"It will just take one wildebeest to break from the herd and all will follow."
It is the best of times and the worst of times depending on the market sector. For mining and commodities it is the worst of times. Sentiment has become a visceral rejection of all things concrete. Industrial commodities abandoned in favour of all things nebulous such as IT stocks.
It is high summer, July in fact and the afternoon of the last day of the working week. The masters of the universe have sold up just in case the world blows up. They are on a beach or a yacht somewhere on the limpid tepid waters of the Aegean. Maybe they were right, China has erupted and Greece has imploded. The media villifies gold bugs as the price of the metal sinks to a five-year low.
Charts will not tell us when we are reaching the bottom only investor behaviour. Propitious signs are that fear is palpable and that sentiment is that bad is getting worse.
China consumes almost half of all copper, zinc, nickel zinc and lead. Metal commodities are falling again as if China were about to vaporise. There are five important things to know about the Chinese economy but nobody knows what they are. At some point the investor will get weary of being wary. Rumours of financial collapse have been greatly exaggerated.
Investors do not want to invest because they fear they maybe marooned. This has resulted in a flat value-curve from exploration through to feasibility. In this market if you cannot show that you can find the funds to build a mine the market will give you no value. If you cannot go the whole way all the hard diligent work to advancing and de risk your project is for nothing. This flat or even inclined value curve is maybe not ominous but auspicious. A sign that we are at the bottom and ready to turn. It will just take one wildebeest to break from the herd and all will follow.
It is not that project risks have changed but that we perceive the world as a much more precarious place. The slack of fear has dampened down the flames of greed. It was Warren Buffet who said: be greedy when others are fearful, and fearful when others are greedy.
The sapling is bending lower and lower in the wind. When the turbulence passes the snap-back will be like a whip-lash. Exploration for metal deposits is in crisis. Despite a sharp rise on exploration spending since 2005 the discoveries have not come.
It takes seven to ten years from discovery to production. In this market the value curve is flat all along the way. Sclerotic equity markets have choked off Juniors from their main source of financing .
It is getting more expensive to make discoveries. The average weighted cost of a basemetal discovery has almost tripled. Climbing from $23 million in the period from 1980 to 1989 to $64 million during the first decade of this century. Capital costs and operating costs have ballooned during the last ten years. In zinc we see regurgitated zinc projects which for the most part were never developed for a reason. There is little price incentive now and some considerable time now to make discoveries
Lets get one thing clear. Massive value creation through discovery is not about big organisations. Success does not hinge on efficient management, process, technology or science. You cannot explore from an office and there is no silver bullet. What it is about is the small and the art of blending ingredients in a complimentary way. We need entrepreneurial leaders with insight and talent. We need persistence, discrimination and of course luck . These ingredients for success must combine with the business of managing opportunity. We should not treat the enterprise as a cost centre. We need to stop allocating scarce resources to dog projects run by the inept.
What a great time for someone to start a new zinc company with assets so cheap and investors so fearful?
John P. Barry
Managing Director of Irus Consulting Ltd. and Professional Geologist
A widely travelled and highly experienced economic geologist, John Barry is a confidential counsellor to the likely investor contemplating a considerable investment in the intricate business of mining metals. Dont take a flyer and trust altogether in luck and invest your money in an exploration or mining project on the strength of a printed prospectus or the advice of an interested friend without the preliminary investigation and site visit of a reliable geologist with a basic grasp of commerical reality. Irus Consulting provides strategic and practical management advice and guidance to its clients. Time is a precious commodity for my clients, and indeed myself, as it relentlessly ebbs away and so I try as best I can to avoid the mediocre - those projects and their champions which do not engender enthusiastic belief and passion.
Irus Services Include:
- High-level strategic advice
- Practical guidance and assistance on project sourcing, acquisition and implementation
- Rapid identification of key project value-drivers and potential fatal flaws.
- Capacity building and coordination of external consultants.
- Design and targeting of effective marketing campaigns
John Barry was part of very small teams which discovered and sourced several multi-million ounce gold deposits in Africa. He has worked as an economic geologist since 1988 and as a consultant and then responding to the entrepreneurial spirit he was a founder and manager of three public resource companies which raised a total of US$70million. These resource companies are currently successfully exploring and developing gold and base metal projects in Europe, and sub-Sahara Africa. John has seen a lot of rocks working for consultancies such as CSA in both Ireland and Australia and as Senior Associate Geologist with Chlumsky Armbrust & Meyer LLC which is based in Denver. He is a specialist in zin-lead exploration and in 1992 joined the exploration team which discovered the Lisheen zinc-lead deposit in Ireland as the resource was being expanded in the first couple of years after discovery and in 2008 led the first non Polish exploration company to successfully enter and acquire a major resource-project in the Upper Silesian Mississippi-Valley-Type (MVT) zinc-lead district in southern Poland the worlds largest minerlised district of its kind. John (P.Geo and EurGeol) holds a Masters Degree in Geology from Pennsylvania State University and a MBA from the Edinburgh School of Business, Heriot-Watt University, Scotland.
I would like to think that I have shown the tenacity, patience and focus required to implement many of my better ideas over the years and that I have learned valuable lessons from some failures. I believe one of my strengths is in communicating quite complex technical ideas in a concrete way that can be easily understood. I am a team- builder and motivator by projecting my enthusiasm and vision for a project. I am committed to the development of young geologists through supportive delegation. John is now moving more from managing public companies to freelance consultancy and a more advisory role so as to concentrate increasingly on assisting management in effective exploration and discovery. He is Managing Director of his own Exploration Management and Geological Consultancy: Irus Consulting Ltd. Please visit www.irusconsulting.com for more information and free newsletter registration.
John is now moving more from managing public companies to freelance consultancy and a more advisory role so as to concentrate increasingly on assisting management in effective exploration and discovery. He is MD of his own Exploration Management and Geological Consultancy Irus Consulting Ltd.