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Junior sector ‘primed for consolidation' - haywood by efwegbe erergeer
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Junior sector ‘primed for consolidation' - haywood |
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Business,Business News,Business Opportunities
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HALIFAX, NS (MINEWEB) - An alternative title to Haywood Securities' latest overview of thejunior sector might have reverse-scrambled the wording of a classicAmerican Western film starring Clint Eastwood to "The Ugly, the Badand the Good." And perhaps added the qualifier "Almost." As it is,Haywood chose, "Adrift in a Sea of Negative Sentiment" for itsrecent report on juniors, a research offering that respectivelyfollowed Haywood's "2011: Junior Exploration's Annus Horribilis.2012: Reasons to Be Hopeful" and "Signs of a Bottom?" The title substitution works as Haywood started with a long listof nasty reminders of how ugly things have been on the market, butthen ended on a - somewhat - elevated note. The harsh landscapeHaywood described at the outset of its report will not surprisemarket watchers nor lift their hearts. "Just when we thought thingswere looking better - wham! - the lukewarm investor sentiment forspeculative mining and exploration-focused equities that we beganto see in Q1/12 evaporated and sent the S&P/TSX VentureComposite Index (YTD Performance -6%) back to the Q3 lows lastwitnessed in 2010 and 2011," Haywood wrote. Though metal prices remain high, Haywood noted, investors continueto avoid the junior market.
"So, simply put, investor sentimenttoday is as bad as it was in mid-2010, after resurrecting itselffrom the 2008 market crash, but metal prices (gold, silver, copper,iron, and uranium) are significantly higher. Trading volumes andrisk appetite for speculative mining and exploration-focusedequities have vanished." Haywood reasoned that juniors have turned investors off fornon-metal reasons, particularly such items as rising taxes,royalties and inflating capital costs. With that in mind, Haywoodsaid that now "We find ourselves in a new paradigm (last seenbefore the 2008 market crash) driven by the threat of shrinkingoperating margins from miners and the nagging sabre rattling from anumber of geologically prospective and prominent jurisdictions(Africa, South America) for mining and exploration." This was the Ugly and the Bad. Haywood, however, still sounded offon a hopeful tone, though not quite with surefire hero stuff (i.e.winning the belle, besting the evil sheriff and riding off into thesunset.
But neither was it a final disturbing image, thebody-strewn thoroughfare after some shootout from which nobodywalked away.) Haywood concluded its junior market précisreasoning increased M&A activity may be on the horizon. TheHaywood analysts began with a caveat, that metal price volatilityand an uncertain global economic outlook "still dampen the appetitefor mergers and acquisitions." But then they turned to good thatmay come, especially given the amount of cash some miners arepiling up thanks to fat margins. "Nevertheless, we are hopeful that potential exists for M&Aactivity, underpinned - one hopes - in the near term by a clearerglobal macroeconomic picture and stability in the financial andcommodity markets. The realization of this potential, we feel, willbreathe new life into the sector for speculative mining andexploration-focused equities. The timing of this reawakening isunknown, but judging from the operating margins still beingemployed by many miners and the inability of many explorers anddevelopers to fund the development of their projects, the sector isprimed for consolidation." On that score Haywood Securities analysts are not alone in pointingto miners as a source of hope for equities.
Frank Holmes, who headsup US Global Investors, has been beating the drum loudly especiallyon gold and has suggested in recent commentary published in these pages that mergers and acquisitions will be strong this year. "Anotherbig buyer has been the miners themselves. Mergers and acquisitionsin the mining sector have been at an all-time high over the pasttwo years. Large gold miners such as Barrick, Goldcorp and Kinrosshave been taking advantage of these cheap valuations by snatchingup small miners with proven deposits." That trend should continue,Holmes argued, given growing cash in the hands of miners despiterising inflation.
Still, it's anybody's guess when - or if - the junior market willmake a resounding return. For that you would need a copy of thescript. Mickey Fulp, of the Mercenary Geologist, guessed at thecoming plot for gold equities in a recent commentary. While Fulpnoted there will be some bargains to be had in gold equities, heremained bearish on the underlying equities in the nearterm.
"Thereal question in front of (us) cannot be answered at this time:Could this game be over or is it just in an extended rain-delay?That said, at some point valuations for the small minority offundamentally strong gold companies will make for some no-brainerbuys. Until then, I prefer to sit on the sidelines and simply watchthe carnage continue." SUBSCRIBE to Mineweb.com's free daily newsletter now. I am Timepieces, Jewelry, Eyewear writer, reports some information about safety reading glasses , eyewear reading glasses.
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