Proactive Investors - Whisper it softly, but the worst of the long, long crisis that has beset the junior mining sector might at last be coming to an end.
We are now deeply and irreversibly into the capitulation phase of the cycle.
It’s becoming commonplace that the model that’s used to finance junior mining companies is broken. And it is. You wouldn’t want to be a listed company if you had the choice. Those that are crowd-funded, like Cornish Lithium and Cornish Tin, attract envious glances.
People talk nostalgically of Toro Gold, a company with an African gold project that went all the way from exploration to production and a subsequent trade sale without listing at all.
And any money that is available is available only on such massively discounted terms that it’s counterproductive to take it.
That’ll be the substance of much of the conversation that takes place on the floor of the Mines and Money conference in London next week, a conference that’s arguably still London’s biggest, but which has been increasingly challenged reputationally by the rival known as 121.
At 121, which took place in the penultimate week of November, the week before Mines and Money, there were investors walking the floor and taking meetings. They were in cautious mood, and by and large non-committal. One or two, though, talked of good times.
Because it may be, to borrow from Dickens, that we are now in the best of times and the worst of times. How bad is it that valuations are so stuck to the floor that no-one believes they will ever be prized off? – the worst.
And yet, how would it look if you rolled a huge bet out at these valuations, only for the market to go into recovery in the next year or so as investors start to buy into a new paradigm.
There is a point to saying that exploration is worth little. All you’re really buying is an idea dressed up as science. On the other hand, as soon as you’ve got some data, there is at least something to build value around.
Can it be that almost every single exploration company in the world is worth almost nothing? At some point, investors are going to look up at US$2,000 gold, at rising uranium, at the Chinese monkeying around with the graphite supply, at lithium and copper and nickel and vanadium and all the metals that need to go into batteries - and they are going to say, you know what, we don’t know what this actually is worth, but it isn’t nothing.
That will be the moment when capitulation transitions to the early stage of speculation.
Whether or not we are at that tipping point will be one of the key take-aways from Mines and Money. And in this respect, it’s Mines and Money which is worth taking the read from, as it tends to be more collegiate than 121.
At 121, investors are paired up with companies. But at Mines and Money you get more of a glimpse into the hive mind of the mining industry.
How is that hive mind thinking? We’ll know more next week.
Certainly, though, we are well into the capitulation phase. Gripes about lack of funding won’t be hard to find. But a couple of other trends are worth noting.
The first is that the macro picture is beginning to have a bearing on junior mining in a way that’s new. All of a sudden, money from Joe Biden’s Inflation Reduction Act is beginning to show up in the mining sector. No doubt this is to counteract the prevailing dominance of Chinese money which we’ve all known about for nearly two decades now.
But if the US goes into proper competition for mining exploration and development overseas, as it did with Blencowe’s asset in Uganda, then any green shoots may get heavily fertilised by big dumps of extra dollars.
Which brings us on to the second factor – the dollar. Ironically - or perhaps not in the post-modern world in which we all now live - paying for the aforementioned Inflation Reduction Act involves enduring a significant amount of inflation. Some of that has already been washed out through the system. But a fair amount still remains. And the US’s addiction to easy money looks like a habit that it will endure to the death.
It continues to pile on debt, to the point where annual interest payments on US borrowing now exceed defence spending. What that means for the US itself is arguable. But the dollar will be under severe pressure for the foreseeable future. And metals, which are priced in dollars, will rise accordingly.
Whether or not such a dynamic counts as a fundamental underpinning for commodities prices is arguable. But a weak dollar could add further impetus to any recovery, if it comes.