A gold explorer ETFEarly October 2011, I pointed to the poor performance of junior gold stocks and of explorers in particular. With GLDX, the Global X Gold Explorer ETF, we have a suitable benchmark for that market segment. How has the situation evolved ever since? Let's first have a look at the GLDX graph since October 2011:
|Global X gold explorer ETF (GLDX) the last 9 months|
We did witness a recovery of GLDX early 2012 and after the mid May disastreous swoon, a swift recovery followed. Yamana Gold bidding for Extorre added some spice to the rally. (GLDX has Extorre among its holdings; but on the flip side Yamana will acquire Extorre on the cheap as compared to what it quoted like a year ago).
Benchmark of GLDX / GDX (Van Eck's large-cap gold miner ETF)
|GLDX:GDX: No mercy for gold explorers|
- Low gold price volatility is favourable for explorers,
- Gold mining majors need to keep pace with precious metals rising,
- Stock markets need not slump...
Gold price volatility creates more uncertainty over future cash flows of mining majors. As a result they are likely to be even more cautious when evaluating potential take over candidates among juniors and explorers.
Higher stock prices for precious metal mining majors facilitate a take-over paid for by issuing new shares. Finally, general stock markets flourishing makes raising capital less dilutive for explorers. Emerging producers will meet less problems in financing the capex for their mining start-ups.Let's face it: none of the above conditions are met, which makes me wary over the near future of explorers.
Further reading:Esp. the links in "Picking throught the rubble of juniors".
More blog articles on gold mining fundamentals and tactics linked to in the top section of the Directory of Posts.