Bear market will sort wheat from chaff
By Charles Wyatt*, 14 July 2008
TAKE heart all you directors of junior mining companies cowering in your trenches and thinking the world has come to an end just because your share prices have been falling. It’s called a bear market and bear markets never last as long as bull markets. In fact just when everything is at its darkest, out pop the shrewd bottom pickers. John Meyer, top analyst at Fairfax, recently wrote: “We reiterate our view that equity prices for miners should recover rapidly when new money enters the market. We believe a 'wall of new money' is waiting to enter the market from a variety of sources, and institutions will then need to compete to buy back some of the better stocks sold in recent months”.
Not for him the doom and gloom of the old fund manager who told a broker today that once the Beijing Olympic Games was over the Chinese boom would be finished. What he should have said is that when the Games are over the diplomatic veneer will be cast off by the Chinese and they will then start to capitalise on the infrastructure and labour forces in some of the most tricky countries in Africa. Primary production of metals and minerals is what they are after, and they won’t care how they get it. If it means taking over junior companies they will not hesitate as they have plenty of US dollars.
Another company has also realised that the world is not coming to an end. Canadian listed Euromax Resources has just announced that it has arranged a non-brokered private placement financing consisting of three million units at C50c per unit and giving gross proceeds of $C1.5 million. Each unit will consist of one share and a warrant, and for every two of these warrants an investor can purchase a share for 60p any time for the next two years. What John Menzies, the chief executive, does not announce is that the current share price is only 34p, so he has managed to extract a hefty premium from a single US shareholder.
If he can find such an investor, there must be others. Clearly the work his company is doing in south east Europe has attracted attention, and so it should as this part of the world has a history of mining, an excellent and educated workforce and good infrastructure. Leave Africa to the Chinese is clearly John’s motto.
Another motto might be “the harder I work, the luckier I get.” John is a worker and he is also one of the best promoters around. He and Peter Hambro make an unlikely pairing, but both of them ring journalists individually as soon as an announcement is made to give more background. Most company directors simply don’t bother. Once the announcement is drafted they leave it to their PRs to do some work while they go off for a round of golf. That is not a joke. Many of them do not even bother to stay in contact with their offices on the actual day news is released. Hardly surprising that they drop under peoples’ radars.
The current bear market will sort the wheat from the chaff in this junior mining sector, and not before time. Investors should watch out for directors who hunker down and no longer try to maintain a presence in markets around the world. It is not fair on their shareholders and due penance will be extracted when John Meyer’s wall of money appears. In the meantime we are building a list of them at Minesite.
*Charles Wyatt is editor of www.minesite.com
Also in the July 14 - 20, 2008 edition
- AFRICA
- Anvil strengthened by Gertler support
- COAL TRADE
- Coal still hot: Macquarie
- COVER STORY
- Lust, caution
- EXPLORATION
- Deep test of Charters theory
- FINANCE
- Demand, prices point to rich Mosaic
- Friedland talking copper and gold: is he barking or what?
- Lihir could take heat out of majors' costs
- Selling services still easy, on the one hand
- Trinity brings New Gold to market
- GOLD BUG
- Barking dogs really bug me
- INTERCEPTS
- What's that, Mr Smith?
- MEDITERRANEAN'S GHOST
- Just passing go can lead to untimely end
- MINING
- Exco plan takes shape
- ReGENERATION
- 60 seconds with Garry Frere
- Bugs, bucks and disbelief
- SOUTH AMERICA
- Pacific Rim scales back as anti-mining campaign grows
- UnCUT
- Glengarry, Western Areas, nickel positives, uranium simmers, Boart, Kev
- VIEW FROM THE WEST END
- Cruel twist in this crying game
- WOMEN IN MINING
- Path starts at Forrest