The weekend read: This is how the bottom looks – by Brent Cook ( – July 10, 2015)

Brent Cook’s take on how scary it looks out there, and why it might eventually and slowly get better.

The Rant. But then metal prices began to decline, economies slow, and profits slip away. What went wrong this time Dad? Will mining boom again? Don’t hold your breath kid. It’s bleak out there and we have a 10-year super commodity bull to work off this time.

I think what ultimately killed the recent boom was the slow realization by investors that most mining companies really couldn’t make money. Those savvy investors got the commodity boom and gold price right, and bought into the thesis that mining company profits would soar with the rising metal prices. The share prices did soar, for a while, but…

Instead of profits they got production costs rising in tandem with metal prices; capex blowouts; companies issuing equity and taking on debt whenever they could to cover the multitude of thoughtless acquisitions (supported by dubious, but 43-101 sanctioned, technical reports and financial projections) all piled on top of an eat-what-you-kill banking/brokerage community fronted by inexperienced or compromised analysts faced with the tall task of feeding the global frenzy of very short-term hedge fund gamblers with no skin in the game, trading stocks based on microsecond blips up until the shine wore off and, well, here we are today — busted again.

Of course on the junior side, they always soar higher and crash harder — the junior gold index (GDXJ) is down about 85% from its high in early 2011. Ouch.

The allure of a pot of gold at the end of the rainbow, and the sense of greed that instant riches inflame is very powerful and primal. It’s easy to overlook the fact that the overall odds of finding an economic mineral deposit are extremely low, as I’ve said many times before.

That one-in-a-thousand shot at an easy score led investors (large and small) into overfunding more than 3,000 exploration companies to the tune of billions of dollars, chasing that pot of gold. As in all booms, expectations and blind faith overshot an otherwise obvious reality — gold doesn’t sell for $1,200 an ounce because it’s easy to find.

We know that legitimate large discoveries (meaning ones that are probably economic) have declined significantly over the last 10 years — still, there have been successes. Problem is, when you spread those limited successes over the 3,000-odd companies exploring tens of thousands of prospects through the 10-year bull market, one’s optimism fades.

And fade it has.

Volume (liquidity) in junior mining stocks has collapsed: the action is elsewhere for gamblers chasing a ten bagger. Proof comes via a recent screen by Ian Cassel of ten baggers over the last five years on the US and Canadian exchanges, which turned up 120 companies. On that list were only three mining related equities: Reservoir Minerals, Abitibi Royalties, and Dynacor. No wonder the miners’ gambling hall is empty, kid.

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