Who will make the Next Discoveries?

Nearly all the hard global economic statistics and gold supply-demand data I see points toward gold and gold companies being amongst the best performing investments over the next few years. Notwithstanding the time and effort involved, increased gold production will to a large degree have to come from new discoveries; we cannot keep kicking the same old dog properties. And, in spite of the hopes and wishes of many in the industry, sufficient cheap ready-to-go deposits just don’t exist. Given the profound difficulty of finding new gold deposits, the few lucky junior companies that are able to come up with a real gold discovery will reap dramatic share price increases.

The unlucky majority of juniors however are in for some bona fide rough times in finance world. Risk capital is tight and minerals exploration is a capital intensive business: no capital-no business. So despite the need for new discoveries, we are going to witness the demise of many junior explorers as investors’ hopes fall in tandem with the share prices. I do not anticipate a sudden rush of money into the exploration sector that will raise all boats and certainly wouldn’t base any investments on that premise. Anyone subsidizing mediocre or low potential gold projects is probably doomed from the outset.

There is however no doubt that new gold deposits will be found. They are going to come from the hungry, intellectually astute and well-financed junior exploration companies, most of whom you have never heard of. The successful company management teams will be comprised of motivated people who are anxious to make their name in the mining industry. They will be bringing new ideas to old areas and old ideas to new areas. It is therefore imperative to focus on what appear to be legitimate, major gold discoveries and under-appreciated gold resources. Guessing won’t work in this market: economic and geologic reality is key.

Summarizing: given the declining global gold production, mining companies’ demand for reserve replacement and the acute dearth of new gold discoveries, there is no doubt that real economic discoveries will be exceptionally valuable. For the few of us still left sitting at the table in the exploration game the opportunity for stellar profits is the best it has probably ever been. Identifying the few successes however will require vigilant and constant technical assessment of geology and drill results, always with an eye to mine economics. In the end, the sooner you can turn the rocks into money the further you are ahead of the crowd.

That’s the way I see it.

Brent Cook
April 23, 2009