The Best of Times

Source:

"Capital is still plentiful for juniors. . ."

Copper has now traded to at all-time highs in notional terms. On an inflation-adjusted basis, that puts red metal pricing at the level of a century ago in U.S. dollar terms. That helps support our take that 20th century pricing was more of an anachronism than the past decade of gains. Some are now suggesting the big gap in copper supply could come sooner than we had assumed. That has helped recent gains, but we are still cautious about the near term as high prices bring more inventories to the system.

Gold and silver are being well supported at these higher levels. They will be more influenced by USD moves than copper; and at this point, it appears the U.S. dollar should hold its own against the Euro. Another area of support for metals has been coming from inflation concerns in the growth economies. That may increasingly become the best gauge for metal price direction in 2011, so it will be important to keep an eye on tightening measures such as higher interest rates in those economies.

China in particular has focused on increased bank reserve requirements rather than interest rates to cool its economy, but did increase its bank rate by 25 basis points on Christmas day. More near rate hikes may still be in the offing for China, and for other Asian economies with rising rates of consumer inflation.

We would also note that a fair number of early placements by miners into more junior companies have been rolled over for strong gains during December. Gains taking on this sort of placement have rarely been an issue during warehousing cycles because this sort of placement was typically followed by either a takeover or loss taking the bear had arrived. We don't view this profit taking as proof that an intermediate top is at hand, but it confirms others who know the sector are feeling more cautious. However, finding buyers for these positions hasn't been an issue.

Capital is still plentiful for juniors who seem to be lagging sector valuation gains that come with high metal pricing. Juniors who are advanced enough are taking cash injections in $100s of millions that will go towards creating cash flow. In short, an orderly process of gains taking and reassessment is still the order of the day. The big change is that companies that would have needed big costs to get debt funding a decade ago are now funding mine development with well-priced equity placements.

We reiterate that some consolidation in the sector seems likely after such a strong run, but not that we are suggesting a major correction. Along with early year gains taking, we do expect a rotation into newer deals, and are looking at the potential of a number of these. This year has garnered the shift to a perception we had looked for of mining as a market mainstay rather than a cyclical sector. That shift has actually been stronger than we could have asked for, and busier.

After a long year, we have taken some family time through Christmas but will be back early in the 2011 with some thoughts on how the rotation within the mining sector is likely to play out. We hope that you participation in the sector has added some cheer for your holiday season this year, but more importantly that regardless of how you celebrate year end that has been in the embrace of family and friends.

It's a secular bull market for metals and resources. We've been saying that for nine years. And we've been right. Another thing we've been right about is the growing importance of the Yukon as an exploration destination and, more recently, Area Play. HRA was there early, continues to follow several of the biggest winners in the play and is tracking dozens of others for potential inclusion in HRA publications.

CLICK HERE to access your FREE Yukon Report from HRA now! HRA initiated coverage on 19 companies since early 2009 the average gain to December 1, 2010 is 288%!

The HRA-Journal, HRA-Dispatch and HRA-Special Delivery are independent publications produced and distributed by Stockwork Consulting Ltd, which is committed to providing timely and factual analysis of junior mining, resource, and other venture capital companies. Companies are chosen on the basis of a speculative potential for significant upside gains resulting from asset-base expansion. These are generally high-risk securities, and opinions contained herein are time and market sensitive. No statement or expression of opinion, or any other matter herein, directly or indirectly, is an offer, solicitation or recommendation to buy or sell any securities mentioned. While we believe all sources of information to be factual and reliable, we in no way represent or guarantee the accuracy thereof, nor of the statements made herein. We do not receive or request compensation in any form in order to feature companies in these publications. We may, or may not, own securities and/or options to acquire securities of the companies mentioned herein. This document is protected by the copyright laws of Canada and the U.S. and may not be reproduced in any form for other than for personal use without the prior written consent of the publisher. This document may be quoted, in context, provided proper credit is given.

2010 Stockwork Consulting Ltd. All Rights Reserved.

Published by Stockwork Consulting Ltd.
Box 85909
Phoenix AZ, 85071
Toll Free 1-877-528-3958
[email protected]
http://www.hraadvisory.com/

Get Our Streetwise Reports Newsletter Free

A valid email address is required to subscribe