MINING INVESTMENT
in 2012 and 82% in 2011, reflecting a more cautious outlook. Only 36.6% of producer companies
with more than $50 million expect to increase their exploration budgets in 2013. For a majority of respondents, only gold was expected to increase in value by more than 20% over the next two years. “Given the positive price expectations
for gold, it is unsurprising that gold continues to be the commodity assigned the largest proportion of the budgets of survey respondents,” say the Fraser Institute. The report also notes that miners pessimistic
are about short term
commodity prices, reporting that they expect nearly level or reduced prices for silver, copper, diamonds, coal, zinc, nickel, potash, and platinum with only gold expected to increase in value significantly. In the longer term, miners expect stable or moderate price increases. Finally, respondents were asked
about their difficulties in raising funds now compared to two years ago. Of those responding, 60% agreed strongly that the industry now has great difficulty in raising funds. Of those who agreed, nearly 80% believed the difficulty in raising funds was due to investors being worried about the state of the world economy. “The investment model for junior
miners is broken,” said an exploration company
president. “The costs of
Q: Do You Believe Commodity Prices Will Continue to Rise in the Medium Term? (10 years, inflation adjusted)
10% 20% 30% 40% 50% 60%
0%
No, prices will fall by more than 15%
No, but they will fall by less than 15%
Source: Fraser Institute
... miners are pessimistic about short term commodity prices
Miners Are Having Difficulty Raising Funds Because...
10% 20% 30% 40% 50% 60% 70% 80% 90%
0%
Investors believe
commodity prices will be weak for some time
Investors
worried about the state of the world economy
Source: Fraser Institute
... 60% agreed strongly that the industry now has great difficulty in raising funds
doing business and the regulatory requirements have risen dramatically over the last decade and the ability of exploration juniors to attract funding is at an all- time low.” “The investment industry is now backing investment in gold and
precious metals directly and through ETFs rather than in mining and exploration companies,” observed another exploration company president. “Some of the potential rewards that investors normally expect are being stripped by the issuance of derivatives in the market or by discounting of share values through sale of flow-through shares, etc.” A development company president believes, “Investors are
worried about management’s ability to deliver projects on time and budget.” “The recent under-performance of gold share prices is wholly
due to the irresponsible actions of the major gold producers, which has hammered investor confidence,” declared an exploration company president. “Investors must be bemused that rather than delivering increased rewards and dividends to shareholders
over the last 10 years of increasing gold prices, the majors have whittled away profits by mining even more lower grade, increasing their production costs and not benefitting from the rise in gold price.” “Management of majors should hang
their heads,” he declared. “Oh no, it’s alright, they still have a war chest with which to pick up distressed junior assets so it’s a win-win!” •
Survey of Mining Companies: 2012/2013;
By Alana Wilson, Fred McMahon, and Miguel Cervantes. Survey Director: Kenneth Green. To download a free copy go to
www.fraserinstitute.org/research-news/display.aspx?id=19401 www.fraserinstitute.org
March 2013 69
Investors risk averse and see mining as risky
Investors worried
that costs in mining are rising
Investors
concerned about the impact of resource
nationalism Other They will
remain stable over the next 10 years
Yes, they will rise by up to 15%
Yes, they will rise by 15–30%
Yes, they will rise by over 30%
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