Junior miners partly to blame for poor price performance - #Gold JUNIOR #MINING - Mineweb.com

Junior miners partly to blame for poor price performance

While there are a number of external factors behind the recent fall in the valuations of junior miners, there is a sense that the companies themselves should bear some of the blame

Author: Geoff Candy
Posted:  Monday , 16 Apr 2012
GENEVA (MINEWEB) - 

Junior gold stocks have had a torrid time of things over the last 8 weeks, many of their share prices falling significantly as investors battened down the hatches.

But, while there are a number of significant exogenous factors at work on the sector - from Spanish debt levels to uncertainty about whether or not the US will kick off another round of quantitative easing - there is a sense that the juniors themselves should shoulder some of the blame.

Speaking to Mineweb at the Precious Metals Summit in Geneva, Haywood Securities analyst Joe Mazumdar said that one of the problems facing the sector is that, "you've got probably an oversupply of gold equity right now. There's a lot of exploration, a lot of issuers that are just gold stocks - that's all they do and they want to be gold stocks to get that premium and so now we've got oversupply and the demand has come down."

Astur Gold CEO, Cary Pinkowski agrees, telling Mineweb, "On the junior level, there are just too many companies, it is difficult for the investor to tell what is a good project and a bad project because everyone says they have a good project and great management. Five years ago a million ounce gold deposit was rare, now it is not because they have just reduced the cut off grade and say it is economic but, costs have gone up as well. So, to find the good economic projects is difficult."

Pinkowski believes there should be some consolidation in the sector. Adding, "We have realised that with junior companies, to have one asset is ok but to have two or three is the way to go; tighter management teams, more assets."

In some respects, however, the juniors are in a catch 22 situation right now because while fewer companies with more assets would be potentially more appealing to investors, their share prices are so low that most are reluctant to embark on any M&A activity either as predator or prey.

Indeed, one of the over-riding refrains to come out of the companies Mineweb spoke to at the Precious Metals Summit was the sense that there is money out there, it is just sitting on the sidelines and waiting for a reason to come back in.

Joseph Foster, of Van Eck Gold Funds told Mineweb, "I think the market is waiting for a reason to buy gold stocks. The valuations are very attractive with these stocks and we just need a catalyst - another rise in the gold price, a move towards new highs would definitely do the trick."

Another part of this problem is that investors in the current climate, faced with a veritable smorgasbord of opportunities from which to choose is that they are becoming much picker.

As Foster says, "We'd like to see these companies do a better job of meeting expectations, and if they can meet or even better, beat expectations, I think that would go a long way towards attracting investors to the equities."

According to Mazumdar, "Before, equity investors potentially wouldn't have asked all the same questions that debt holders would; now they're asking all the same questions because it's all related - if I finance you for equity, where are you going to get the rest of the money."

He adds, "When I was looking at a report on exploration from 2011 about 2010 - a lot of the exploration funding was done by juniors but less grassroots, more advanced exploration to build resource, because that's what the investors wanted. Now you're building up a lot of companies with this resource base, but with 1) no skillset to build it, 2) not finance to build it and so now what... There are a lot of companies out there that are in that ‘now what' sort of situation."

See the article online here: Junior miners partly to blame for poor price performance - JUNIOR MINING - Mineweb.com | The world's premier mining and mining investment website Mineweb

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