VANCOUVER (miningweekly.com) – Despite the thorny down-market the junior exploration sector has been dealing with over the past 18 months, several companies have been rewarded for their performances. The problem was, however, that the industry has not delivered a lot of performance, Sprott US Holdings chairperson Rick Rule told investors on Sunday at the 2014 Vancouver Resource Investment Conference.
He pointed to examples during this period such as Reservoir Minerals, which is developing a portfolio of metals and mineral exploration projects in Europe and Africa, whose share price had risen from C$0.26 a share, to more than C$5 apiece in three years – that is a 625% gain; and Africa Oil, which is exploring for oil in the East African Rift Basin system, which had appreciated from C$0.80 a share, to more than $9 apiece.
“That’s performance,” Rule said. He noted that during 2013, the global stock charts spelled an unmitigated disaster for the junior exploration sector, when graphs slanted from the top left corner to the bottom right. This year, the stock chart for the market as a whole was going sideways.
“Last year’s stock charts exhibited something that is called buyer exhaustion – the market could not find a bid. I would suggest that the overall TSX-V is now going through a period of a trade-off between buyer exhaustion and seller exhaustion.
“Certainly many of the companies would go to their intrinsic value, which is zero, but the best quartile of the companies has already put in a bottom,” he noted.
Rule moderated a panel examining where the ‘performance’ would come from in the next 24 months.
Founder of Goldseek.com Peter Spina observed that more money had gone into the ground than what had come out of the ground.
He said that the current environment had a lot of risk factors to take into account, but noted that one of the best investment opportunities lay with project generators, which provided a good way for investors to gain exposure to the exploration sector, as the risk was mitigated by large companies partnering with these firms. This resulted in easing fears of becoming diluted as an investor, while the partner usually pays for the exploration work.
Meanwhile, he held that while some companies with massive deposits would be able to survive the current markets and attract investment, most junior exploration companies could do more, and were only raising money to survive and pay salaries.
Head of Kaiser Research John Kaiser added that the ‘game’ in the last decade was for explorers to take existing systems, lower the cutoff grade, and demonstrate the deposits’ worth in substantially higher metals price scenarios.
“However, when you take into account cost escalation, especially in the mining sector, we have come completely full circle. We are at the start of where we were ten years ago in terms of the profitability of these existing deposits.
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