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Says the time of the retail investor is returning to the junior mining sector
It used to be that retail investors attending investment shows like the recent Vancouver Resource Investment conference would actually go out and buy some of the stocks their favourite speakers touted, says John Kaiser, the editor of Kaiser Research Online.
Kaiser, who calls it the “guru effect,” says that ended when it became obvious that accredited investors — individuals with at least $1 million in assets outside of real estate — were getting a manifestly better deal than retail investors.
“It became apparent that you guys are all here to be sold paper by existing shareholders,” Kaiser told an audience at the investment conference in January. “You were here to indirectly de-risk the whole process and that’s B.S.”
Accredited investors are able to participate in private placement financings, which have become the lifeblood of the junior mining industry. Such financings are priced as a discount to the market, and usually include warrants.
“You people have been forbidden from actually being venture capitalists,” Kaiser said. “You are just the aftermarket for paper issued to the elite which does get to participate in private placements.”
But Kaiser believes the time of the retail investor is returning to the junior mining sector.
Retail investors generally were turned off by the past decade’s focus on reworking the economics of existing projects in the context of higher metals prices, Kaiser notes. That focus was tailored to institutional investors and their knowledge of discounted cash flow analysis and macroeconomic trends.
However, all the advanced projects, currently trading at very low valuations, will soon be bought up by bottom-fishing mining companies, private equity firms and others with a three to five-year time horizon — long enough for a recovery to take place.
“The game will not be in these advanced projects going forward. It has to go back to looking at projects for discoveries that work at the current metal prices and work very well.”
It is the high-risk part of the sector focused on discoveries that creates the greatest returns, and as advanced projects disappear, this is what the sector will have to focus on.
“This is high-risk, high-reward speculation. This is not capital preservation,” Kaiser said. “This is an effort to expand capital by doing venture capital bets.”
With higher metals prices off the table for a few years, institutional investors are no longer interested in the sector. Accredited investors, too, are gone.
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