By Chris Hopkins
Senior Vice President for Aggregates and Mining, The Saint Consulting Group
The current recession has been extremely damaging to the aggregate stone industry. The larger publicly traded companies have lost 30 percent to 60 percent of share value in the past year. The lack of new home starts, declining market for retail space, frozen commercial retail development and budget crunches at all levels of government have severely impacted infrastructure spending.
Less discussed is the impact in mineral and precious mineral industries. Junior mining companies, who depend nearly exclusively on capital investments for their working capital, have seen these investments nearly dry up for two primary reasons:
Firstly, available credit and investment capital is just not out there. It can take years for companies to proceed through the permitting process. While still in the exploration phase of the mining claim, they are rapidly running out of funds until they can extract minerals to bring to market.
The second and more insidious reason is the volatility of the recent mineral markets. During the recent peak periods from 2002 through 2006, some junior mining companies were putting in annual returns of 200 to 300 percent. (1) Much like the dot com bubble of the late 1990’s this has burst
With the exception of the gold market, (where recent prices have risen to record levels), the other mineral markets have seen sharp declines. For example, uranium, which hit a record $130 per pound in 2007 and $70 per pound in April 2008, is currently trading for $48 per pound. Zinc, which was trading at $1.08 per pound a year ago is currently trading for 52 cents per pound, copper was trading for $3.50 per pound in August 2008 is now selling for $1.50 per pound, you can see the trend.
Investors have become extremely reluctant to invest in such a volatile and unpredictable market. Other countries around the world such as China and India have cut back on the use of these products, which have significantly impacted the market.
What makes the matter even worse for some of these companies is that due to the falling prices of their stock, they have been forced to sell of more shares for a far lower price just to raise the working capital that they require to continue, losing control of more of their company for a lesser investment.
Predicting the end to this revolving door is as difficult as predicting future pricing, the longer it does last the more these junior exploration companies will see bankruptcy as their predictable future.
(1) Jason Hamlin: Seeking Alpha.Com, “The Resurgence of Junior Gold Miners”. January 28, 2009
Chris Hopkins is senior vice president for aggregates and mining, The Saint Consulting Group, email firstname.lastname@example.org, phone 615 261-5002