Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
US Housing Market Analysis - Immigration Drives House Prices Higher - 30th Sep 24
Stock Market October Correction - 30th Sep 24
The Folly of Tariffs and Trade Wars - 30th Sep 24
Gold: 5 principles to help you stay ahead of price turns - 30th Sep 24
The Everything Rally will Spark multi year Bull Market - 30th Sep 24
US FIXED MORTGAGES LIMITING SUPPLY - 23rd Sep 24
US Housing Market Free Equity - 23rd Sep 24
US Rate Cut FOMO In Stock Market Correction Window - 22nd Sep 24
US State Demographics - 22nd Sep 24
Gold and Silver Shine as the Fed Cuts Rates: What’s Next? - 22nd Sep 24
Stock Market Sentiment Speaks:Nothing Can Topple This Market - 22nd Sep 24
US Population Growth Rate - 17th Sep 24
Are Stocks Overheating? - 17th Sep 24
Sentiment Speaks: Silver Is At A Major Turning Point - 17th Sep 24
If The Stock Market Turn Quickly, How Bad Can Things Get? - 17th Sep 24
IMMIGRATION DRIVES HOUSE PRICES HIGHER - 12th Sep 24
Global Debt Bubble - 12th Sep 24
Gold’s Outlook CPI Data - 12th Sep 24
RECESSION When Yield Curve Uninverts - 8th Sep 24
Sentiment Speaks: Silver Is Set Up To Shine - 8th Sep 24
Precious Metals Shine in August: Gold and Silver Surge Ahead - 8th Sep 24
Gold’s Demand Comeback - 8th Sep 24
Gold’s Quick Reversal and Copper’s Major Indications - 8th Sep 24
GLOBAL WARMING Housing Market Consequences Right Now - 6th Sep 24
Crude Oil’s Sign for Gold Investors - 6th Sep 24
Stocks Face Uncertainty Following Sell-Off- 6th Sep 24
GOLD WILL CONTINUE TO OUTPERFORM MINING SHARES - 6th Sep 24
AI Stocks Portfolio and Bitcoin September 2024 - 3rd Sep 24
2024 = 1984 - AI Equals Loss of Agency - 30th Aug 24
UBI - Universal Billionaire Income - 30th Aug 24
US COUNTING DOWN TO CRISIS, CATASTROPHE AND COLLAPSE - 30th Aug 24
GBP/USD Uptrend: What’s Next for the Pair? - 30th Aug 24
The Post-2020 History of the 10-2 US Treasury Yield Curve - 30th Aug 24
Stocks Likely to Extend Consolidation: Topping Pattern Forming? - 30th Aug 24
Why Stock-Market Success Is Usually Only Temporary - 30th Aug 24
The Consequences of AI - 24th Aug 24
Can Greedy Politicians Really Stop Price Inflation With a "Price Gouging" Ban? - 24th Aug 24
Why Alien Intelligence Cannot Predict the Future - 23rd Aug 24
Stock Market Surefire Way to Go Broke - 23rd Aug 24
RIP Google Search - 23rd Aug 24
What happened to the Fed’s Gold? - 23rd Aug 24
US Dollar Reserves Have Dropped By 14 Percent Since 2002 - 23rd Aug 24
Will Electric Vehicles Be the Killer App for Silver? - 23rd Aug 24
EUR/USD Update: Strong Uptrend and Key Levels to Watch - 23rd Aug 24
Gold Mid-Tier Mining Stocks Fundamentals - 23rd Aug 24
My GCSE Exam Results Day Shock! 2024 - 23rd Aug 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Junior Gold Mining Stocks Super Nova

Commodities / Gold & Silver Stocks Oct 12, 2010 - 06:25 AM GMT

By: Richard_Mills

Commodities

Best Financial Markets Analysis ArticleRecently I have been reading and hearing about a commodities bubble. I disagree with the idea of commodities being in a bubble - some may occasionally become overbought and correct. Occasionally we will see profit taking and nervous nellies selling on the backs of the various naysayers. But what some are calling bubbles is simply demand outpacing supply.


"When the price of copper finally hit $2 a pound and started going above that, you started hearing people say, It's going to go right back down below $1 which is where it's been for decades. But more and more there came a point of view that this was a permanent increase in prices." ~ Raymond Goldie, analyst, Salman Partners

The citizens of the worlds developing nations (China has one fifth of the world's population, India another 1.2 billion people) aspire to have what we have, the ease of travel, home phones, electricity, central plumbing, heating and air conditioning, cars, toys, consumer electronics and home appliances. The overall dominant global trend in the commodities sector is for increasing demand and rising prices because of a lack of supply.

Also I believe we're heading, over the next few years, to a very inflationary environment. With US President Obama promising trillion dollar deficits for years to come, with all exporting countries trying to keep their currencies weak to make their exports competitive and with Bernanke throwing money out of helicopters - once my anticipated inflation starts it isn't going to stop anytime soon.

The International Monetary Fund (IMF) recently published its report World Economic Outlook for October 2010 and in it they talked about commodity demand from emerging countries. "Because their growth is more commodity-intensive than that of advanced economies, the rapid increase in demand for commodities over the past decade is set to continue...the current era of higher scarcity, rising metal price trends and a balance of price risks tilted toward the upside may continue for some time."

Agricultural commodities are skyrocketing in price as well. Grain prices soared last Friday after the US department of Agricultural drastically revised estimates downward for the US corn harvest - they slashed a record 6.7 bushels an acre off the national harvest figures. This after projecting a record corn harvest as recently as August.

"Shocker may be an understatement. It's very out of character for the USDA to lower the corn yield so much." ~ Jason Britt, president, Central State Commodities

The USDA will often revise (several times) its harvest estimates in October. But with the US corn harvest, at the time, barely 50 percent complete no one expected such a massive bushel per acre revision to the harvest numbers.

"The indication is that we'll just continue to move up from now. There is literally nowhere else in the world to turn to fill these supplies." ~ Darin Newsom, senior analyst, Telvent DTN

Also consider the following:

  • Population growth
  • Scarcity of new resource discoveries
  • Declining grades and ore reserves at existing deposits
  • Nationalization
  • Decrease in arable land
  • Lack of freshwater for irrigation

Investor interest is growing in the fertilizer sector. Anglo-Australian miner BHP Billiton recently made a $39 billion hostile bid for Canada's Potash Corp. - the world's largest fertilizer maker. China and the Ontario Teacher's Pension Fund are possibly getting involved and this author expects another higher bid to be offered, although as I write this none has appeared.

After last Fridays surprise announcement by the USDA shares in fertilizer companies soared.

To me it all means we are going to see much tighter supplies of, and higher prices for commodities going forward.

If I was looking for superior investment vehicles to take advantage of what I think I know regarding the future for commodities and precious metals I'd be looking at junior producers, near term producers and companies that are in the post discovery resource definition stage with the occasional green field exploration play thrown into the mix.

Why? Well besides the fact that I believe junior resource companies offer the greatest leverage to increased demand and rising prices for commodities there is a very real and increasing trend for Mergers and Acquisitions (M&A) in one of the few bright spots available for investors, resources - whether it's mining or agricultural.

Juniors, not majors, own the worlds future mines and juniors are the ones most adept at finding these future mines. They already own, and find, what the world's larger mining companies need to replace reserves and grow their asset base.

The following factors are driving the growing M&A trend:

  • Consolidation to achieve economies of scale and pricing power
  • Scarcity of large producing assets
  • High demand in industrialized nations for metals and minerals
  • V shaped recoveries in developing countries
  • Expansion into new geographies
  • Diversification of resource bases
  • Overall return to risk
  • Looser bank lending
  • Higher commodity prices and better company cost management = larger operating cash flow

"As the potential for commodity scarcity escalates, M&A activity in the global mining sector will likely intensify, mimicking a 'global arms race. With few large targets in play and diminishing key resource reserves, we expect global miners will continue to scour the globe for projects and broaden their deal strategies." ~ M&A in the Global Mining Sector - No Stone Unturned, PricewaterhouseCoopers

"The key to really understanding what's driving this globally is the pressure on food production around the world." ~ Denita Stann, Potash Corp's director of investor relations.

Because of:

  • Rising commodity prices
  • Soaring share prices because of outstanding drill assay results
  • Increased excitement being brought to the junior sector by increasing M&A activity for junior "fish"

The soon to be a tidal wave of money coming into the resource sector is going to bypass the majors and roll right over the few surviving mid-tiers. This money is going to be looking for the greatest leverage to increased commodity demand, rising commodity prices and the potential for an extremely lucrative buyout.

In their No Stone Unturned report PricewaterhouseCoopers (PwC) said 1,732 deals worth $159 billion were struck in the record setting year 2007 - 1,324 M&A deals were struck in the first six months of 2010 for a total value of $104 billion. But the overall number of mega deals (+ $500 million) is way down with only 28 announced to date against 54 in 2007.

"Scarce opportunities for mega deals have prompted more senior miners to acquire junior mines and exploration companies earlier in their life cycle." ~ PwC

Conclusion

"Many mining and metals companies are looking for acquisitions to fast track supply pipelines, driven by confidence in ongoing underlying demand in China and India. We are seeing a lot larger lists of potential buyers than there are assets available." ~ Mike Elliot Ernst & Young's Global Mining & Metals Leader

Senior miners are buying junior and exploration companies earlier in their life cycle. New money is coming into the sector, bids are building and the asks are being taken out. Significant drill assay results are giving companies share prices a rocket ride when released.

It's an exciting time to be an investor in the junior resource market. Are there some quality junior producers, soon to be producers, post discovery resource definition, green field exploration companies and potential takeover targets on your radar screen?

If not, maybe there should be.

By Richard (Rick) Mills

www.aheadoftheherd.com

rick@aheadoftheherd.com

If you're interested in learning more about our junior markets please visit us at www.aheadoftheherd.com. Membership is free, no credit card or personal information is asked for.

Richard is host of aheadoftheherd.com and invests in the junior resource sector. His articles have been published on over 200 websites, including: Wall Street Journal, SafeHaven, Market Oracle, USAToday, National Post, Stockhouse, Casey Research, 24hgold, Vancouver Sun, SilverBearCafe, Infomine, Huffington Post, Mineweb, 321Gold, Kitco, Gold-Eagle, The Gold/Energy Reports, Calgary Herald, Resource Investor and Financial Sense.

Copyright © 2010 Richard (Rick) Mills - All Rights Reserved

Legal Notice / Disclaimer: This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Richard Mills has based this document on information obtained from sources he believes to be reliable but which has not been independently verified; Richard Mills makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Richard Mills only and are subject to change without notice. Richard Mills assumes no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Furthermore, I, Richard Mills, assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information provided within this Report.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in