FCX - Whither the Junior Miners? | Benzinga
Source: Michael Ballanger 05/13/2024
Michael Ballanger of GGM Advisory Inc. takes a look at current movements in the market, specifically in the junior miner's sector. He also shares a few public companies that will be embarking upon drilling campaigns this summer.
During the course of the past week, as copper closed at a 26-month weekly high at $4.65/lb., I came across no fewer than a dozen tweets and retweets of various podcast gurus doing their damnedest to explain the woeful underperformance of the junior miners relative to the recent upward surges in gold, silver, and copper, along with the share prices of the senior producers.
The starter pistol for the current rally in the miners was sounded at the end of February as a sudden explosive move in gold and copper prices interrupted the pre-planned celebrations for the PDAC battery metals lovefest. Attendees came away in early March on the final day of the largest mining conference in the world, staring into space with jaws agape and hearts broken as all of their preparations for the widely-touted uranium gala was upstaged by that ornery old charmer — gold.
In answering the question as to why the juniors are acting so poorly, the paper-hanging charlatans of the junior mining trade would point to a "lag effect" that would explain why they have steered their congregation in the direction of "Foofoo Mines" instead of Agnico Eagle Mines Ltd. (NYSE: AEM) — that eventually, the juniors will "massively outperform" their senior brethren making them "the far better bet."
Well, this chart makes no such claim.
Anyone who has been in this sector for more than a coffee break knows that at the onset of every bull market in the resource sector, the generalist money rotates into the high-quality, highly liquid names that dominate the sector in terms of market cap and visibility first and THEN after the big name blue chip miners have moved, they move down the ladder of safety to progressively less-liquid and less-quality names. That is the first lesson in the resource space. After a prolonged bear market, you bottom-fish with the large-cap names first.
When I first turned positive on uranium in 2022, the first name I covered was Cameco Corp. (NYSE: CCJ) because it was the biggest and most liquid uranium name around. When I went berserk on the copper-gold tandem as my list of top metals to own in 2024 and beyond, I added Freeport-McMoRan Inc. (NYSE: FCX) because it was (and is) the largest copper producer in the world with a strong gold production component from their ownership of the Grasberg Mine. Names like FCX and CCJ become the core of your allocation to any particular commodity because if you are trying to bottom-fish after a long bear market and it turns out you are either early or wrong (because in this business, "early" IS "wrong"), no one will have you tarred and feathered for owning a blue-chip name.
However, if you try to pick a cyclical or secular bottom in Foofoo Mines and you are wrong, you often get pilloried for owning a speculative name totally unsuitable for the portfolio. In addition, since liquidity is always a problem, many of the micro-cap juniors with aspirations of either discoveries or re-ratings wind up as "owl stocks" — that is, when you try to sell them, the haunting mating call of the Great Horned Owl fills the night air — "to-WHOOOO, to-WHOOO" — the reply often heard when instructions are given to find someone to take you off your million shares of Moose Pasture Metals at thirty cents. Liquidity is important when you are right but lack thereof can be injurious to one's career if one is wrong/early/stupid.
Back to the question: Why are the juniors not yet responding to $2,400 gold, $29.00 silver, and $4.65 copper?
Shift to the performance of the TSX Venture Exchange — the place where dreams are sold and hearts are broken, the financial industry's answer to Aqueduct or Hialeah, the place where you dabbled before legalized gambling became a cottage industry for literally every outcome we face in everyday life. Since the peak in 2007 at over 3,300, the TSXV has dropped like a stone with anemic rallies in 2016 (after gold bottomed at $1,045) and in 2020 (after the world dropped trillions in cash bombs from helicopters to combat a nasty little flu bug). Every rally has failed since 2007, only to hit new lows on ever-declining volume (liquidity).
The problem facing the elder statemen (and women) of the mining industry is that nobody under the age of fifty has made any money in owning mining stocks, especially the new generation of investors from the Millennial and Gen-X demographics. It is predominantly a function of Western demographics because while Western "Boomers" still recall the boom times of the 1980s and 1990s when phenomenal discoveries and enrichment were commonplace, no such rapture was happening in the Emerging Markets. So, the new generation of Western and Asian investors have rightly avoided the cesspool of resource purgatory and focused on technology, which includes AI and crypto, and while we gold "afficionados" (as opposed to "bugs") love to pluck hairs from Michael Saylor's pitiable stubble, the tech and crypto space has treated investors considerably better since 2007 than has the mining sector.
The graphic shown below is of a waterfall where it cascades down through various layered pools of gathered liquid, each spilling over into the next one below. Imagine the river at the top of the waterfall as the capital liquidity destined for investment in the mining sector. As it enters the falls, it first pools at the top (where the Senior Miners reside), and as it fills up all the nooks and crannies (to full allocation status), it ...