Kitco’s Commentator’s Corner: Signs of a Bottom – by Eric Coffin ( – July 30, 2013)

As things go from bad to worse for so much of the mining and exploration sector I thought it was time to collect up some anecdotal evidence of bottoming. This won’t be based on charts or tables (though I might toss in a couple later) but from empirical observation.

I’ve spent most of my life in and around the mining sector either as an analyst, exploration or financing consultant or child of a mining executive who bounced around a few mining camps in his youth. I have seen a lot of cycles come and go.

I’m the first to admit this is one of the strangest cycles I’ve seen but there are some predictable behaviors near cycle bottoms that are beginning to appear.

As was noted in these pages about 10 years ago, the dominant theme of this cycle was the rise of emerging economies that had exponentially growing demand for raw materials— the “BRICS”. China in particular can be thanked (or blamed) for extending the current part of this cycle. Unlike every other major economy China went Keynesian—big time—in 2009. It chose to buy stuff rather than buy collapsed mortgage bonds and kept up demand for metals and energy. Prices, especially base metals, would have gone soft much faster without this intervention.

China was aided and abetted by hedge funds that were just in for the trade. Hedge funds are a pretty bipolar bunch, not given to moderation. They are either all in or all out. Exit of the commodity markets by hedgies and non-growth for most developed economies exacerbated recent swings in metals prices.

The price movement has all been to the downside in the past year or so. The world is full of unresolved fiscal calamities and no one should assume the risks are low going forward. The apparent demise of the BRICS and falling metal prices have led market generalists to opine the mining sector will be “a goner for longer” this time.

It’s assumed we have moved to a secular bear market. Hard commodities are considered a bottomless pit; no one but diehards and unemployed geologists will hear the faint thud when they finally hit bottom.

I’m not sold on this idea yet. Yes, it’s a very large correction. Two of the BRICS (Brazil and Russia) are quite resource dependent themselves so their economies are pro-cyclical with commodities. Oil and gas prices are helping Russia out and Brazil has internal political issues its needs to deal with. The same is true of China.

China is making the moves it should be to diversify and balance its economy but it doesn’t look to be falling off a cliff. We should be happy leadership is being proactive and recognizes the issues. India isn’t helping much but it never really did. The corruption and the “license raj” have to go before India is the contributor to world growth it should be.

As these issues are sorted out there should be some increase in metals demand. There will also be growing demand from the next group of high population countries moving up the ladder like Malaysia, Indonesia, the Philippines, and several others in Southeast Asia and Africa. These changes don’t happen overnight but I will be surprised if we don’t see higher metals demand and new highs in some prices before the longer secular cycle is over.

Times are tough right now though, no doubt about it. Times have been tough many times before in this heavily cyclical sector. Many outside the mining business – and even more within it—assume it will be a decade before things improve.

I doubt it. I’ve seen this movie before. Recent headlines are very similar to what appeared during previous lows in the cycle, to wit:

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