as I explain in the uranium piece I’m working on – but the market knows that low-cost uranium operations in stable jurisdictions will be the best way to profit when uranium does return. UEC is the best of the best in that sense and – voila – a major share price pop.
Mega Precious Metals got taken out last week by Yamana at a fraction of what it was worth a few years ago. But the deal offered a 100% premium to its share price over the last few months. Anyone with the gumption to buy a 5¢ stock for its 4-million oz. of Canadian gold doubled his or her money.
It’s time. Build positions in companies with experienced, invested management and top-notch assets. We have returned to some sense of normalcy, where good news and best-in-class results get rewarded. Finally.
Good thing envy is such a great motivator.
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