In the spring of 2011, I sold my last mining stock to go 100% bullion – and I was very vocal about it. After an entire decade of holding the predominance of my net worth in mining stocks – and five years working for mining companies – I had learned a thing or two of the risks the sector poses. And given my expectation of an inevitable global financial collapse, I simply didn’t see the wisdom in speculating on the world’s most suppressed PAPER securities. Not that “PAPER PM Investments” aren’t for everyone; but for the purposes of PROTECTING one’s assets, NOTHING beats PHYSICAL gold and silver – particularly when considering its far superior “risk/reward” trade-off.
Since that time, gold is down just 10%, while both the HUI index of large cap miners and the TSX-Venture (a/k/a Vancouver) Exchange of junior miners are down more than 60%. Thus, in my mind, my job here is done – as I have PROTECTED readers from potentially catastrophic losses…
Going forward, I will no longer offer views regarding the outlook for mining stocks – as frankly, they could go either way, depending on when PMs finally break from the Cartel’s shackles. In fact, long-time readers know I believe it entirely possible for the sector to have a nice jump when that occurs; albeit, a likely short-lived one focused only on the highest quality names; as once the Cartel breaks – and gold and silver subsequently re-monetized – I expect nearly ALL sovereign governments to confiscate mines and/or instate windfall profit taxes. Heck, some governments – like “mining friendly” Quebec, for instance – are in the process of enacting such taxes now.
However, I will continue to report on the tragic collapse of the mining industry itself; which, as discussed in last week’s “MEXICAN SILVER – PRODUCTION COLLAPSE!,” is already experiencing the dire ramifications of six years of Cartel-induced capital starvation. That is, worldwide PM production is already declining; and frankly, I wouldn’t be surprised to see both gold and silver production fall by 10%-20% over the next five-plus years – just as PHYSICAL demand skyrockets.
In the below article, the horrific plight of the 1,800 or so Canadian junior miners is highlighted; although “miners” is for the most part a misnomer, as nearly all such companies are explorers searching for a discovery to sell to a Major.
In today’s high-risk world, even such discoveries – which are VERY, VERY rare to start with – don’t necessarily yield future production. Just ask “EVIL PERSONIFIED” – i.e., Barrick Gold – which will likely NEVER produce its MASSIVE Pascua Lama project; or Kinross Gold, via what I just wrote in “THE ONLY MAJOR GOLD DISCOVERY IN A DECADE – GONE, GOOD-BYE!”
Either way, it matters not when said explorers have NO CAPITAL; as per the article, roughly half of Canada’s 1,800 juniors have less than C$200,000 of capital on hand. A year ago, I predicted that at least half of the junior sector would be bankrupt in the next 12-18 months; and what do you know? It looks like I’ll be correct!
In fact, the situation has gotten so bad, the TSX-V is instating a rule later this month that shareholder approval is no longer required for share “consolidations” – i.e., reverse splits – for deals of between 1:2 and 1:10 shares. Worse yet, it will make private equity placements – i.e., the primary source of capital for juniors – illegal at under $0.05/share; which sadly, is where hundreds of juniors currently trade.
In other words, expect a tsunami of reverse splits in the Fall; which given my experience in watching this “sector of death” for the past decade, will immediately cause most to fall an additional 50% in price. This death spiral will continue until but a handful of companies still remain; and thus, you can kiss the outlook for exploration spending good-bye. Not to mention – as I have been reporting the past month – essentially ALL the MAJOR mining companies are MASSIVELY cutting back exploration themselves; such as the world’s third largest gold miner, Anglogold Ashanti, which is cutting its exploration budget (plus corporate overhead) from $752 million this year to as low as $270 million next year. And thus, don’t be surprised if my forecast of a 10%-20% PM production decline turns out to be liberal.
NEVER in my career have I seen more compelling valuations than for gold and silver today. With prices currently BELOW the cost of production at the large majority of global mines, miners are either going bankrupt or dramatically cutting back exploration and development spending. And thus, the future supply outlook has never been worse. And as for the surging global PHYSICAL demand; I think you know which way I believe that factor will be trending!