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Roulston has strong words for some companies, though. “The real reason that the mining industry is so beaten up, the real reason investors hate the mining industry so much at this moment, is the industry itself.” He pointed to majors writing off about $60 billion over the past few years and sacking at least seven CEOs last year. “And the operating performance of the juniors has been even more appalling.” From 2010 to 2013 companies listed on the TSX Venture got $26 billion from shareholders but “most of that money was spent without generating much value. People who made those investments want out of the mining industry.
There are hundreds and hundreds of other entities around the world that are capable of making these multi-hundred-million-dollar takeovers, that will be buying these companies and will be generating huge returns for the owners of those companies.—Lawrence Roulston, editor/publisher of
“A lot of this money came from people like you and I. But a lot of it came from institutional investors—hedge funds and various other investment funds. And those guys want out. They want to sell their shares, they want to get them off the books, they don’t care what price they get, they want to forget they have even ever heard of the mining industry.”
It’s an across-the-board sell-off. Institutions “don’t care if the companies are good, bad or indifferent.”
Therein lies the opportunity, he maintained—as long as buyers are a lot more discerning than sellers. “If you buy the right companies at the right time, the reward potential is huge.”
Furthermore, not all large investors have abandoned the sector entirely. Roulston said there’s private equity “collectively holding hundreds of billions” looking at producers with cash flow but hoping to pay the prices of earlier-stage projects. “It’s only a matter of time that they realize they’re not going to get huge discounts on cash flow,” he said. Eventually they’ll consider projects at the feasibility or pre-feas level. When that “massive amount of money” moves in that direction, “you’ll start to see a big, big recovery.”
Big miners might be cutting back on acquisitions but “there are hundreds and hundreds of other entities around the world that are capable of making these multi-hundred-million-dollar takeovers, that will be buying these companies and will be generating huge returns for the owners of those companies.”
As for the best way to find companies “in this wreckage,” Roulston offered some advice.
He prefers those with deposits. While companies trading below their cash value might appear attractive, “cash in the bank has value only to the extent that the company is going to spend it wisely.”
Many companies are trading at huge discounts from their highs. But buying companies that failed to find much in the ground “can be like buying a lottery ticket after the draw…. In some cases the best value are companies that are trading near their highs because these companies have been able to hold their values because they have good, strong assets and are getting recognition.”
His conclusion tinges optimism with caution. “There are lots of bargains out there but you have to be very selective—and more selective than at any time I’ve ever seen.”
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