Junior Miners vs. the Evil Empire
The Dos Passos Table
Discussion du Jour: Guest Speaker
Keith M. Barron, PhD
Chief Geologist, Migrate Mining Ltd.
My greatest thanks for GATA and the Café du Metropole...
... I am a partner in a gold and diamond mining company
and have been working in mineral exploration since 1984...
When the Bre-Ex fraud was uncovered in 1997 the shares which had a
value of $258 Cdn at their height (allowing for splits) crashed to 5
cents and then went off the board, carrying the entire junior mining
sector with it. As I remember about $5 billion in market cap vanished
in about two days as everyone panicked out of junior golds...
Not only does the Bre-Ex market debacle and resulting shakeout provide
valuable lessons which have gone entirely unheeded (by the Internet
crowd), but for us gold pundits it is important in a second way. Ever
since the oil companies started to unload their mineral subsidiaries in
the early to mid-1980's the gold mining industry has seen progressive
consolidation, to the point now that the mid-tier producers are almost
extinct. In the last 15 years most mineral discoveries have been made by
junior companies which have then brought them to the majors. Notable
cases have been Arequipa Resources which brought La Pierina to Barrick,
Diamet Minerals which brought the diamond finds in northern Canada to
BHP and Diamond Fields which brought the Voisey's Bay nickel deposit to
Inco.
These are all world class success stories. However, the Bre-Ex fraud
scared away many investors, (perhaps permanently) from junior mining
stocks where the player gets the most bang for his buck. All that high
risk venture capital has been sucked into internet IPO's etc. Large
numbers of juniors have been delisted, because they can't afford their
annual audits,...
Because of the consolidation in mining many of the gold mining companies
also have major exposure to base metal prices, especially RTZ and BHP,
world ranking No. 1 and No. 2 in world mining. Base metal prices are
slowly creeping up but copper especially got kicked in the teeth by the
Asian Crisis and it is nowhere near the $1.20-1.30 price range we saw a
few years ago. The majors have almost entirely eliminated their
exploration staffs (exploration people are always the first booted out
the door in a crunch). With the junior miners in hunker-down mode there
are virtually no new gold discoveries being made.
Only the most fearless are engaged in grass roots exploration. Most of
my compatriot geologists in the exploration scene if not shaken out of
the business by down-turns in 1984-85 or 1989-1990 are now re-training
as school teachers. There are a number of known gold deposits that have
breakeven costs of $300 or $400 gold, but it takes as much as 3-6 years
to bring a mine on stream. Longer, in 1999 because of environmental
activism. New World near Yellowstone was killed by environmentalists,
and Crown Jewel in Washington has been struggling for half a decade to
get final permits. Moreover, in North America the success of
environmental lobbies has meant that in most places inactive mines can
no longer be placed on care and maintenance. They have to be closed
and the site reclaimed. Many companies are high grading their
deposits, that is, taking out the highest grade ore to stay solvent.
However any geologist or mining engineer will tell you that this is
often a one way street. It's not always technically possible to get back
underground to recover the lower grade later.
... situation now where the future of gold mining is enfeebled by the
almost total elimination of exploration. We can expect a very real
crunch in supply a few years from now, as existing mines are depleted
and not replaced. After the POG is restored and the anti-gold sentiment
dissipates we can expect a time lag before new discoveries are made as
exploration gets back up to speed. Gold exploration has the greatest
capacity to generate true wealth of any of man's endeavours. Greater
than cocaine smuggling, and it's legal! If it is done properly and
professionally by experienced people and with adequate funding the risk
involved is minimized. The media love to make every big gold discovery
sound like a lucky accident, but in fact they are made by having good
geologists at work on the right piece of real estate, which requires
lots of foresight, planning, assessment, and sound geological judgement.
Gold is real money. Always has been. Always will be. And finding a gold
mine is literally a licence to print money, if you'll pardon the
expression.
... The herd will jump into
gold mining stocks or the physical metal as it becomes increasingly
clear to be the only viable alternative for preserving wealth. A few
months ago we heard about countries considering adopting the almighty
U.S. buck as their own currency. It was even bandied about here in
Canada. Recent declines in the value of the U.S. dollar underscore - if
there was any doubt - that it will never be as good as gold.
I know in my gut that the whole edifice will come crashing down as fast
and unexpected (by some) as Russian communism did. It is just as
financially and morally bankrupt. I am not looking forward to the
financial hardship that will be the lot of many of my friends but I
intend to be a survivor. They can do what they like to the price of gold
in the meantime. If they really try to shake me out I will go down to
the South American jungles and pan gold myself for the interim. I know
today that at least three quarters of the world would be willing to take
it off my hands at any time. However, I think that we believers in gold
will be doing rather better than mere surviving in the coming gold
bull market.
lepatron@lemetropolecafe.com with questions or comments about the cafe
lemetropolecafe.com
Copyright 1999 Le Metropole Cafe |
