The general consensus these days is that the junior mining sector is in a state of flux and decline. I briefly touched on this in a previous article “12. Financings – It Helps to Have a Credible Path Forward”. Currently it is difficult for junior miners to get funding and the stock prices of many are on a steady downward trend. Some observers say this just a temporary phase and the industry will cycle out of it as it always has in the past. I’m not fully convinced that this will be the case, although I am hoping so since my employment is in the mining industry.
I am reasonably confident that metal prices will improve over time, but I am not sure that alone will result in the junior mining sector invigorating. I think there is a general paradigm shift as to how personal investments are being made and how the mining industry is being viewed by the public. The following article has my personal opinions on the present and the future.
Mining companies have been in the media with stories of cost over-runs, mine shutdowns, fatalities, protests, and environmental incidents. In addition, the junior mining sector has had a few notable scams and companies have gone bust with little to show to investors. In some instances company management were over promoting sub-optimal projects simply for the exercise of raising the stock price and cashing out. Not all companies fell into this category, but enough to possibly give an unfavorable image of the investment side of the industry. I think it may take more time for the industry to recover from the overall image being created by the events described above. The implementation of sustainable mining practices is a real attempt by industry to rehabilitate its image, but is anyone out there listening? Regarding that I have three general observations:
Yield Investors: When many of us baby boomers were younger, in our 30’s to 40’s and working with a steady income, we were willing to speculate on the mining stocks hoping for the big payoff, and there were many payoffs in the past. Also there wasn’t much else to speculate on. Now those same baby boomer speculators are moving into early retirement and financial planners push them into fixed income and dividend paying investments with 2% to 4% yield. The risk tolerance profile for many of these investors has been shifted from speculation & growth to income & capital retention. Retirement is not that far away and therefore I am unsure how many of these people will ever re-enter into the junior mining stocks if metal prices do improve. The majority don’t pay any yield. Some do; looking at the yield for Barrick (1.7%), Goldcorp (3.2%), and Yamana (1.6%), yield seeking investors would view their stock prices at their current levels as being adequately priced. If their share prices rise, yield goes down and makes them less attractive to those yield investor.
Where to speculate now? So where are the 30 to 40 year olds speculating today? Younger people today may still speculate with their free cash, but they are not hoping to be investors in the next Voisey’s Bay, Kidd Creek, or Hemlo. They never even heard of them. They are hoping to be investors in the next Apple, Google, or Facebook. The dot com bubble of 1999–2000 seemed like the junior mining companies and their investors trying to jump into technology and it was mainly a bust at that time. However these days several of the new breed of dot-com companies are getting huge share price jumps for speculators. Is it a tech bubble – maybe so. I don’t know whether the younger speculators will ever have interest in the junior mining sector since they never heard of it and there is so much more happening out there. Anecdotally I have heard that retail investor attendance at the Toronto PDAC and the various road-shows has been declining over the last couple of years, which may confirm a general lack of interest in mining sector investment.
The perception of mining: The mining and energy news shown in the media is not helping the industry, focusing mainly on the negative aspects. The resource business appears to be somewhat analogous to the meat industry. Everyone like their aisles of nicely packaged sushi, chicken, and beef at the grocery store but nobody wants to see how it actually gets to the store shelf. Millennials also love their metallic gadgets and the energy used to power them up, but please don’t show how it actually gets from mine to smelter to store shelf– it’s quite upsetting to them.