Ahead of the Herd Blog

I was at a Christmas shindig last night and by chance talking to two promoters who between them have positions in eight or nine fairly successful listings ... one of these chaps swings a big line.

We were talking about the market in general, they both are zinc, nickel, moly and uranium bulls, concerned about copper.

I was asking them about the structure of the market and they both agreed in many respects the mining business has been pathetic in getting Wall Street to market the commodities boom by mass distribution which would really propel the junior markets. The problem is the small-cap houses in Vancouver have the business tied up at a low-grade level and the big underwriters haven't been able to package sufficient large cap product to give mass distribution and promotion - not unlike having some great craft product and not getting sold out of Home Depot because you can't satisfy their volume needs.

In any event the comment was made that the play by big capital has been in pure spec bets through hedge funds and derivitives, and the effect has been to crash the party. Witness Amaranth and their queering a perfectly nice bull market in NG.

The lesson is that these metals markets may get far ahead of themselves and then be ripe for a major reversal, while the underlying junior miners just can't generate the type of mass buying pressure to distribute in the bull market at highly elevated market caps - if you can get Wall Street to get on board they sell forward earnings and don't really care if they come to pass, what they care is that they can sell the idea (no different then beer commercials promising you'll get the girls if you are drinking their beer - the idea is for you to buy the beer, not get the girls). What we have hoped for for twenty years (with the exception of the two excitements caused by Bre-x and some small exceptions (diamondfields, hemlo, eskay creek?) is a wave of retail buying pressure desperate go get a piece of the action and doing for moose pasture and excellent mine prospects alike what the dot-com era did for both excellent and ridiculous ideas - propelled them to stupidly foolishly rich valuations at which we can all distribute our portfolios.

So while I completely agree that in the industrial metals there are some sweet markets, they have structural risks of serious reversal due to speculative perversion of the metals prices. Thus I continue to weight my juniors most heavily towards gold and silver where although the market is also highly manipulated the structure of the market favours more stability and the bull trend appears to me to be far more certain.

No question uranium zinc etc., look promising, it is only a question of risk management and covering the downside against a speculative-driven bloodbath. If the DOW rolls over alot of sudden unwinding may make for some sad punters. The first priority is not to lose capital - the most promising investment opportunity in junior miners to my mind remains the implied option on gold ounces offered by solid expanding ounce, viable development gold properties. All the others are great specs, but the class of investment is completely different. I have to stop and do an asset allocation check now and again to make sure I'm not getting overextended into the hype of base metals prices.

All that being said, notwithstanding the risk, I am bullish on a nice run coming up this spring across the board as there is some public interest in the flavours of the season - uranium, zinc, nickel and moly.
__________________

Countrygent
Certified Gold Nut