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TORONTO (miningweekly.com) – Head of Kaiser Research Online, John Kaiser, delivered his keynote speech at the Toronto Resource Investment Conference on September 13, telling delegates the gold narrative is changing and that hundreds of juniors were about to be culled.
Kaiser started by considering the resource supercycle’s effect on the metals markets over the past ten years, noting the current retrenchment as China and other Asian economies witnessed a fall back in growth.
The economic performance of the US and Europe would become the driving force for the next few years, he said. “But we’re not going to see demand ratchet up because these economies aren’t going to grow at huge rates. There’s also lot of new supply for metal coming on stream over the next few years.”
Kaiser predicted it will take four or five years before demand starts outstripping supply at a noteworthy rate. “This means we’ll have to live with sideways metal prices that won’t go up in a big way except under extreme circumstances.”
Kaiser had analysed merger and acquisition (M&A) activity through the TSX-V over the previous decade. “There was $129-billion-worth of takeover bids that involved juniors,” he said.
“But takeover activity has now subsided … Many of the [previous] takeovers were not well thought out and the big producers are now being punished,” he added. “A lot of these projects are now sitting on the shelf waiting for greater clarity in the global economy’s direction.”
Given the dearth of M&A activity, the freeze in financing options and drawdown of available funds, just over 800 companies tracked by Kaiser Research are now on their last legs with less than $200 000 in their treasuries.
“There are another 800 companies that still have money left and have a flagship project at the resource feasibility demonstration stage, or they are generating targets in a bid to come up with new discoveries. This is the group I care about,” he said.
The other, weaker companies need to disappear, Kaiser said. “Many of them are just pretend companies anyway, cluttering the market and confusing investors.”
“And they will disappear; 576 companies tracked have negative working capital, owing $1.6-billion. Of this sum, about $1-billion is accounted for by companies trading below $0.20. No one is going to give any further money to these guys as they owe accountants, lawyers, drillers and all other kinds of service providers,” he added.
“British Columbia and Alberta are going to take the biggest hit when [these companies] are forced to write off those accrued liabilities,” he said.
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