Right now, gold is under pressure, and once-shining precious-metals explorers and developers are getting crushed like old cans.
That’s why, as you read this, I’m in Toronto at the Prospectors & Developers Association of Canada (PDAC), Canada’s biggest mining conference.
It’s the 81st gathering of explorers, developers and resource producers from all over Canada and the world, and is expected to play host to some 30,000 people from 30 countries.
It’s not shocking that so many people — including professional and individual investors — are gathering to get to know the companies that might (or might not) be worthy of their investment dollars.
I’m planning to get as much face time as I can with these experts during what feels like a gravediggers’ banquet in gold. And I look forward to sharing what I learn with you about gold and the people who bring it to market.
First, let’s take a look at the carnage that no amount of polish can cover up in all things related to the shiny gold metal …
‘A Healthy Culling’
After peaking in 2011, gold has been zig-zagging sideways. But as painful as it has been for gold, it’s agony for large-cap miners, who have lost a third of their value.
And it’s a downright heart attack for explorers, who have lost two-thirds of their value at the same time.
Recently, John Kaiser of KaiserBottomFish.com pointed out that about 600 mining and exploration companies on the TSX Venture Exchange had less than $200,000 in the bank. He predicted that 500 of those companies would go out of business in the next year in what he calls “a healthy culling.”
I’ve written about how the business model for the juniors has changed. They used to dream of building up a project and selling it to a big mining company. But the big companies have full pipelines and aren’t in the market for new projects.
At the same time, funding has dried up for many companies. The amount of money that mining companies were able to raise in capital markets dropped by 25% last year to $249 billion. The market for initial public offerings came to a virtual standstill.
So, I expect to see some long faces in Toronto. And with all this doom and gloom, it might adopt the mood of the gravediggers’ banquet we’re seeing right now in gold.
That said, I’m starting to see some very hopeful signs — five of them, in fact — not just for gold, but for the companies who find, produce and bring this and other precious metals to market.
I’ve learned the hard way that the PDAC usually marks a short-term top in mining stock shares. Maybe this year it will mark a bottom. Let me tell you some of the things I’m seeing …
5 Positive Signs for Miners Right Now
1. Insiders are Buying. One of the worrying things about U.S. stock markets is that insiders are selling their own stocks at a furious rate. Recently, senior executives and directors at New York Stock Exchange-listed firms dumped 9.2 shares for every share they bought.
The last time insiders were this bearish coincided with the last big stock market peak.
But that’s in the United States. North of the border, Canadian insiders are buying with both hands.
Insiders are snapping up shares among beaten-down energy, mining and industrial stocks, according to a recent report from Vancouver-based INK Research.
There are many reasons for insiders to sell. There’s only one reason for them to buy — they believe that their stocks are undervalued.
2. Big Miners Need More & Better Projects. The big miners may say they have full pipelines, but for the most part, that’s not true — not if they want to keep increasing production.
Why do I say that? Because of the world’s top 10 gold producers, seven of them saw their production go down last year. Barrick Gold’s (ABX) production fell 3.4%. Newmont Mining (NEM) saw a 4% decline.
AngloGold Ashanti (AU) saw a 3% drop. Gold Fields (GFI) experienced a 6% drop. Goldcorp (GG) saw a 4.8% decline.
Only Kinross Gold (KGC), Polyus Gold (PLZLY) and Buenaventura (BVN) saw production increases.
Barrick Gold’s production fell 3.4%. Newmont Mining saw a 4% decline. AngloGold Ashanti saw a 3% drop. Gold Fields experienced a 6% drop. Goldcorp saw a 4.8% decline.
Do those sound like companies that should rest on their laurels? Or do those sound like companies that need to buy up good projects and re-stuff their pipelines with more ounces?
I’d say it’s the latter, and that’s what they have to do if they want to see their share prices go up again. That, in turn, should be bullish for developers with good projects.
By the way, less production by the big miners should be bullish for gold prices.
3. China’s Gold Demand Is Rising. It is expected to outstrip its mine production by 550 metric tons in 2015, according to statistics that were recently released.
In other China news, that country will probably launch a gold-based ETF this year. Will that crank up China’s gold demand? It will if the experience of the U.S. gold ETF is any example.
4. Central Banks are Buying a Lot of Gold. Purchases of the yellow metal by the world’s central banks rose 17% in 2012, according to the World Gold Council. Central bank demand totaled 534 metric tons, a level not seen in 48 years!
What’s more, purchases rose 29% in the fourth quarter over the year-earlier period. So, it seems like central bank gold purchases are accelerating.
5. Gold and Silver Miners are Hated! Last week, I ran a screen and found 18 gold miners, three silver producers and two Canadian gold and silver funds that were trading for LESS than book value.
Some of them are trading at a LOT less than book value. And these are producing miners … with cash flow … many of them poised to increase the amount of ounces they pull out the ground.
Many of these companies are in much better financial shape than they were when their share prices were 30% … 50% … 60% higher. So what’s changed? Investor sentiment has changed — miners are hated right now.
As an investor, this has me licking my chops, ready to scoop up “diamonds” thrown in the dust bin.Many of these stocks are cheap, but they won’t stay that way. And if you have patience, the rewards could be very rich indeed.
Of course, you have to be selective. That’s one reason I’m in Toronto, to get face-to-face meetings with as many miners as possible. I want to check out the management and see if their plans are pie-in-the-sky or down-to-earth.
I’ll be coming back the best picks for my subscribers — as well as video interviews with explorers, developers, miners and more. Doom and gloom? Gravediggers’ Banquet? Think again!
The fact is, the fat lady hasn’t sung for gold yet. Not even close! I’m not saying gold has bottomed — but I am saying we are very close to an amazing opportunity.
This is an opportunity to pick up some incredible companies at dirt-cheap prices — and bearish investor sentiment is handing it to you on a silver platter. The bargains are extraordinary — the likes of which we may not see again.
So stay tuned for my updates in Global Resource Hunter and Red-Hot Global Resources. More great things are coming your way.
Good luck and good trades,
About Sean Brodrick
Sean Brodrick is a natural resources expert and editor of Global Resource Hunter, a monthly newsletter designed to help you ride the commodity supercycle – an ongoing surge in price of food, energy, metals and more.
Sean is also the editor of Red-Hot Global Resources, a weekly newsletter that aims to help you rack up profits with commodity-focused exchange-traded funds (ETFs) and natural resource-sensitive stocks that operate around the world.