Head of Kaiser Research Online John Kaiser
Photo by: Simon Rees
TORONTO (miningweekly.com) – Head of Kaiser Research Online John Kaiser told an audience at the Prospectors and Developers Association of Canada on Sunday that the market bottom had been reached and that a selective bull run for the stronger juniors was under way.
But for weaker juniors, those with under $200 000 left in their treasuries, their often-predicted purge may be about to start, he added.
“After three years of a relentlessly brutal bear market, a bottom has been reached and a selective resource sector bull market is under way,” Kaiser said. “We’re watching the survivors stand up, [the ones] that have a story.”
“But there are over 1 000 companies [still] trading below a dime [$0.10],” he said. “Of the 1 749 resource sector companies I cover on the TSX and TSX-V, 868 have less than $200 000 left.”
“In April, a big chunk of them will have to file their [annual] financials. The accountants are probably creditors on last year’s financials and, unless they are paid, they will not sign off,” he said. “So there’s a possibility that the ‘big kaboom’ will happen in Q2 when these financials are due.”
Others may continue to survive, but only as “zombie” companies that remain in the market but are unable to advance or add value. “These companies will continue to exist as shells; they’re not going to be delisted but they are going to be irrelevant as far as the resource sector is concerned,” Kaiser said.
“But we shouldn’t worry about these companies,” he explained. “When they disappear it will be great because there will only be about 700 to 800 real companies out there and we’ll be able to focus our attention [on them].
“[And] when the money starts flowing into the sector again, it’s not going to be diverted by these pretend exploration companies that have polluted the sector in the past decade,” he said.
Other companies with more attractive assets or brighter prospects may present opportunities for an investor, although they should be selected with great care. “Be careful bottom fishing below $0.20 … you have to check their balance sheets,” Kaiser cautioned.
Kaiser also considered gold and its wider prospects, highlighting its 1980 price of $400/oz and transposing this (adjusted for inflation) to today’s rate, saying it would equate to about $1 100/oz.
“So the real gain in gold just at the moment is about 20% after 30 years of harvesting the low-hanging fruit that used to be [considered] high-hanging in the 1970s,” he said.
“Gold is stable at $1 200/oz. [Gold bears] tried very hard to push gold below $1 200/oz before year-end [2013] and failed. I think we'll see gold go back into the $1 400/oz to $1 500/oz range,” he added.
Kaiser was sceptical of arguments that gold will climb far higher than this, such as to $3 000/oz. “The circumstances under which that can happen are few and far between,” he stressed.