Today’s Sweet Spot

Richard (Rick) Mills
Ahead of the Herd

Page 1 of 2

 

As a general rule, the most successful man in life is the man who has the best information

 

PricewaterhouseCooper’s annual look at the state of the top 100 on the Toronto Stock Exchange Venture (TSX.V) paints a dismal picture:

  • Cash generated from financing activities fell 52% in 2012 from 2011 levels and then another 34% in 2013. The top 100 raised $795 million in equity financing, down by half from $1.6 billion in 2012, with only four of 15 producers raising more than $1 million
  • Assets held dropped 36% because of a draw-down of cash and short-term investments
  • In 2011 the top 100’s Market Capitalization was $20.6 billion, as of June 30th 2013 it was $6.5 billion
  • Explorers cut 28%, or $133 million from their budgets in 2013

 

Below is the year to date statistics from the TSX Venture exchange.

 

 

“The price-driven, seemingly indiscriminate support that speculative juniors received from retail equity investors prior to the financial crisis is not on hand today.” E&Y’s Global Mining and Metals Center in the report, Business risks facing mining and metals 2013-2014

Consider:

  • Canadian, United States and Australia have, over the last 20 years, cut  exploration expenditures by half.
  • The average time between discovery and production has climbed to roughly 11 years.
  • The mining industry is threatened by looming labor and skills shortages caused by the recent downturn making the entire industry not as attractive a place to seek employment.
  • A great number of long time industry workers are now entering retirement and taking with them the very experience, skills and knowledge needed to explore for and develop deposits into mines.
  • The drought in junior financing is three years long. It’s very likely going to continue and in fact might get worse.
  • Resource nationalism and native activism is picking up in many countries putting potential investment at risk.

“Contracting risk appetites have weighed heavily on junior miners’ access to funding. A high risk-reward ratio is the industry’s “sweet spot,” notes PwC. But it is apparent that market participants currently prefer less volatility, more security and higher rewards.” Michelle Smith, Resource Investing News

 

It’s a fact in the mining world that most discoveries are made by junior exploration companies - juniors are the most adept at finding our future mines. They already own, and find more of, what the world’s larger mining companies need to replace reserves and grow their asset base.

 

Who might a couple of these juniors be?

 

What we’re looking for is a quality management, cash in the treasury, ability to raise more if needed, pretty much a ‘no-brainer going mining’ situation and the holy grail of success for juniors - upcoming cash flow – and all of this has to be not only in a politically stable country but one that is also free from resource nationalism and native activism.

 

Hudson Resources Inc.  HUD:TSX.V. Hudson has the White Mountain anorthosite project in the southwest coastal region of Greenland. Anorthosite is calcium feldspar, which is basically sand containing aluminum, calcium, low levels of soda and 1% iron. It could serve as an alternative material in many industrial applications:

  • Replace kaolin, a major component of glass fiber manufacturing.
  • A replacement for bauxite. Hudson has produced alumina from its anorthosite, which is aluminum oxide, and is well on its way to producing a marketable smelter-grade alumina.

The company is close to the point where it can load its anorthosite onto a deep-sea cargo ship and transport it anywhere in the world, year-round.

 


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