Fall in numbers of junior miners and explorers expected

With the TSX Venture Exchange composite index down over 50 per cent since June, analysts expect a major shake-out in the junior mining and exploration sector with only the strong surviving.

Author: Cameron French
Posted: Sunday , 05 Oct 2008

Junior mining

TORONTO RESOURCE INVESTMENT CONFERENCE

Fall in numbers of junior miners and explorers expected

With the TSX Venture Exchange down 51 percent since June, analysts expect a major shake-out in the junior mining and exploration sector with only the strong surviving.

By Cameron French

TORONTO (Reuters) -

The number of publicly-traded junior mining companies should fall as tight credit conditions and plunging commodity prices force explorers to either find deep-pocketed partners or disappear, a Canadian mining conference was told on Saturday.

Speaking at the Toronto Resource Investment Conference, equity analyst and "Bottom Fish Report" publisher John Kaiser said smaller mining players with proven resources or production have the best chance to survive the recent shift in market conditions.

"What we are going through now is a winnowing of the 1500 companies that are out there," said Kaiser, referring to small explorers who mostly trade on Canada's resource-dominated TSX Venture Exchange.

"Only the ones with truly competent management ... and ounces and pounds in the ground that are worth defending from predators or worth keeping (will survive)."

Resource stocks have been hit particularly hard in the recent stock sell-off, with smaller players bearing the worst of it as tight credit conditions have forced some to cancel or delay building mines.

The TSX Venture Exchange composite index, which tracks companies on Canada's junior stock market and is largely made up of mine exploration companies, is down more than 51 percent since mid June.

Meanwhile, the S&P/TSX materials subgroup , which tracks Canadian mid-to-large cap mining stocks, is down 44 percent over the same period.

The sell-off has come as metals prices have retreated, but not at nearly the same rate. Gold <XAU=> is down about 10 percent since June, while copper MCU3 is down 29 percent and zinc MZN0 is down 18 percent.

"If you do a simple valuation measure ... most of them are trading at ratios we've never seen before," said independent analyst David Skarica.

The analysts said the sell-off has been in large part due to hedge funds, which have had to liquidate their higher-risk stocks. Such selling is likely not over, said Kaiser.

"We're going to see another round of redemption selling in this quarter," due to late-season selling to use stock losses as a tax benefit, said Kaiser.

The bright spot for miners who are able to stay independent, said Kaiser, is that the clearing out of smaller players and delay of some projects will pinch metal supply in the longer term, which should drive resource prices higher.

"We might see a period of metal taking off again and spiking to crazy levels," he said.

(Reporting by Cameron French, Editing by Sandra Maler)

© Thomson Reuters 2008. All rights reserved.

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My Take on all of this:

Might I add. We are one of the very strong companies IMHO. I have no issues purchasing on the cheap while I can. Things go down and then they go up again. We are not down because we have a weak company. We also don't have a company deep in debt. We are also working on unlocking what many will agree "should" be one of the biggest mineral discoveries since the Diamond Fields utopia of the mid 90's. We have no bank loans so we aren't hanging by what happens in the U.S. right now. What more can I say...great management...no....actually....stellar management (they know when to speak and when not to and they don't let their shareholders change that policy). We have experienced a hiccup in the world financial markets. It has been previously noted that the world's economic conditions are much better than the financial conditions. Overall we have a money problem that will correct itself. This will turn itself around and Canada should be affected but to a much lesser degree than the U.S. meaning our jobs and banks should hold strong. The auto industry will likely be hurt worst which is unfortunate.

Hold the chins up....take a deep breath...and keep thinking based on the due diligence you have done....are we really cheap right now...cus if we are...why am I not buying more and averaging down. Cash is king only when the market downturn is in progress. Once done cash is only as strong as to how well it can buy back into the next market bull. By the time the bull starts you can be left in the dust..missing the next best opportunities. Keep the eyes and ears peeled.

All the best,

Mustangman