Saturday, 9 March 2013

Explorer shake out coming

Several illustrous precious metal mining gurus have been warning for it: an explorer shake out is coming.

As Rick Rule uses to phrase it: "Many explorers will inevitably tend towards their intrinsic value: zero", qualifying the typical ill managed nano-cap as "would-be explorers lead by butchers, bakers and candle stick makers".

Brent Cook may quantify this type of companies better as "the majority of explorers on the TSX Venture, quoting below CAD 0.20 and having less than 0.75 million CAD of working capital left".
Moreover: "They cannot access capital markets any longer. Several of them already have a track record of share consolidations or reverse splits as you like to name it. Their general expenses by far exceed whatever they spend on their exploration program." They may be trying to develop a (low grade) ore body which is never going to turn into a mine and are spending their last cash on extending the validity of their mineral claims.

While this shake-out is most painful for the speculators that were lured in, hoping for a juicy return, the scene is freed up for the more talented explorer teams, working on projects that may turn out to be the next generation of world class resources.

Last judgement by Michelangelo (Sixtine Chapel)
... What side are the explorers in your portfolio on ?

Rick Rule makes it clear that, whenever explorers with promising and viable projects are in need of capital to continue operations, he will commit to set fresh money at work, when the investment crowd is holding back.

For Brent Cook, the data speak for themselves. He actually put down a handsome return on his "exploration insights" portfolio over 2012. Modest as ever, he adds that the lion share of that return is due to two key factors:
  • Recognizing the potential of (very few) explorers early on, with a five or tenfold appreciation of the position and
  • Having second thoughts about a project that proved successful so far, but which may have troubles ahead and selling before the speculator crowd starts realizing what may go wrong.
"Despite the aggregate success", Brent Cook says, "the Exploration Insights portfolio has a majority of explorers down over 2012."

Latest Kitco video on this topic: 600 Juniors to disappear from the scene by June 2013
Veteran geologists discuss the future of exploration, funding, policy of miners... you name it. A must view !

Further reading:

  1. Selecting explorers and junior miners
  2. Gold explorers have a long way to go
  3. No mercy for gold explorers 

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