By
Johannes Kotilainen
Continuing SmallCapPower’s coverage of the 2015 PDAC convention in Toronto, we asked our experts what they think will turn the junior resource market around and which commodities are worth watching. During the conference we had a chance to interview John Kaiser, Ubika Research’s Vikas Ranjan, Brent Cook of Exploration Insights, Adrian Day of Adrian Day Asset Management, Jay Taylor of Jay Taylor’s Gold, Energy and Tech Stocks, as well as Eric Coffin of HRA Advisories.
We
asked them the question: What’s
Holding Back the Resource Sector? Their responses highlight some key factors
that have been affecting the market. As
well we had an opportunity to ask their thoughts on: Which
Commodities to Watch and the catalysts that could
affect them.
According
to the experts we interviewed, global demand is currently down particularly
because China has decreased its demands, according to Adrian Day, and this
decreased demand from China must be put in context. Mr. Day believes China’s
current annual growth of 7% is not bad, although it’s still off from 10% and
11% in recent years. So although it is down the country is still growing, just
not as much as previous years. As for
gold, Mr. Day believes there are two big factors holding it back. The dollar
being one and the concern that the Federal Reserve will raise interest rates at
some point.
Jay
Taylor thinks the global economy has never really recovered from 2008-2009
financial crisis as well as the Lehman Brothers’ failure. There has been an
aggressive response of monetary policy to rejuvenate the economy, however he
believes it isn’t working. “If you look at the United States the velocity of
money continues to shrink.” He thinks the global economy is just not doing that
well and the resulting global demand for metals is just not there compared to
what it would be in a robust economy.
Brent
Cook, meanwhile, believes that a lack of profits from major mining companies
has created a rough two years. This, in turn, has kept institutional investors
out of the mining sector. He contends that for junior retail investors there
has been a lack of discoveries, and of those that have occurred, very few have
been legitimate and proven to be actual discoveries. On top of these factors
the whole market is down some 80% over the past two years, making for hard
times.
John
Kaiser stated, “The juniors are governed by four core narratives.” They are:
the commodities cycle, the gold bug, security of supply, and discovery and
exploration. Right now the commodities
cycle we are in has been slumping. This is because global GDP growth is
sluggish and is expected to be so for the next year or two. This then affects
the exploration and development as the mining companies cut their development
plans, creating another supply and demand imbalance. The result is the
commodities cycle’s positive trend is pushed back into 2017-2018.
The
next big question we confronted the experts with, was which commodities have
the greatest potential in 2015. Jay Taylor’s top pick is palladium, which he
said that because of geopolitical reasons the supply side can be very
problematic. South Africa has seen some difficulties in mining palladium and
Russia, which has been a net exporter, has been talking about importing. The
question, says Mr. Taylor, is where is a good place for this supply to come
from? He believes there are not many choices when it comes to companies that
can meet this demand; one company on his list that could meet this, is North American Palladium Ltd. (TSX: PDL).
Brent
Cook believes that the majority of commodities will be up, but three metals in
particular make his list of most promising. Mr. Cook thinks gold will improve
and the copper price should rise later in the year as a result of shortages.
Zinc is his third pick, arguing that in a two-year time frame it should
increase as well. Ubika Research’s Vikas Ranjan also believes zinc, as well as
nickel, have solid potential and gold could hold a surprise.
John
Kaiser contends that the commodity being talked about the most is zinc, as every
year it seems people say it is about to breakout. Mr. Kaiser believes “zinc
must go through $1.20 to really convince people that it is finally happening.”
He thinks this year will be sluggish for zinc, however the stockpiles are
depleting and are currently half full, and by 2016 it will be even lower. Then the
tipping point will be reached. As a result, now is the time to focus on zinc,
according to him.
Eric
Coffin also agrees zinc looks promising for 2016, however he believes that zinc
may start to move at the end of 2015. Looking at just 2015, Mr. Coffin thinks
the price of uranium right now is making it very hard to profit from mining it,
and it requires a price increase before anyone can really get anywhere. As a
result, by the end of year he believes it should have the best percentage moves.
He also talked about copper, as some incidents in mines have affected supply
and the surpluses expected may not be there. As a result of this, copper has
potential for 2015.
