TORONTO (miningweekly.com) – The worst of the mining industry’s declines are over, although it now faces a trough of uncertain length, the head of Kaiser Research Online John Kaiser told an audience at the Prospectors & Developers Association of Canada 2015 convention.
“But now it’s time to get serious – to get out there and place your bets. Just don’t expect short-term gains,” he said.
To succeed, an investor had to approach the market carefully, particularly in relation to the juniors. Kaiser warned the audience on Sunday that 700 companies were reporting negative working capital, while an additional 300 companies had less than $500 000 in their treasuries.
Beyond this, there were 554 companies with between $500 000 and $20-million in their treasuries. “This includes the ones that will be the survivors; they’re the ones you look at in order to make picks,” he said.
While making a selection, an investor should note some of the central narratives influencing sentiment and pushing market direction. This included the resource supercycle coming to a halt as China’s economy matures with an increased focus on consumerism.
Nonetheless, Chinese metals and minerals uptake remained vast, while India could start to gain critical mass in its development sometime around 2020. This would represent a major boon for the industry.
In the gold space, prices remained problematic for miners. Many continued to find their margins and cost of production either extremely tight or simply uneconomic. “We need gold to hit $1 600 plus for the sector to get cooking again,” Kaiser suggested.
Issues surrounding security of metals supply were worth detailed consideration, with investors evaluating juniors in a geopolitical context. “[You can then] place a bet on these juniors, many of which are motoring along, waiting for a disruptive event to happen and make their deposit hot,” Kaiser noted.
Disruptions could come from many quarters, including Chinese ambitions to dominate South East Asian shipping lanes; further conflict across the Middle East and North Africa; or from Russia’s proxy battle in Ukraine.
Other longer-term developments also had the potential to alter the demand–supply equation. As an example, Kaiser noted the effect climate change could have and how this could spur interest in alternative energy and the metals and minerals used in this space.
Tied to this, the importance of the environment in China was becoming a central issue that could affect metals performance as well, including zinc, a base metal that had a depletion cycle coming.
Previous supply gaps in zinc had resulted in increased Chinese output. “But [domestic] zinc comes mainly from small deposits and has been a big source of heavy metals [contamination] in [local] water systems,” Kaiser noted.
Given this, a ramp-up might not occur this time as the drive to improve the environment took precedence and acted as a cap on Chinese domestic supply.
“So there are stocks in zinc mining where you can make money just waiting for the metal to reach $1.20/lb,” Kaiser said. “So placing bets in the zinc sector – in both exploration and advanced projects – is probably the best base metal play out there right now.”