Canaccord turns back the clock to look at dark times past for the junior sector, finding similarities between today’s market decline and the 1990s.
HALIFAX, NS (MINEWEB) – Canaccord Genuity casts its gaze back on junior sector downturns past to find context in the current, now two-year long rout in junior equities in its most recent Junior Mining Weekly report. As has been noted in these pages, that means skipping over the quick 2008-2009 financial crisis, when juniors rose about as quickly as they fell, to the crumbling junior market in the late 1990s.
“The drop in the TSX Venture harkens back to the 1995-2000 period where it fell (70-75%) from peak to trough over a plus 40-month time frame,” Canaccord noted, referring to the TSX Venture’s precursor, the Vancouver Stock Exchange. Canaccord notes the Venture has so far dropped about 65 percent in 29 months since it started going south, in serious, in 2011. This is more drawn out that the 2008-2009 crash and in profile reminds Canaccord of the late nineties downturn.
Adding some context here Cannacord draws on a veritable list of fear factors that some may rather have forgotten: “This period enveloped the Asian financial crisis (1997), which included Thailand, Indonesia and South Korea, the U.S. dot-com technology bubble (1997-2000), the LongTerm Capital Management hedge fund bailout (1998), Russian debt default (1997-1998) and the Brazilian financial crisis (1994-1999), not to mention the Bre-X Minerals scandal (1996-1997) that tainted investors’ confidence in the junior mining sector.”
Now two awful questions stalk cash-strapped junior CEOs. How much lower will the market go and perhaps more important, how long will the bottom last, especially if this isn’t like 2008-2009. Some like John Kaiser over at Kaiser Research worry it won’t be soon, that an upturn for juniors is still years away. A few months back he told Mineweb he feared “this is only 1999 and that three more years of this misery are still to come.”
The only way Kaiser saw the market turning quickly is if the price of gold rebounds, hard and fast. This wasn’t something he was pinning his hopes on, however.
Others hold a more bullish view. Junior commentator Bob Moriarty of 321gold.com sees gold’s rise as inevitable. “There is a liquidity event going on and while investors are looking at gold and gold shares, they should step back and look at the entire financial system,” he says in an email on Tuesday. “When dozens of gold companies are selling for less than the cash they have on hand, the price of those companies is hardly rational. Everyone will be quite shocked to see gold and gold shares go up. Except the contrarians.”
If the knight in shining armour doesn’t come, however, it could mean more hardscrabble years for juniors ahead. It also raises the question of whether, as in the past, dicoveries, now harder than ever to make, can pave the way for another upturn.
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