By virtue of being born in this era, from a consumer’s perspective our lives have never been better. We are enriched with an abundance of goods that would be the envy of royalty merely two short centuries ago.
Metals & Mining
We have reached a point where our choices of goods to consume have become so incredibly vast, that the shelves of supermarkets are overflowing with a variety of products – with varying attributes, qualities, and branding – vying for our attention and begging to end up in our shopping carts. Internet retailers have increased this even more so. It seems that as civilization advances, and new technologies transition from being “luxuries” to becoming “necessities”, we need more resources. They are essential to creating that end product. So where does all this begin? What is the birth place of all these resources that we use to construct our luxuries…err, I mean necessities? The mining industry!
A standard computer uses the following metals: Aluminum, Antimony, Arsenic, Barium, Beryllium, Cadmium, Chromium, Cobalt, Copper, Gallium, Gold, Iron, Lead, Mercury, Palladium, Platinum, Silver, Tin, and Zinc. 1 So really, the combinations of various minerals are combined in a specific way, to create this machine that has become a part of everyday life.
While mining has been around since the dawn of civilization, technological advancement requires more resources to be tapped into and extracted. The fact of the matter is, we are consuming the earth, and while our populations grow, technologies advance and living standards improve, the resources available in the ground remain unchanged. What does change is the technology to extract vs. the pace at which our consumption grows. This matters to us because it creates a buying opportunity! If you think the trend of increasing consumption that we have been witnessing the past few decades will persist, the Mining industry should be of real interest to you!
The exchange that we’re focusing on has an extremely large selection of early stage mining companies, also referred to as “junior miners”, or “mining explorers”. These companies are at the exploration stage searching for an economically viable deposit with the ultimate goal of having a producing mine in operation. Success in this venture results in the stock price increasing by many multiples, and is really the motivation behind most investors who get involved in this space. In order to achieve this, we don’t just stop at researching the company, their operations, management, and various other factors influencing their success strictly as a company, but we’re also very interested in the factors at the macro level that influence the price of the metal/mineral or the company, the economic environment, etc. A large part of the research on this sector/industry is devoted to the macro variables that we believe are important and have an influence. Many junior miners have experienced significant gains because certain metals became desirable.
In more recent history there are some new but significant variables that may or may not (depending on your interpretation of the analysis) influence the demand for commodities. One of the variables being seemingly unlimited Quantitative Easing, an unconventional monetary policy used to increase money supply 2. Resource depletion is another significant variable. In layman’s terms it is the idea that the “low hanging fruit” has already been picked, the “peak minerals” theory 3. This essentially states that the easier and cheaper deposits have been extracted, leaving us with the more complex and expensive deposits. There are many resources that deal with this topic, and it is certainly an important one for the 21st century. However, this also makes the junior miners all the more attractive. Where else will we find the source of new mineral deposits? In 2012 the TSXV had 1,309 mining companies listed, with 109 new listings, $2.8 Billion in equity capital raised (second to the TSX), and 1,450 financings (the highest of its peers) 4. For junior mining companies, this exchange is the sweet spot! It would be a travesty if to miss out on the buying opportunity of a lifetime!
1http://www.nrdc.org/living/stuff/your-computers-lifetime-journey.asp
2http://en.wikipedia.org/wiki/Quantitative_easing
3http://en.wikipedia.org/wiki/Peak_minerals
4http://www.tmx.com/en/pdf/Mining_Presentation.pdf