Dear
Investor,
Laura Skaer of the Northwest Mining Association had passed
along this article from Casey Research.
It gives further information on the state of the market for Junior
Gold Companies.
The article is posted at: http://www.resourceinvestor.com/pebble.asp?relidB871
Although Midway Gold can not endorse any websites, this may
help to provide you with additional information.
If you have any questions or you would like to discuss this
further, please feel free to contact me anytime.
Thank you for your support in Midway Gold Corp.
Morgan T. Moffatt
Investor Relations Manager
Midway Gold Corp.
www.midwaygold.com
(877) 475-3642 ext.14
Gold, What Gold?
By
David Galland
16 May 2008 at 01:41 PM GMT-04:00
STOWE, Vt.
(Casey Research
Advertorial) -- One of the most intriguing aspects of the current market is
the dearth of major discoveries so far in this cycle. This despite record
amounts of money spent on exploration since this bull market began in 2001.
Older and smarter minds than mine, minds resting in the cranium of
Explorers’ League members, for instance, have been convinced that a
number of major discoveries would be announced.
But so far, other than a small handful that appears to hold the stuff, there
has only been one legitimate elephant bagged by the team of Aurelian [TSX:ARU]. Unfortunately, the carcass
of that particular elephant rests entirely within the sketchy outlines of the
nation of Ecuador where the locals are currently circling like a pack of hungry
hyenas.
It
has been our contention that what was needed to light the fuse on the junior
exploration stocks would be, in no specific order:
- Sustained higher gold prices.
- Improving financials and free cash flow of the
major producers.
- A discovery to heat the blood of the investing
community.
So
far, we have had no. 1 and we are beginning to see 2, but 3 has proved
remarkably elusive.
Now, don’t misunderstand. You can have a whopper of a bull market in
these stocks without the discovery – that was the case in the 1970s bull
market. But a discovery that fires the imagination can jump-start things in a
big way, no question about it.
Evidence
of that statement is provided by the gold share bull market of the mid-1990s,
the most powerful to date, which occurred against a back drop of flat to
falling gold prices. In case some of the big winners from that market have
slipped from your memory, they include returns such as; Cartaway, up 26,040%;
Pacific Amber, up 4,376%; Arequipa, up 5,692%, and so on and so forth.
So, What’s Going On?
Peter Munk, the somewhat unpopular chairman and acting CEO of Barrick Gold, the
world’s largest gold producer, stated at the company’s recent AGM
that there have been "virtually no new discoveries."
While we might disagree around the edges of that statement, Chairman Munk is
technically correct in that the level of discoveries being made is a small
fraction of that needed to replace the depleting reserves of the gold
producers.
In short, we appear to have reached the era of Peak Gold. Whereas a major
discovery used to be 10 million ounces or more, the threshold for
attention-getting discoveries these days has fallen to more along the lines of
1 to 3 million ounces ... and even those are hardly falling off the
trees.
Viewed from the perspective of an investor in the junior resource sector, this
lack of discoveries means the fuse is lit – starting with straight-up
supply and demand fundamentals – for a rocket shot tomorrow. Adding
boosters to the rocket, we have a commodities bull market that shows no sign of
ending anytime soon and, while the U.S. dollar will periodically rebound, it is
not going to somehow reinvent itself as sound money in our lifetime.
Importantly,
as you can clearly read between the lines in Chairman Munk’s words, once
the majors get cashed up and serious about replacing their reserves, they are
going to have to look downstream to the juniors with discoveries ... even if
those discoveries are below the 5-million-ounce threshold they previously
required to even consider taking an ore body into production.
A Risk and an Opportunity
Of
course, lowering the threshold on deposit size will require trade-offs. For
example, in order to be considered for an acquisition, a smaller deposit will
almost certainly have to be near surface and open-pittable. It will also have
to be near good infrastructure, and located in a jurisdiction with good laws
and reasonable taxation. There is, in this situation, an opportunity and a
risk.
Starting
with the latter, if your portfolio now includes companies going after deposits
in the one- to five-million-ounce range, you need to make sure they are not in
a remote location, or will require going underground or building a mill to
process sulfides. (Under 1 million ounces? Fuggedaboudit!)
As
for the opportunity, while the odds and the amount of exploration spending
still favour that we’ll see the discovery of at least one and maybe two
monster deposits in this cycle (there are a couple of companies advancing
projects with that potential), and early shareholders will make fortunes as a
result, there has rarely been a better time to invest in junior exploration
companies with modestly sized projects in good locations. That said, you should
still be focusing only on projects with at least 2 million ounces, or the
strong potential of same.
In
other words, take the opportunity in these down markets to focus on getting
positioned ahead of the majors ... that’s where the big money will be
made as things gather steam again going forward.
© Casey Research LLC 2008