In 1845 Benjamin Disraeli published his novel Sybil, but it was the secondary title, The Two Nations, that stuck in the English language. Its thesis, that there was an unbridged divide between rich and poor, etched itself in the British consciousness.
Similarly in 1959, when the scientist CP Snow delivered his lecture, later a book, called The Two Cultures. This time the gap was between the humanities and the sciences, and the fact that the lack of inter-interaction between the two was impeding the solution of many of the world‘s problems.
Well, in 2009, The Outcrop proposes we consider what might be called The Two Mining Worlds. And its author quickly adds that, unlike Disraeli and Snow, he doesn’t expect to be remembered and quoted in 50 hours from now, let alone 50 years, on this thesis.
That said, there will be some anguish in the exploration and mining sector this year, and even greater gaps will emerge between producers and explorers.
In a nutshell, any producer that can weather the present low prices will be off to the races when metal prices and demand pick up again.
The timing of that is unclear – it could be within the next three months, or it might not be until 2010 or even 2011. Just don’t believe anyone who says they can predict how long the recovery will take.
But it is an extremely bleak outlook for the exploration juniors. We shall see, over the next three weeks as the quarterlies emerge, just how they stand in terms of money in the bank.
Taking recent rights issues as a guide, it is going to be hell trying to raise money. Many of these companies will fail, or be wounded for years.
For the producers, there is a growing body of opinion that the metals – and their share prices – have been oversold.
Metals prices bounced before the new year, and the big players have seen a strengthening of their share prices – just look at BHP Billiton over the past week.
In fact, Marc Faber – the much-quoted financial guru who has long been a gold fancier – just this week changed his tune. While not being cool on gold, he sees much better opportunities at the moment in industrial commodities.
He has joined those arguing that the markets overshot on the downside when it came to marking down industrial metals – and the companies that produce them. He sees a sharp rebound in 2009, and singled out several players including Xstrata and BHP.
The problem for the other end – the junior end – is that many individuals and companies were as careless and irresponsible as the more high-profile cases at Bear Stearns and AIG.
Companies were floated and spun off, then their promoters went back to the market looking for more money – much of which has gone down a large black hole. Investors threw money at these companies.
During 2007, and into 2008, there was what one might call the Junior Bubble. Now this has burst, and many millions of dollars have been lost.
While the BHPs of this world can absorb their mistakes and miscalculations, the junior sector cannot. Many have done their dough, and they have no show of raising more.
They – and the mug investors who are left holding shares worth a fraction of what they were a year ago, and in some cases facing an illiquid market in particular shares – are about to experience the full savagery of the free enterprise system, and the injustice of it.
The politicians in Canberra bale out of some of the failures: look at the cases of the car makers and the car dealers, the retailers (through the $10 billion squandering of the surplus on pensioners, etc.) and even provide finance to keep failed child care centres temporarily open, and there will be more on this list before Rudd and company try and save their hides before the next election.
But others will be allowed to sink. And you can bet the junior exploration sector is in the latter category. No votes in marginal Labor seats.
To some extent, the debate about flow-through share schemes, worthy as it is, is to some extent meaningless. Many of the companies that would normally be the main beneficiaries cannot afford to carry on exploring, with management losing its nerve and/or financial resources.
No exploration, no flow-through deductions for their shareholders, even if such a scheme were in effect.
It’s a grim outlook, to be sure.
But much of the blame should lie squarely with the industry itself – the people who tried to take advantage of the bubble with their new floats and the people who gave them the money to do it.
The established producers will be there when the crisis ends. Many of those who inhabit the other part of the “two mining worlds” won’t.
