The junior mining space is a volatile sector. There are a plethora of risks that influence valuation. Therefore, one of the most significant factors that influence this sector is investor risk tolerance. When broad markets are stable and positive, speculative capital generally begins to flow into the smaller-cap, higher-risk, and potentially higher-reward investments in the junior mining space. Interest in the juniors also tends to pick up when we see spikes in commodity prices (obviously) and with new discoveries and new M&A transactions in the space. Over the past few weeks, the junior mining sector has been bolstered and buffeted by a variety of factors. The threat of a fiscal cliff in the United States put downward pressure on the US dollar and put a bid on gold and silver prices, driving them higher. The conflict in the Gaza strip also put upward pressure on oil prices and put a damper on the risk trade with capital seeking safety. We also saw more weak economic data out of Europe and Japan. This has all combined for a volatile couple of weeks for the junior miners.
Leading up to this week, we have seen some optimism that a solution or compromise to the fiscal cliff could be achieved and concerted diplomatic efforts to reign in the conflict in the Gaza strip. However, we are heading into tax loss selling season and the macroeconomic environment can hardly be called stable. With that said, I remain in an elevated commodity price environment.
Our investment mantra hasn’t changed. I continue to recommend that investors focus on junior mining companies with proven management teams, strong balance sheets and prospective land packages in established mining jurisdictions. In particular, I believe that junior developers with low capital requirements and junior producers that are trading at discounted cash flow multiples should continue to attract attention in what
continues to be a challenging financing environment. |
