After leaving Wall Street in 2005, I spent five years in the mining industry; four as an Investor Relations officer, and one as an “IR” consultant to dozens of junior miners. Combined with the fact my portfolio consisted nearly entirely of junior miners between 2002 and 2011 – after which, I switched to 100% PHYSICAL gold and silver – I learned more about that godforsaken industry than 99% of the world’s investors. I cannot begin to speak of the horrors I witnessed – in terms of management, operations, and of course, the stock market; and honestly, I do my best to block the entire experience out. Frankly, if I hadn’t luckily bought my house at the top of the junior mining market in May 2007 – requiring me to sell shares to pay for it – I likely wouldn’t be writing this article today. “Net net” – as they say – my conclusion when I sold my last mining share in the Spring of 2011 was perhaps the worst business on the planet; and given what the industry has since experienced – such as the current strike of two-thirds of the entire South African gold mining industry – if anything, I underestimated how bad things could get. This is why I now anticipate PM production to decline at least 15% over the next three to five years; and perhaps, more so if government policies become increasingly draconian.
Yesterday, I spent time with the former CEO of a junior miner I worked for between 2008 and 2011. A geologist by trade, he is one of the most intelligent people I know – and a strong leader to boot. I have very fond memories of our time together; and frankly, of all the people I worked with there. However, it was a case study in how difficult the mining industry is; as, by no fault of his, the company is now on the verge of bankruptcy – after having raised more than $100 million at the aforementioned top – of the TSX-Venture stock exchange – in early 2007. The product was not a Precious Metal; but suffices to say, the subsequent 75% drop in its price made the company’s primary project unprofitable – particularly as it was in a “THIRD WORLD” African country. Not to mention, its initial capex estimate of $130 million ballooned in less than four years to closer to $800 million.
In chatting with him yesterday, it occurred to me that not only is the junior mining industry dying; but in fact, it’s completely DEAD. Juniors have traditionally been the lifeblood of mineral exploration – particularly in the PM sector – but financing has been largely unavailable for years now. New projects are for the most part non-existent; and given the utter insolvency of the miners; exploding exploration and development costs, draconian government policies; and increasingly challenging logistics as the industry’s “low hanging fruit” was long ago picked; it is difficult to imagine what could reverse what I expect to be an historic production decline. TRUST ME, if the industry’s MAJORS are dramatically writing down assets – and in the case of Barrick Gold (i.e., “EVIL PERSONIFIED”), in such difficult financial straits, bankruptcy is not out of the question – the “juniors” are experiencing such issues a thousand-fold.
Whether you want to invest in mining companies – major or junior – is entirely up to you. However, per what I personally experienced for a decade – and see worsening each day – I believe the PM mining industry is on the verge of a catastrophic production collapse. This is why I no longer invest in mining companies, but save PHYSICAL metal; as my goal is to PROTECT my net worth over time with REAL MONEY; not EXPOSE it to undue risk in an increasingly unstable, “marked for death” industry.
And before I go – as this month’s typically BOGUS, MISLEADING NFP jobs report is released, amidst a potentially historic G-20 meeting in Russia and a 10-year Treasury yield that ominously closed yesterday at 2.995%; some words of REALITY as the MSM’s “recovery” PROPAGANDA reaches a fever pitch. I have long warned of the dangers of paying attention to “diffusion indices” like yesterday’s “ISM Non-Manufacturing Index” – which somehow soared despite the simultaneous release of plunging factory orders data, whilst Mario Draghi downgraded his 2014 Euro Zone GDP estimate and – oh yeah – the Chinese government admitted one of its largest provinces “exaggerated” 2013 GDP by more than 150%.
Back to the U.S.’s “NEW EMPLOYMENT PARADIGM,” labor cost growth has been so weak recently, even head MSM lackey Yahoo! Finance’s top story is titled “Looking for a raise? Good luck with that”; whilst Gallup data – contrary to all the “labor recovery” hype, depicts a MAJOR increase in unemployment during August – to levels last seen two years ago…
So as gold again slips into backwardation – per this MUST READ interview with James Turk – Historic Event as Gold Slips into Backwardation Once Again – let’s head into the weekend with the sage words of Jim Sinclair – who speaks as much truth as TPTB espouses lies…
The West is not entering a period of economic expansion. In fact, we are on the threshold of the opposite. Predication of lower gold on today’s ISM release is a reach.
Gold is lower because the paper gold market still holds on to it’s position as the price determining mechanism. That position of paper pretend gold that is waning.
Soon the real condition of lack of supply in the above ground supply of gold will take over price determination and gold will trade at a new high as part of this rally from just below the $1200 Angel.
–jsmineset.com, September 5, 2013