Stock Hideout - View Single Post

Placer_foot · Wed, 01-24-2007, 05:23 PM

Hello there Gang...

If you all need further proof of just how ON FIRE the Canadian Mining Markets are..... How does 1 Billion ( yup...you heard me correctly!! ) a month sound?

A billion a month of new capital is flowing into the Canadian mining markets. This surge of capital has come as no surprise to those who monitor the flow of financing for exploration and development of mining projects. A 20 year shortage of funds for mine develop¬ment and exploration has ensured at least a decade of poor metal supplies. It's a long term and very predictable cycle that visits the mining industry every 10 to 20 years.

The mining markets which peaked in 1987 were driven by the spin-off effects of flow-through tax incentives. Exuberant mining markets from 1992 to 1997 were driven by a string of wonderful exploration discoveries such as Ekati and Diavik diamond discoveries in Northwest Territories, Pierina gold deposit in Peru, Voisey's Bay nickel deposit in Labrador, and the infamous Bre-X

gold find. If anything, commodity prices went down throughout this market.
This time markets are driven by commodity prices and the need for new reserves of metals.

All junior mining companies need a minimum of $300,000 a year, just to keep the lights on and the coffee going. The average financing throughout 2001 was about $1.0 million. The problem was that 67% of the deals that year, were less than $500,000. This meant that the majority of juniors had just enough cash for corporate overhead and none left over for exploration. Many companies were eating their seed capital before they were able to pursue opportunities. The average deal was so small that there was almost no involvement from the investment dealers. A huge and thirsty technology market exacerbated this drought of funds for the mining companies. Junior companies that survived, did so by funding themselves through their own trap-line of private investors.

The year 2001 saw a total of $576 million of capital flow to the mining industry. In 2006 it's common to see that much raised in a week or two. In the first seven months of 2006, the markets have raised an average of $1.4 billion a month for the industry, that's a 32 fold increase over monthly averages for 2001.
You would think that a 32 fold increase in funds into the mining industry would increase the discovery rate?
It has, but not by a factor of 32. So where is all the capital going? A review of the deal details in first seven months of 2006 quickly tells the story.
In 2006, a total of just over $9 billion was poured into the industry. The twenty largest deals totalled $3.5 billion. So in other words, 1.4 % of the deals account for 38% of the total funds raised.
If we add up all the deals over $10.0 million, there were 152 (10.9%) of them, yet they covered $ 7.1 billion or 76% of the total amount. Browsing through the list reveals that most funds will be applied to development/advanced exploration and not earlier stages of exploration.

It makes sense that the last mining market, which ended in 1997, was an exploration cycle driven by the excitement of new discoveries. The current need for capital is to build mines. So markets are filling the need for new mines. Since development is 10 to 20 times more expensive than exploration, that's how much capital is being raised.

As larger companies are being gobbled up and merged out of existence, a very dynamic corporate environment is being created. A newly released pool of mining talent and assets, combined with healthy capital markets has created a new generation of companies which are quickly filling the mid-sized mining company void. Commodity supply problems aren't disappearing in the near future as significant new mine production has been hampered by permitting delays as well as labour and material shortages. The market is so robust at the moment, that even a 30% drop in May for the TSX Venture Index and a 20% drop for the TSX Mines Index didn't stem the flow of capital in June and July. So look for new exploration discoveries, continued mine development and a very active deal environment for buying/selling mining assets.

Wed, 01-24-2007, 05:23 PM	#1 (permalink)
Placer_foot Senior Member Join Date: Sep 2006 Posts: 138	1 Billion Per Month!!! Hello there Gang... If you all need further proof of just how ON FIRE the Canadian Mining Markets are..... How does 1 Billion ( yup...you heard me correctly!! ) a month sound? A billion a month of new capital is flowing into the Canadian mining markets. This surge of capital has come as no surprise to those who monitor the flow of financing for exploration and development of mining projects. A 20 year shortage of funds for mine develop¬ment and exploration has ensured at least a decade of poor metal supplies. It's a long term and very predictable cycle that visits the mining industry every 10 to 20 years. The mining markets which peaked in 1987 were driven by the spin-off effects of flow-through tax incentives. Exuberant mining markets from 1992 to 1997 were driven by a string of wonderful exploration discoveries such as Ekati and Diavik diamond discoveries in Northwest Territories, Pierina gold deposit in Peru, Voisey's Bay nickel deposit in Labrador, and the infamous Bre-X gold find. If anything, commodity prices went down throughout this market. This time markets are driven by commodity prices and the need for new reserves of metals. All junior mining companies need a minimum of $300,000 a year, just to keep the lights on and the coffee going. The average financing throughout 2001 was about $1.0 million. The problem was that 67% of the deals that year, were less than $500,000. This meant that the majority of juniors had just enough cash for corporate overhead and none left over for exploration. Many companies were eating their seed capital before they were able to pursue opportunities. The average deal was so small that there was almost no involvement from the investment dealers. A huge and thirsty technology market exacerbated this drought of funds for the mining companies. Junior companies that survived, did so by funding themselves through their own trap-line of private investors. The year 2001 saw a total of $576 million of capital flow to the mining industry. In 2006 it's common to see that much raised in a week or two. In the first seven months of 2006, the markets have raised an average of $1.4 billion a month for the industry, that's a 32 fold increase over monthly averages for 2001. You would think that a 32 fold increase in funds into the mining industry would increase the discovery rate? It has, but not by a factor of 32. So where is all the capital going? A review of the deal details in first seven months of 2006 quickly tells the story. In 2006, a total of just over $9 billion was poured into the industry. The twenty largest deals totalled $3.5 billion. So in other words, 1.4 % of the deals account for 38% of the total funds raised. If we add up all the deals over $10.0 million, there were 152 (10.9%) of them, yet they covered $ 7.1 billion or 76% of the total amount. Browsing through the list reveals that most funds will be applied to development/advanced exploration and not earlier stages of exploration. It makes sense that the last mining market, which ended in 1997, was an exploration cycle driven by the excitement of new discoveries. The current need for capital is to build mines. So markets are filling the need for new mines. Since development is 10 to 20 times more expensive than exploration, that's how much capital is being raised. As larger companies are being gobbled up and merged out of existence, a very dynamic corporate environment is being created. A newly released pool of mining talent and assets, combined with healthy capital markets has created a new generation of companies which are quickly filling the mid-sized mining company void. Commodity supply problems aren't disappearing in the near future as significant new mine production has been hampered by permitting delays as well as labour and material shortages. The market is so robust at the moment, that even a 30% drop in May for the TSX Venture Index and a 20% drop for the TSX Mines Index didn't stem the flow of capital in June and July. So look for new exploration discoveries, continued mine development and a very active deal environment for buying/selling mining assets.