Like grizzled prospectors on a last expedition for riches, Canada's mining companies are once again staking their claims. Rather than boring through mountains, however, the firms are now panning for Internet gold.
Following the lead of other industries entering the digital gold rush, mining's transformations are dominated by e-commerce operations. And like the casinos that sprang up around the boomtowns of a century ago, digital gaming sites are becoming a popular side investment.
This sloppy embrace of the Web underscores the readiness and need for change in the mining industry. Its big moneymaker, gold, has slumped for about a decade and currently hovers near a 20-year low. Asia's economic meltdown dried up one market and the spectacular
scandal, a mining swindle that captured headlines around the world, only encouraged investors to shun the sector.
Can mining companies make a digital comeback? Most likely some can, say many analysts, while others will jump to the Web in a transparent last-ditch effort to survive. While the miners may lack high-tech know-how, the analysts say, they make up for it with strong corporate infrastructures.
"These companies already have established followings," says Kevin Barker, who pens
The Barker Letter
, a Canadian newsletter that follows the mining industry. "They are fully reporting companies, and many of them are still cashed-up from the last mining bull market."
Leading mining's Net parade has been
. The sapphire company announced in May plans to enter the e-commerce fray. While the news left some analysts scratching their heads, buyers were quick to react. A whopping 48 million shares of American Gem traded the day after the announcement, setting a volume record for the
Toronto Stock Exchange
, both part of the old mining establishment, have thrown their hats into the lucrative online gaming ring. Just a month ago, Essex acquired privately held
Universal Internet Marketing
and unveiled plans for a global gaming portal. The result: Essex shares tripled on the announcement and are still trading at around twice preannouncement levels.
The break from natural resources was emotional but inevitable, says CEO Ian Rozier. "I equate what's happening at the moment with the Internet revolution as being on par with the Industrial Revolution," he says. "I've jumped in with both feet."
Rozier admits part of his decision was based on the need to appeal to shareholders, who weren't getting enough kick from the back-breaking work on which the company earned its reputation.
"I have shareholders who want a return on their investment," Rozier says. "I can't satisfy their insatiable appetite for gain with mining stocks."
While many of these mining-to-Net plays are legit, exploration companies going digital find themselves on the defensive more often than not. The
Vancouver Stock Exchange
, once dubbed "the scam capital of North America" by
, has cast a wary eye over the recent wave of deals. Just last week, for example, it halted trading on
Consolidated Magna Ventures
after it announced its acquisition of Internet service provider
. The exchange apparently had never heard of the wired canine.
And not all Web ventures seem to please investors. When precious metals company
said it had invested in
, which provides services to the medical community, its stock price remained stubbornly unmoved.
That caution, of course, underscores a reality of the market: Some of these dot-com deals could very well be flops. But those that aren't may pay off handsomely.
"Is diversification a bad thing?" asks Barker. "Why not get exposure to two industries -- one at the top of the heap and one at the bottom -- with the same buy?"
Derek Moscato, a financial journalist in Vancouver, follows Internet investment culture as an editor/writer at Stockscape.com, which has recently been acquired by Cornucopia Resources, a Canadian gold company.