A Junior Recovery
Source: Resource Investor, Scott Wright (9/7/09)
"Without juniors, the balance of most commodities markets would be way off-kilter."
Like rabbits, juniors are seemingly insignificant. But their function in commodities lifecycles is indispensable. Also like rabbits, juniors are a valuable source of nourishment to their predators. One of their major roles is to feed the larger resource companies, ultimately serving to provide sustenance and longevity.
The primary purpose of junior resource companies is to explore, discover and develop natural resources that are economically extractable and can feed the supply chain. They are in a sense responsible for finding the next generation of mines. Without juniors, the balance of most commodities markets would be way off-kilter.
But in order for juniors to function they need capital. The lifeblood of all junior resource companies is the almighty dollar. And because mineral and energy exploration is so capital-intensive, juniors require sizeable bankrolls to do what they do.
Juniors are non-producing explorationists, which means they have no sources of revenue. Juniors must rely on investors to procure the necessary capital to survive. And to tap investor capital, most juniors must list their companies on public stock exchanges, thus offering investors' ownership stakes.
Junior resource stocks are currently experiencing a serious crisis of confidence. Investors in this segment of the markets are trading these stocks as though the commodities bull is over. But it is not.
The junior market has really struggled to survive lately as the after effects of the commodities correction and stock panic have greatly cut their inflows of capital. Junior stock investors are seemingly nowhere to be found.
A prolonged state of junior malaise will have lasting effects on commodities infrastructure, pipelines, and ultimately prices. And the commodities supply simply cannot be replenished without these juniors. Eventually there will be a marked recovery on the junior front. And when capital inevitably finds its way back into this sector of the markets, the survivors will soar to new heights.