Thoughts About the Current Bear Market Among Junior Miners

Source:

This failure to obtain financing highlights the main reason for the bear market in the junior resource stocks lasting longer than expected. The Credit Crisis in the financial sector and the Credibility Crisis in the junior sector, together with the threat of a serious recession, have caused companies with even world-class size deposits to struggle for financing.

For several months now, junior resource stocks have been in a highly depressed state. Many juniors are now testing their 2-3 year lows despite the commodity bull market raging strong. As stock prices remain depressed, financial positions of these junior exploration, development and production companies are deteriorating.

Rising production costs, aggressive feasibility study assumptions, a worrisome number of start-up productions problems and even resource data falsification have all greatly contributed to the Credibility Crisis in the junior mining sector. At the same time, the Credit Crisis is exacerbating the situation by making funding for even the best projects unavailable.

Financial institutions in the United States and many other countries are in serious trouble and cheap debt financing is hard to come by. Brokers are reluctant to assist with equity offerings and want better terms for their clients: deeper discounts in addition to attached warrants both of which are making dilution even worse for the desperate-for-dollars juniors. It is a vicious cycle as this lack of funds caused by depressed share prices is further pushing investors away as they are anxious to become victims of unfavorable dilution...

This failure to obtain financing highlights the main reason for the bear market in the junior resource stocks lasting longer than expected. The Credit Crisis in the financial sector and the Credibility Crisis in the junior sector, together with the threat of a serious recession, have caused companies with even world-class size deposits to struggle for financing.

...Small and micro-cap resource stocks, now in a midst of a bear market, have become some of the most hated in the entire stock market. This means that instead of burying the whole sector, we are treating this tough time as a period of lucrative opportunities, especially since we are aiming at a 2-3 year investment time horizon...

Related Articles

Get Our Streetwise Reports Newsletter Free

A valid email address is required to subscribe