ri - interest in metals almost nil

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    Resource Sector Interest and Awareness is Almost Nil

    By David J. DesLauriers
    21 Oct 2005 at 04:11 PM EDT


    TORONTO (ResourceInvestor.com) -- By all accounts we have been in a bull market for metals since about 2001. You wouldn’t really know that by looking at the juniors.

    Despite the fact that it is easy to raise funds, and private placement and bought deal money is being put into the ground all the time and across the globe, follow through buying is nonexistent. In other words, there seems to be a serious divide between the ability to raise money, which one would presume to be a gauge of the level of market enthusiasm for a particular sector, and what is being paid for good news and good numbers.


    The unfortunate reality is that aside from the few stocks that make up the HUI, the bull market is glaringly absent.

    Multiples

    In the first place, if you look at the multiples being paid for base metal developers and base metal producers, these companies are trading at about 4X cash flow. Nearly every analyst in creation is calling for $1 copper in 2007. Half of the companies out there, specifically the big ones are equally bearish.

    Good News

    Those who monitor the wire on a daily basis for company news have probably noticed that the Canadian feed consists almost exclusively of press releases from resource sector companies. It probably isn’t a stretch to say 8 out of 10. Three years ago, that number was probably 1 or 2 in 10, and you would be hard pressed to find more than that.

    But what has been the upshot of all of this news? In the last couple of months, junior metals companies and now energy companies have followed a consistent pattern upon the release of positive news. If they’re lucky there may be a small upward move in the stock, but almost without fail within a week the share price is lower than it was when the positive results/news were announced.

    It is ridiculous, and can only mean that the few funds that play in these stocks don’t know what is going on, aren’t paying attention, and don’t buy any stock in the market. It also clearly means that Joe Sixpack is nowhere near ready to enter the sector, and hasn’t heard the story.

    The result is that this sclerotic, somnolent, stuporous market has to be one of the most inefficient markets in the world only because of complete but unwarranted disinterest. Either that, or this is a show-me market with no room for juniors.

    Bull Market/Bear Market/What Will It Take?

    The reality is that for the majority of companies in the sector – the small companies who find mines and feed production, the only way that the bull market has touched them is their ability to raise money. This correction, which started a couple of years ago, isn’t really a correction at all for these companies, merely a continuation of the bear market which started in 1997. The brief moment in time in 2003 when people took notice is probably better characterized as a bear market rally.

    The pressing question is if nobody cares about good results and good numbers when gold is $467 and copper is $1.81, what is it going to take? The odd discovery has made little difference. What is worse, if and when gold and copper correct, they will take these companies down with them even though they never benefited from rising commodities prices in the first place. At that point all of the silly hedge funds that play in development names too illiquid to really handle their presence will dump their shares holus bolus making the situation yet more dramatic. Thus, reality suggests that things could get worse before they get better.

    Conclusion

    Because we are an upbeat bunch here at RI, let’s end on a positive note. The upside to all of this is that because none of these stories have run, the entirety on the inevitable run is still ahead of us, and when generalist funds and Joe Sixpack get involved, it will be a monster. Let’s just hope we don’t get old and grey waiting.

 
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