I agree with most everything you say, with my usual twist. If we stay below 300 for two more years (certainly not impossible), the industry will be damaged beyond repair, production will be in freefall, and the lengthy and risky discovery to mine cycle you are talking about will make meaningful replacement in this decade impossible. So if the market starts looking at a valley of hundreds (a thousand?)of tons of missing supply, how will demand be met?
Meanwhile stock prices at the junior level have already cleared to depression levels. Another two years of this and most of the companies we are talking about will just batten down and maintain. There no reason for the ones with good assets to go under, just cease all exploration activity. I mean nobody gives a shit about 82 meters of 10.4 g/t drill holes anyway, so what's it going to really do these stocks? We've got smart observers like Liz over there on YMC even critiquing that one, it's gotten so bad. You've got ASL going nuts drilling all over Dunkwa and Birim doesn't even trade for two days. Or FWR pulling high grades a few feet off of a highway in Canada and everybody yawns.
So we go along like we have, and finally the few survivors among the majors look in the mirror and say: we can't use false economies (hedging) any more, we are running out of reserves, and we are now nothing more than very low dividend paying liquidating royalty companies. Even the Bobs among them will realize $46 million in exploration can't come close to replacing 7.25 million oz of production (AU), or how about $1.6 million replacing 613K (CBJ), and on and on? Then they will realize that there are only a few prospects to buy. There will be a moment of truth, in fact there already is. The choice will have to be made to either continue as a poor return royalty, or remain in mining.
Now you may be suggesting that most are history, and we just dwindle away until a quarter of production is wiped out and we finally rally because of supply constraints. I think you are in part right, but I also believe others will start scrambling for solid deposits in part because starting from scratch at the grassroots level takes too long. And as the first few are bought, the others that wish to stay in mining will feel they will miss the boat, and the competition will intensify, especially when they realize there aren't any easy ones out there. The catalyst might only be a little move to 288 that sticks for several months. Or it may happen at 268, because someone fires off the first volley. Once shots ring out at these nominal prices (22 on ELD, come on that's absurd, 35 for Moydow, give me a break, 1.36 for BAY, get real) we will get hot lead flying all over. |
