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Guest Post: Miners - Nuclear Winter? Not Yet

Tyler Durden's picture




 

Submitted by Andrey Dashkov via Casey Research,

The late 1990s for the resource sector was so challenging that it is now often referred to as the "nuclear winter" of the industry. Some analysts are comparing our current circumstances to that period, while others purport we haven't hit bottom yet.

In its Business Risks in Mining and Metals 2013-2014 report, Ernst and Young states  that capital allocation and access is now the number-one challenge the resource sector is facing. While production-stage companies are rationing capital expenditures to meet long-term goals, the juniors don't have this luxury; they need to raise money just to keep the lights on.

The report says the current situation is the worst market in ten years. Since International Speculator deals mostly with the early-stage companies, we set out to see exactly how bad it is.

To do that, we pulled data on 10,521 private placements (PPs) closed by TSX-V-listed metals and mining companies since January 1, 1999 and compared the financing market now to the infamous "nuclear winter." Here's what we found.

The data show that metals and mining companies closed only 36 private placements in Q2 2003, raising C$17.6 million. By comparison, so far in the second quarter of 2013, metals and mining companies closed 150 financings for a total of C$192.6 million. This clearly shows that the current market, while definitely under pressure, is not as bad as it was ten years ago.

The market is also stronger now than in 1999-2001, when little financing activity took place. That period indeed was a desert for a metals and mining company.

For a clearer picture, let's zoom in on that period.

Before things picked up at the end of 2002, the junior metals and mining sector was in a miserable state for at least two years, as the chart shows. Further, a few large deals skewed the data; for example, Mazarin Inc. and Regency Gold Corp. raised about C$10 million each in Q4 2000. These financings were huge compared to their peers, but wouldn't be considered that big today.

Conclusion

While the current state of the junior market couldn't be described as strong, these data show we haven't reached a nuclear-winter phase, at least not yet. Juniors still can finance, though clearly investors are much less generous now.

Keep that 1999-2001 period in mind the next time someone tries to convince you the bull market is over. That is what a nuclear winter looks like.

Our situation is much better than ten years ago. The best companies are still able to raise funds to explore and develop. This is where investment dollars should be focused, because when the market does turn around, it is the better-managed and better-capitalized companies that will be the first to deliver the tremendous returns this volatile sector is known for.

 

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Wed, 06/26/2013 - 14:16 | 3696064 Dareconomics
Dareconomics's picture

Miners are heading for trouble.  High prices lead to more capital investment in the industry, and that causes an increase in supply, which results in lower prices.  This happens every couple of decades; this time is not different:

 

http://dareconomics.wordpress.com/2013/06/26/around-the-globe-06-26-2013/

Wed, 06/26/2013 - 14:31 | 3696120 Al Huxley
Al Huxley's picture

Yes, that's what the world's suffering from right now - massive oversupply of gold relative to demand.  Why the vaults are practically overflowing - hence the price crash.  Fuck, at least come up with a fairytale that correlates somewhat to reality.

Wed, 06/26/2013 - 15:10 | 3696309 Canadian Dirtlump
Canadian Dirtlump's picture

Paper market collapse or supply shock. We need either or both to happen and I dearly hope this 2013 kinetic military activity by TPTB does it. 

With respect to this report, I think we're driving through the nuclear winter now, and the casey crew, will see it in their rearview mirror in the next few months. I like listening to Doug Casey talk and all, but the fact that he seems to vociferously argue that the metals aren't manipulated flies in the face of in my view what is obvious.

Also private placements for juniors is one thing. Large mines shutting down from labor strife ( south african wasteland ), political issues ( pasqua lama ), mother nature's grand mal seizures ( Kennecott ) and now because of low prices ( here there and everywhere )  is quite another will hopefully be the catalyst we need and that shit doesn't show up in some private placement scattergram lol.

We know ore grades are in the tank, we know demand despite the best efforts of TPTB is high, and now, from a central bank standpoint should go pedal to the metal, I also recall that recycling of gold has in a manner collapsed too.

As much as I would have likes to see some good guys come in and beat TPTB bad guys, I'll be happy to see them die of a self inflicted wound. Sad that they are taking an industry down with it though for the moment.

 

 

 

Wed, 06/26/2013 - 15:32 | 3696431 unwashedmass
unwashedmass's picture

oh yeah, so much supply...what a problem...funny how JPM just can't seem to shake loose that 81K ounces of gold they need for friday without resorting to blatant market manipulation....

funny that.

Wed, 06/26/2013 - 15:42 | 3696466 Kirk2NCC1701
Kirk2NCC1701's picture

I'll stick to my position* of an earlier post today, that... PM Mining consolidation is as inevitable as tonight's sunset.

Safe-bet mining prediction:  Big fish will eat little fish.  But...

Do Not Panic -- as this will not affect you, unless you (a) own Junior stock, or (b) have a financial interest in promoting Junior stock.  The folks in the latter group won't appreciate that I'm pointing out this truth -- understandably so.  But the truth is the truth.

Wed, 06/26/2013 - 14:16 | 3696066 beaker
beaker's picture

Ok. Ready!

Wed, 06/26/2013 - 14:56 | 3696256 CPL
CPL's picture

go go go go!!

Wed, 06/26/2013 - 14:18 | 3696075 buzzsaw99
buzzsaw99's picture

Mighty Casey has struck out. lulz

Wed, 06/26/2013 - 14:20 | 3696083 Bay of Pigs
Bay of Pigs's picture

"I love the smell of Nuclear Winter in the morning"

Col. Kilgore

Wed, 06/26/2013 - 14:45 | 3696198 Levadiakos
Levadiakos's picture

I love the smell of burning goldbugs

Wed, 06/26/2013 - 14:49 | 3696216 Bay of Pigs
Bay of Pigs's picture

I don't love the smell of fat, dirty, stinking, hairy Greeks.

Please go take that shower asshole.

Wed, 06/26/2013 - 15:20 | 3696376 Levadiakos
Levadiakos's picture

Bigot much pig?

Wed, 06/26/2013 - 14:52 | 3696233 Herd Redirectio...
Herd Redirection Committee's picture

I love the smell of burning paper.   And I think I will be smelling it within 6 months to a year.

Wed, 06/26/2013 - 15:28 | 3696413 Levadiakos
Levadiakos's picture

Nope. No inflation

Thu, 06/27/2013 - 00:23 | 3698061 hamstercheese
hamstercheese's picture

I think no inflation is an illusion.  Look at a box of cereal lately? Smaller.  You used to buy 1/2 gallons of ice cream now they are 1.5 quarts - 25% reduction.  Even toilet tissue - a couple years ago they started making them shorter.  Orange juice used to be sold in 64 oz bottles, now they're 59.6 oz.

 

No inflation?  Look at the price of gold compared to 5 years ago.  Anyone buy any plywood or OSB board lately? sticker shock.  Packages are either getting smaller or, for those items which cannot be shrunk, the prices have gone up.  Except wages, easy in a service economy.  Go figure.

Thu, 06/27/2013 - 12:48 | 3699615 uhb
uhb's picture

I LOVE THE SMELL OF BURNING FIAT IN THE MORNING

Wed, 06/26/2013 - 14:21 | 3696087 BurningBetty
BurningBetty's picture

Well, in Silver at least, everything is pointing now to around $15 an oz. If we get a capitulation scenario than we may even see as low as $11-12 oz. Just switch on the monthly chart of silver(that is paper-silver) and draw the lower trendline from bottoms in 2003, 2004, 2005, 2008..and there is your support. At around $15.  

Wed, 06/26/2013 - 14:46 | 3696201 unununium
unununium's picture

I'll take the other side of that.  We have hit massive resistance here laid down in the late 2009 through 2010 time frame.  I think this is as far down as it goes.

Wed, 06/26/2013 - 16:17 | 3696613 BurningBetty
BurningBetty's picture

https://fbcdn-sphotos-h-a.akamaihd.net/hphotos-ak-frc3/430170_1015168651...

made this simple graph of paper-silver. Monthly chart.  

Wed, 06/26/2013 - 15:02 | 3696275 CPL
CPL's picture

I've backed up the truck.

I have money in hand.

There is no silver to deliver to me just FRN's and ETF paper.  Which isn't silver.  It's just more paper.

 

 

Wed, 06/26/2013 - 15:33 | 3696437 unwashedmass
unwashedmass's picture

 

i tried the same this morning. no go.......

Wed, 06/26/2013 - 15:41 | 3696463 KnightTakesKing
KnightTakesKing's picture

There's still plenty of silver coins available if that's your thing. https://www.texmetals.com/silver-coins.html

You can also get 10 or 100 oz bars (in stock) at site above, or here: http://www.providentmetals.com/bullion/silver/us-slv.html

Where are you trying to buy silver, local?

Wed, 06/26/2013 - 17:03 | 3696771 Thisson
Thisson's picture

Agreed - Silver is as available as ever.  Apmex, Tulving, Scottsdale, etc are all selling.

Wed, 06/26/2013 - 14:24 | 3696097 buzzsaw99
buzzsaw99's picture

I got the Hitler-tungsten video. Where is my Hitler invests in GDX video?

Wed, 06/26/2013 - 14:28 | 3696109 screw face
screw face's picture

buckle up... got flotation?

Wed, 06/26/2013 - 14:29 | 3696113 FieldingMellish
FieldingMellish's picture

Bre-X was the reason for the 90's nuclear winter... that and the falling gold price.

Wed, 06/26/2013 - 14:30 | 3696115 prains
prains's picture

i stopped looking at my junior mining stocks 3 years ago and have stored them with my hockey cards. My rookie Don Cherry is worth more than all of my mining stocks combined. Maybe one day after the nuclear winter is over i can use them to roll a Kong blunt and reminisce with my grandkids about the good life while they're skinning the family dog.

Wed, 06/26/2013 - 14:33 | 3696134 Al Huxley
Al Huxley's picture

The problem with stocks is the companies run out of money and go broke and the stock price goes to 0.  Hockey cards, physical metals, whatever, at least holds SOME value over time but these fucking miners have a really limited shelf-life.  I own some (unfortunately) - really misread the dynamic and underestimated the willingness to destroy the industry (and the complicity of the industry in their own self-destruction).

Wed, 06/26/2013 - 14:44 | 3696157 prains
prains's picture

when the bottom fell out you may have well have sprayed ketchup on your screen and walked away. There was no washing the red away. I'm just hoping one of these drunk bastards is able to get up off the mat and stand and fight again, too bad it's name is Mosquito. Pretty much sums up my business acumen.

Wed, 06/26/2013 - 14:45 | 3696190 Herd Redirectio...
Herd Redirection Committee's picture

Makes you wonder if they should stockpile metal and then use it as collateral, instead of selling it.

Although we all know those promises of having collateral will be viewed a lot more skeptically going forward!

Wed, 06/26/2013 - 15:23 | 3696391 FranSix
FranSix's picture

You would stockpile ore in advance of production anyway.

Wed, 06/26/2013 - 17:05 | 3696786 Thisson
Thisson's picture

Ore and metal are not the same.  Ore is considered stockpiled even if it's still below ground!  Once it's blasted, its reserve category changes.  It still needs to go through the mill before it even becomes "dore" material, which, of course, must still be refined and assayed. 

Wed, 06/26/2013 - 14:33 | 3696133 taketheredpill
taketheredpill's picture

Anybody around at that time will recall the weirdest things going on.  The combination of junior mining financing evaporating added to the dot-com boom resulted in at least 2 junior Australian Gold miners converting their business models to Internet PORN Portals.

And their valuations took off.

 

Seriously.

 

 

 

Wed, 06/26/2013 - 14:35 | 3696142 Al Huxley
Al Huxley's picture

They took off for a few months, then crashed in the .dot com crash.  I know what you're talking about - owned a few little juniors that got gutted in the collapse following Bre-X, then they 'reinvented themselves' as .dot com plays, only to crash again.  Really speaks volumes about the quality of the industry...

Wed, 06/26/2013 - 14:38 | 3696150 FieldingMellish
FieldingMellish's picture

HUI needs to pull a rabbit out of its ass if it wants to hold 210 before close. Gold breaking under $1230 not helping at all.

Wed, 06/26/2013 - 15:23 | 3696393 Levadiakos
Levadiakos's picture

You have to go back to 1996 to see a similar decline for gold on a monthly basis. After which it fell another 32%.

Wed, 06/26/2013 - 14:38 | 3696152 rosiescenario
rosiescenario's picture

It would be more interesting to examine the So. African majors and try and determine how much gold production is going off line at current gold price levels. That may lead to an interesting supply & demand situation for the world gold market.

 

Maybe someone else has seen an intelligent article on this subject?

Wed, 06/26/2013 - 16:03 | 3696564 Bay of Pigs
Wed, 06/26/2013 - 14:46 | 3696202 Bay of Pigs
Bay of Pigs's picture

Probably be a few months before anyone knows how bad the miner, supply/demand situation really is. One certain fact, they are screwed with prices this low. 

And once mines are shut, there is no way to bring them back online quickly. It just doesn't work that way.

 

Wed, 06/26/2013 - 15:21 | 3696384 Levadiakos
Levadiakos's picture

I smell burning pig fat

Wed, 06/26/2013 - 14:41 | 3696173 yabyum
yabyum's picture

Ive lost some big bucks on my miners, would like to get in on the low price, but still have stitches from trying to catch taht falling knife.

Wed, 06/26/2013 - 14:47 | 3696208 Herd Redirectio...
Herd Redirection Committee's picture

It might be time to put on wire mesh gloves soon.  I grabbed a little SLW at under $20.   Its down, at the moment.  I'm not selling until Pascua Lima looks like Mars.

Wed, 06/26/2013 - 14:49 | 3696218 fonzannoon
fonzannoon's picture

The only question is do the banks let us in on the fun when they explode up or do they get to have all the fun themselves when they are running the mines in bankruptcy.

Wed, 06/26/2013 - 15:16 | 3696358 FranSix
FranSix's picture

I don't know if anyone noticed anything unusual, but expectations for the high in gold prices are diminished quite drastically, even though the gold bull market will continue.  The better position is to be in a gold miner with limited or no exposure to base metals.

If a devaluation against gold happens, then you would want both investments.

DUST is not an investment.  Its a stampede.

Wed, 06/26/2013 - 15:52 | 3696486 Kirk2NCC1701
Kirk2NCC1701's picture

PREDICTION: As paper prices of PM keep dropping, the number of occurrences of fake* bullion will increase.  Caveat Emptor!

E.g. "Hey, why does the surface of some of those silver Eagles look like a rainbow, when I use my polarized glasses?"  ;-)

 

* Before you buy bullion, DYOH**!  Make sure you know the exact dimensions of well-known coins.  Then bring your precision calipers and quality digital scale to the PM shop, and compare it to that of the shop.  Not saying that they are crooked or incompetent, but maybe just sloppy in their QA process (not testing of all PM they buy).

** Do Your Own Homework

Wed, 06/26/2013 - 17:09 | 3696805 Thisson
Thisson's picture

Your prediction makes no sense and is contrary to observed data.  As the price of a metal has gone up (especially Silver), counterfeits have become more prevalent.  This is what one would expect because one does not expect someone to make copies of something that is not valuable.  Also, most fake silver is brass that has been electroplated, so I don't see how polarized glasses are going to make them look like a "rainbow" - please explain?

Wed, 06/26/2013 - 15:56 | 3696535 taketheredpill
taketheredpill's picture

Still think $1200 on Charts makes sense based on a couple of Interpretations.  The article on Marginal Production cost near $1200 also made me feel better.

CEF got close enough to $13 target so I added.  Hopefully won't go to $0 before I figure out a story for wife.

Wed, 06/26/2013 - 17:11 | 3696817 Thisson
Thisson's picture

Silver, being a consumable, is more resilient than gold to market prices below marginal production cost.  For this reason, I think Silver is a safer play at these levels.

Wed, 06/26/2013 - 16:17 | 3696609 russwinter
russwinter's picture

Almost all the placements done (ANV, DGC, Sabina)  $wise in the 2nd quarter were with insiders or select investors , not the public. 

Wed, 06/26/2013 - 16:58 | 3696758 flying dutchmen
flying dutchmen's picture

I hear sprott is willing to finance..  ( if they were not getting hit with so many redemptions).  but really over the last 10 years there was a huge missallocation of funds to the douche bag exploration companies,  Too much money and very little success.

Wed, 06/26/2013 - 17:07 | 3696795 Flakmeister
Flakmeister's picture

In the spirit of the epic thread on the demise of DOMA, owning ABX and NEM has given me an appreciation what it means to take it up the ass.....

Wed, 06/26/2013 - 17:54 | 3696973 francis_sawyer
francis_sawyer's picture

Do you like movies about... Gladiators?

Wed, 06/26/2013 - 19:23 | 3697216 TuPhat
TuPhat's picture

I think the Flak makes those movies.

Wed, 06/26/2013 - 19:17 | 3697200 Totentänzerlied
Totentänzerlied's picture

1) engineer collapse in gold prices
2) get gold spot price below gold extraction/production cost
3) miners go broke
4) buy up miners
5) wait for gold to rise again

Any questions?

Wed, 06/26/2013 - 19:36 | 3697246 Flakmeister
Flakmeister's picture

I need your advice. The two guys replying to the above are worrying me, Francis out and out propositioned me in the DOMA thread and the other one seemd to be testing the waters...

What do you think I should do? Telling them to fuck off merely seems to encourage them...

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