Miners glitter in Vancouver maneuver
Gold explorers seen poised for further gains
By Thom Calandra, CBS.MarketWatch.com
Last Update: 12:52 PM ET Jan. 24, 2003
VANCOUVER (CBS.MW) -- In yet another sign that bullion fever is spreading across North America, a Canadian conference organizer expects more than 2,000 people to attend a weekend gold show.
The Vancouver Gold Show presents what some regard as the riskiest companies in the gold trade -- Canada's crop of tiny minerals miners. On Friday morning, the scrappy miners' shares were afire, with some, such as Navigator Exploration (CA:NVR: news, chart, profile), up 6 percent in a day and almost 50 percent in a week of Canada-based trading.
As gold surpasses $365 an ounce for the first time in six years, and platinum near a 17-year high of $650 an ounce, investors, bankers, analysts and ordinary folk are showing renewed interest in the exploration sector. The value of small mining companies is double, triple and, in some cases, 10 times their worth of two years ago.
"Vancouver is pre-destined to be a hit," says Joe Martin of show organizer Cambridge House International. "We have sold out 103 paid exhibitors and we have passed 2,000 qualified pre-registered attendees." Martin says he has high hopes for upcoming gold shows in Montreal and Vancouver. See: Hard-rock crowd hits pay dirt.
Of course, the sector has some ways to go before it can approach the bloated numbers drawn to the Internet shows of the late 1990s. Attendance also pales against the gold-show crowds of the late 1970s and early 1980s, when the metal staged a run that took it just 20 percent shy of $1,000 an ounce.
Still, gold conference organizers -- the ones who stage shows designed for individual investors -- are confident that a rising gold price, and Main Street's growing impatience with ailing stock markets around the world, will continue to draw converts to bullion.
Just several months ago, when gold was selling for $325 an ounce, the New York gold show registered more than 3,000 pre-registrants and a sold-out list of exhibitors, most of them precious metal mining companies. See: Attendance at gold shows seen soaring.
Sandy Lawrence, president of the New York gold show's coordinator, International Investment Conferences, expects large crowds for 2003 conferences in Cape Town, South Africa, and Las Vegas. Lawrence's Cape Town gathering, in its eighth year, will bring 18 mining ministers from across Africa. She expects attendance to approach record highs.
"It's a professional audience of mining analysts, fund managers, investment specialists and the financiers who are crucial to lowering the cost of capital to explore and develop mining projects," says Lawrence. See: Cape Town mining conference.
In the past 18 months, gold prices have steadily gained after falling as low as $254 an ounce in the autumn of 1999. Analysts assign many reasons -- war fears, shrinking supply of the metal, a sliding dollar and gradual flow of money out of stocks and into hard assets -- for gold's phoenix-like rise.
Even gold producers, their own worst enemy through much of the 1990s as they over-mined the metal and resorted to derivative tricks such as forward sales to boost income, joined the party. According to Gold Fields Mineral Services, the so-called amount of gold sold forward, or hedged, by the world's miners shrank by 352 tons.
The London-based researcher estimates the move away from hedging, a practice that boosts short-term income but floods the market with leased gold, combined with a 60-ton decline in mine production. Together, the two trends contracted the mining industry's supply by 10 percent in 2002.
"We have just gone through five absolutely appalling years for the mining and exploration sector," says K Brent Cook, a geologist and minerals analyst for Global Resource Investments Ltd. in California. "My personal opinion is that we are standing at the early stages of a major move in gold and about to see a commodities boom develop over the next two years."
Cook, who will appear at the Vancouver Gold Show, has been consulting to mining companies, among them Rio Tinto, Apex Silver, Kennecott and Meridian Gold, or working as a minerals analyst for 20 years. He is one of the few geologists on staff at a U.S. investment bank or brokerage.
A year ago, most of the so-called junior miners, many based in Vancouver, had shares worth "not much more than cash in the bank," Cook notes. "No premium was being given to technically competent and honest management teams or the merits of the mineral properties."
A rise in the price of gold since then has sent many of these tiny miners' shares up 200 percent or more. Cook's 2002 favorites, Virginia Gold, Altius, Rio Narcea, Aurora Platinum and Francisco Gold, posted gains of between 36 percent and 283 percent in a year. Nearly all of these shares trade in Canada.
"Gold has out-performed nearly every sector, and there have been some important successes in the exploration market, including the buy-out of Francisco Gold (GLG: news, chart, profile), apparent discoveries by Southwestern Resources (CA:SWG: news, chart, profile), Fort Knox, Canadian Royalties (CA:CZZ: news, chart, profile) and so on," says Cook, who discloses that he and Global Resource Investments either own or finance the miners he has researched.
Realists might note that exploration companies deserve to be categorized as among the riskiest an investor can buy. "The vast, vast majority of exploration plays never become mines,' says Dave Thomas, a former, Toronto-based gold analyst who lives in Oakville, Ontario. "I'd put the odds at less than one in a thousand." See: Exploration analyst worth weight in gold
The exploration industry's believers counter that the rewards for gold, silver and even diamond miners are stellar. The world's biggest gaining gold shares in 2002 notched rises of almost 1,000 percent; nearly all were exploration companies with no actual production.
Cook, the minerals analyst, acknowledges the huge risk involved with companies active in far-flung corners of the world, but worth just $20 million or $30 million. In addition, gold's renewed luster draws scores of new companies into the industry.
"A plethora of new and long dormant companies are being financed based on properties that would have not seen the light of day two years ago," Cook said. "This is dangerous ground that relies on the greater fool theory of speculating that worked so well up to 1997 for the exploration sector and 2000 for the Internet/tech sector."
In 1997, the multi-billion-dollar Canada success story of the decade, Calgary's Bre-X Minerals, came to a crashing end with a bankruptcy, death and deep fraud at the miner's Indonesia property. The company's chief geologist, Michael de Guzman, committed suicide by throwing himself from a helicopter as he flew over the jungles of Borneo.
Cook's current favorites include Virgina Mines (CA:VIA: news, chart, profile).The company's $10 million (Canadian) in cash will see it through at least six joint ventures that are exploring for gold, platinum, nickel and base metals, Cook says.
"Most promising, in my view, is Virginia's joint venture with Noranda/Novicourt, which employs aerial surveys using MegaTem II technology," says Cook. The geophysical detector can spot potential mineralizations that lie as much as 200 meters below the earth's surface. For more, see Vancouver Gold Show.
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