Nuclear Winter? Not Yet!

By Andrey Dashkov, Research Analyst

NEW YORK ( Casey Research) -- The late 1990s for the resource sector was so challenging that it is now often referred to as the nuclear winter of the industry. Some analysts are comparing our current circumstances to that period, while others purport we haven't hit bottom yet.

In its "Business Risks in Mining and Metals 2013-2014" report, Ernst and Young said capital allocation and access is now the number one challenge the resource sector is facing. While production-stage companies are rationing capital expenditures to meet long-term goals, the juniors don't have this luxury; they need to raise money just to keep the lights on.

The report says the current situation is the worst market in 10 years. Since International Speculator deals mostly with the early-stage companies, we set out to see exactly how bad it is.

To do that, we pulled data on 10,521 private placements closed by TSX-V-listed metals and mining companies since Jan. 1, 1999, and compared the financing market now to the infamous nuclear winter. Here's what we found:

The data show that metals and mining companies closed only 36 private placements in the second quarter of 2003, raising $17.6 million Canadian. By comparison, so far in the second quarter of 2013, metals and mining companies closed 150 financings for a total of $192.6 million Canadian. This clearly shows that the current market, while definitely under pressure, is not as bad as it was 10 years ago.

The market is also stronger now than from 1999 to 2001, when little financing activity took place. That period indeed was a desert for a metals and mining company.

For a clearer picture, let's zoom in on that period:

Before things picked up at the end of 2002, the junior metals and mining sector was in a miserable state for at least two years, as the chart shows. Further, a few large deals skewed the data; for example, Mazarin and Regency Gold raised about $10 million Canadian each in the fourth quarter of 2000. These financings were huge compared to their peers, but wouldn't be considered that big today.

Conclusion:

While the current state of the junior market couldn't be described as strong, these data show we haven't reached a nuclear-winter phase, at least not yet. Juniors still can finance, though clearly investors are much less generous now.

Keep that 1999-2001 period in mind the next time someone tries to persuade you the bull market is over. That is what a nuclear winter looks like.

Our situation is much better than 10 years ago. The best companies are still able to raise funds to explore and develop. This is where investment dollars should be focused, because when the market does turn around, it is the better-managed and better-capitalized companies that will be the first to deliver the tremendous returns this volatile sector is known for.

Despite the spectacular fall in gold prices in recent weeks, sales of the physical metal are going through the roof. Is the gold market dying, or is it getting ready to rebound with a vengeance?

To answer these questions, Casey Research has partnered with TheStreet to produce an exclusive video event to help investors sort out the complex world of the gold market -- Gold: Dead Cat or Raging Bull? This must-see webinar premiers tomorrow, June 25, at 2 p.m. EDT and features investment guru Jim Cramer, our own Doug Casey, Sprott Inc. founder and chairman Eric Sprott, and a number of other renowned precious-metals experts. Click here to learn more and to register.

Prepare yourself psychologically and financially to act. Emotional investment decisions rarely pay off, so don't succumb. Easy to say, hard to do, I know. We at Casey Research understand the fear -- but giving up and selling is the worst thing to do right now. It locks in a loss and leaves one wondering when to buy back in -- if at all. We heard emotional outbursts in late 2008, too - and that was the best time to buy in years, precisely because so many people were giving up.

The bottom line is that we're looking for on-ramps, not exits.

The best on-ramps, profitwise, come when most other investors are heading out of a sector. Is that what's happening with gold right now? Is it a dead cat? Or is this a protracted lull... just giving the bull time to catch its breath?

Only time will tell for sure -- but investors who wait for the answer will likely miss a once-in-a-lifetime profit opportunity that could be life changing. Don't be among those investors. Casey Research and TheStreet have teamed up to bring you an online webinar that will help you position yourself properly in the precious metals.

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This free webinar is a must-see event. Clear your calendar for tomorrow , June 25, at 2 p.m. EDT -- you can't afford to miss it. Get the details and register now.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

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