And it’s falling off a cliff …
The chart comes from a report by S&P Global Market Intelligence’s Corporate Exploration Strategies (CES). The report states:
"The 2016 exploration budgets by 1,580 companies totaled only U.S. $6.89 billion, a year-on-year drop of 21% and barely one-third of the level budgeted in 2012."
Gold exploration accounts for 48% of total spending. So that’s good. But as this chart from Bloomberg shows, it’s just not enough. Year-over-year, gold discoveries are plunging.
Meanwhile, the big miners are merrily producing away. But metals are NOT a renewable resource. As you take metal out of a mine, the amount you have left goes down. Unless you can find more.
A survey of the world’s biggest gold miners — Agnico-Eagle, AngloGold, Barrick, Kinross, Newmont, Newcrest and Yamana — as of June 30 2016 — shows their global reserves.
See if you can spot the trend.
Down, down, DOWN!
And that brings me to junior miners.
There’s a reason why the big companies are spending less money on exploration. There are junior miners willing to do all the hard work. They spend their own sweat, time and, importantly, money making discoveries.
Many of those juniors don’t find gold, or enough gold. They fail, run out of money … and never get to try again.
Others do find something. Something precious. Something worth developing.
And let me tell you a secret of the mining business: Explorers are not mine-builders.
These guys who explore, they love being out in the field … chasing after the next golden dream. Do you think they want to spend the next 10 years of their life looking at the same danged hole in the ground, trying to turn it into a mine?
No. Make that, "Heck no!"
For true explorers, the chase is all there is.
So they’ll sell it. They’ll sell the project to someone else. This next guy, he sees the potential. He’ll go out and raise capital and spend a lot of time and cash "de-risking the project."
Again, some fail. That shiny dream turns into so much dust. The resource won’t be as big as first imagined, or it will have the wrong geology, or the wrong metallurgy, or just the wrong darned luck.
Some projects fail. They never turn into mines. But those that are worthwhile, ah …
Now — NOW — the senior miners get interested. They have massive pipelines of future production to fill. IF the project is in the right place, and IF it combines well their existing business, they’ll buy it.
Sure, they’re paying up. They have the cash. They run freaking gold mines, for Pete’s sake. Of course they have the money.
And even though the big miners pay up, they end up spending a lot less money and, importantly, time than if they had tried to find that new project from scratch.
So the junior miners of today are sitting on the big projects of tomorrow.
And they know it.
I recently talked to a Canadian exploration company working down in a rich Mexican gold belt. They have seen their neighbors bought up left and right. And they know — THEY KNOW — they are on to something big.
Meanwhile, they have a rich silver project in another part of Mexico. Let me tell you, there are plenty of gold projects around, but very few primary silver projects that are worthwhile. This explorer believes it has a significant silver find.
So what it would like to do is sell that gold project to get enough cash to explore its silver project some more.
And from what I’ve seen, this is fast becoming the kind of market where that explorer will be able to name its price. Name it! The big miners will pay it. They have to. Go look at those first three charts. The big miners are up against a wall, and they are flush with cash like sailors straight off the boat.
They will pay up, and they will be happy to do so. That will launch this junior explorer’s share price higher.
And shareholders of this gold explorer will reap the benefits.
So stay tuned. This gold bull is just pawing the ground now. The big charge is yet to come.
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