TSX-V hits new bottom, what's next?

The TSX Venture plumbs a new bottom, raising the question of where it goes from here. Commentators weigh in.

Author: Kip Keen
Posted: Wednesday , 20 Feb 2013

HALIFAX, NS (MINEWEB) -

It’s emblematic of the depth of pessimism hanging over the mineral exploration sector. Today the TSX Venture dug a new bottom for the year (1,129 at presstime, down four percent), dropping below one it had set back in May 2012, and thus broke what had for the past few months looked like more of a sideways crawl.

Now the trend down looks to continue. To find another date the TSX Venture was as low as it was today you have to stretch the chart back to late May 2009. This was not long after the TSX Venture had cratered in the wake of the financial market crisis and a time when the Board was just beginning to regain some strength on its way to highs in 2010-2011. To find another such low before the 2008 crash you have to stretch your chart back nearly a decade to late 2004.

Signs that juniors are out of favour amongst the speculating class, or that the appetites of the speculating class are diminished - for the time being - are myriad and have been well documented in these and other pages. Financings, the lifeblood of explorers, have dried up making it difficult, even impossible, for juniors to fund their exploration programs. In its latest update, Oreninc, which tracks financings, said that “the financing markets are as weak as ever.” It noted that in five out of the last eight weeks there hasn’t been a single brokered private placement.

Initial public offerings of juniors have also gone to the dumps: not many new exploration companies are being born and meantime a slew of juniors faces a cash crunch with potentially epochal proportions. That is, a round of extinction may be coming according to junior market watchers such as John Kaiser, of Kaiser Research.

Over at 321gold.com Bob Moriarty sounded particularly frustrated about the state of the junior market. In an email in answer to questions about where he saw the market going now that a new bottom is nigh (at presstime) he said, “The sentiment is worse than 2008. Every night I get on my knees and pray for another 2009-2010.” (A time when there was a nice run on the TSX-V).

Like Moriarty, in an interview Wednesday, Kaiser also looked to the past, though in his case he recalled 1998 and the aftershocks of the Bre-X scandal - a hoax gold find - that decimated confidence in publicly traded mineral explorers. “I fear this is only 1999 and that three more years of this misery are still to come,” Kaiser said, referring to the early 2000s when the market turned. If so, he then questioned whether the exploration industry, in mass, could survive, given a widespread inability to finance.

Yet, it's worth bearing in mind amidst the ongoing Venture rout that numerous companies have nonetheless gone on phenomenal shareprice runs driven, by and large, by excellent high grade discoveries, in the case of explorers, or consistent profits in the case of smaller miners.

Of the companies more closely followed in these pages a couple exploration driven examples come to mind: In January Atico Mining found new pods of VMS mineralization in Colombia, and its stock doubled; and in February Zenyatta validated the quality of graphite at its Albany project in Ontario, and its shareprice also doubled. From last year some prime examples also come to mind including Reservoir Minerals and Goldquest. Amongst others, they went on very strong runs thanks to headline worthy drillhits. (For more examples, Alisha Hiyate at Mining Markets has put together a nice list of eight explorers that did very well last year.)

You can look at such optimism in two ways. It can be seen as cherry picking. That is holding up a few ripe examples from a crate of juniors otherwise bursting with rotten and unripened flesh. Or it can also be seen as proving that juniors still pay on sweet drillhits, that new, or hefty deposit expansions, can generate excitement and propel shareprices skyward.

Indeed the bearishness eating away at mineral explorers allows for greater shareprice pitch because the whole junior boat has sunk so low that shareprices in many cases, of the still many active explorers, can hardly go much lower. “It is a kind of setting where, if the right drillhole comes, a lot of money can be made,” Kaiser noted near the end of our interview. And he added such gains come for all the right reasons - as opposed to the rampant computer assisted day trading bent only on exploiting stock volatility.

Kaiser then wondered if discoveries might help right the Venture. If a small group of companies made significant discoveries, might a critical mass be achieved to buoy the whole boat? It was a flash of optimism from Kaiser. He then voiced his aforementioned worry that we may be back to 1999 (or worse, possibly).

You could also look at the current junior situation from Jim Sinclair's point of view. The well known precious metals trader who is noted for his gold commentary at JSMineset and is the head of Tanzania Royalty, responded to an email with a one line question in the form of a statement.

“When you are approaching zero how much can you lose.”

Email: Kip@mineweb.com