One of my favourite daily tasks is going through news releases, watching for developments at the companies I follow and looking for stocks I want to cover. The PDAC which is currently happening in Toronto is a period of the year when mining companies want to put out good news.
Not only am I looking for good companies to follow, but I try to garner insight on the industry as well. This year, I’m finding fewer companies with impressive news in the week prior to PDAC and from Monday which is a very bullish indicator for gold.
They say nobody rings a bell at the bottom, I disagree, they do, but far too few listen. Since gold topped in 2011 and went into a multi-year bear market that ended in December 2015, it has been increasingly challenging for the exploration side of the business. The ramifications of long periods of under exploration for much of the past few decades was the reason the bull market for gold started in 2001, and will be felt for decades. It will also be the main driver of the next bullish leg up that started early this year.
In addition to long periods of underinvestment in gold exploration, we are also seeing head grades at mines in decline, average grades of discoveries are declining, plus we are going deeper and into more challenging jurisdictions. The bottom line, the gold industry isn’t finding nearly the quality, or the amount, of new discoveries to replace what is mined out every day. On the Monday of the PDAC, David Garofalo, the newly minted CEO at Goldcorp was talking about the importance of exploration in their plans while being interviewed on BNN. Recently, Goldcorp announced their exploration budget is $135 million this year, they are definitely eating their own cooking.
Exploration is not easy, it takes time, patient investors and smart people running things. In the past gold bull market, the investing community was not very good at allocating capital, in the new gold bull market, I expect investors big and small to be much better at separating the wheat from the chaff. In the current market, exploration companies need to have real good stories to get funded to test their exploration targets.
These various reasons are why this year the news flow around the PDAC is at the lowest level I’ve seen in well over a decade. The bell is ringing. Goldcorp and others in the industry need to focus on exploration, it is my favourite part of the mining industry, and is a key focus of my reports.
This lack of news and weakness in the gold supply chain are extremely bullish for the long-term price of gold. I’ve been focused on searching for fewer companies, in the next bull market companies will need more than just gold in their name to move higher. I strongly believe we are at the beginning of a new bullish trend for gold, but one that fewer companies will participate in and skilled stock selection will be handsomely rewarded. This plays right into my game plan.
All the best,
Allan Barry Laboucan
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