Better times ahead for small-cap explorers

By Mercedes Ruehl
Australian Financial Review

Junior mining exploration companies could be poised to benefit from renewed investor interest next year, spurred by rising demand from China for raw materials.

The share prices of junior or “small-cap” resource exploration companies have taken a hit since commodity prices fell and big players like BHP Billiton started cutting production, signalling the end of the mining investment boom.

But the latest manufacturing survey from China shows activity has expanded for the first time in more than a year. When coupled with other signs of revitalisation in the world’s second-biggest economy, this has prompted many investors to expect a rise in demand for raw materials.

“If we argue China is turning around, investors will take the flight to quality to begin with,” RBC Capital Markets head of equities Peter Main says. “From there we should see a trickle-down effect into the more leveraged miners and small- to mid-cap producers, and a flow of funds into the junior explorers should follow. Given the depth of the downturn, the time frame for investors to return to the juniors could be up to six months.”

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China buying gold and silver as hedge

“Often the biggest opportunity lays in the junior miners, the smaller still exploratory mining companies.”

Steven Orlowski
ETF Daily News

Gold is supposedly back and as appealing as ever. Of course it never went anywhere, but the constant barrage of gold bears has often dampened the outlook for what is likely to be a continuation of the global rally in gold that is now 12 years old.

Recent headlines have touted the increased commitment to gold by countries and investors alike. Of great interest to emerging markets investors is the revelation that China is stockpiling gold as a hedge against a falling US dollar.

However the China story is an obvious one. China owns a lot of US dollar-denominated debt and is therefore greatly exposed to the effects of a falling dollar. While extremists anticipate an overnight collapse of the dollar at the hands of the Chinese, this is not reasonable.

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Chinese miners to invest $7.4bn in Peru

By Frik Els

Lima daily Gestion reports Chinese mining companies Minmetals, Chinalco, Shougang and Zijing Mining Group are planning to invest $7.4 billion in Peru over the next five years, making up a substantial part of overall mining investment projects expected through 2017.

Shougang already works an iron mine in Marcona and recently announced an investment of $1.2 billion over the next five years to expand operations.

Zijing Mining Group, which is advancing the Rio Blanco copper project in Piura, will spend $1.5 billion for the same period, while Minmetals will invest around $2.5 billion in the gold and copper project El Galeno, located in the Cajamarca region.

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Also see: Peru sees $10 billion mining investment

China’s gold miners lack efficiency

Many operators do not have the machinery and efficiency and they rely on cheap labour, which is not sustainable, say mainland producers

By Eric Ng
South China Morning Post

China has been the world’s largest gold producer for five consecutive years and is poised to overtake India as the largest consumer this year, but its miners of the precious metal lack scale and efficiencies.

The mismatch between output and efficiency highlights the need and opportunities for consolidation of the fragmented sector as well as technology upgrades, say analysts.

Weng Zhanbin, the president of Shandong-based and Hong Kong-listed Zhaojin Mining Industry, said China’s top 10 gold miners produced 184 tonnes of bullion last year, based on China Gold Association’s figures.

On the other hand, the world’s largest gold miner, Canada’s Barrick Gold, alone produced 240 tonnes of the precious metal.

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