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Over the course of gold's secular
bull the demand for this precious metal has skyrocketed. And as a result
gold's primary supply source, mine production, has been forced to respond.
Thankfully with the price of gold soaring to all-time highs, there's been no
shortage of mining companies hitting the hills to look for the next deposit.
As a result of more and more miners
looking for gold, more and more gold is being found. And thanks to an
industry-wide boost in capex to develop these
finds, this bull's exploration cycle has recently started to bear its fruit.
This fruit is production growth for three years running, including a 2011
tally that came in at an all-time
high.
In peeling away the layers of this
production growth, it is no doubt interesting to see where in the world
gold's mined supply is coming from. And thanks to detailed country-level
production data provided by various government geological agencies and
private consultancies, we've been able to see exactly how global
gold-mining trends have played out.
Interestingly from a production
standpoint our current gold bull has a radically-different look than those in
the past. We've seen powerhouse countries of yore take huge falls from mining
grace, while other countries that had not been known for their gold mining
have grabbed this bull by the horns to turn out huge production increases.
As investors global gold-mining
trends are something that we should keenly be aware of. But while
geographical production data is useful, it is also useful to attempt to
understand where the next generation of gold mines is likely to come from.
And one of the best ways to do this is to find out where in the world the
junior explorers are spinning their drills.
By definition junior explorers are
companies that are either searching for gold deposits, or are in the process
of proving up the economics of the ones they've found. With their
exploration-focused models they don't contribute to supply. But while these
juniors aren't spinning out cash flow, their spinning at the drill bit is a
crucial part of the global supply chain.
Unfortunately broad exploration data
is extremely hard to come by. Unlike production data, there just isn't a
public formal tracking mechanism that collectively shows where in the world
the juniors are concentrating their efforts. Fortunately at Zeal we've
diligently tracked juniors for the better part of gold's bull. And we've
built up a massive database that among many data fields shows where each
junior's projects are located. This allows us to collectively see where this
sector is doing its work.
In general we focus on juniors that
have their primary stock listings in the US or Canada. And since these
markets tend to be the world's premier destinations for resource companies
looking to raise capital, their constituents offer a fair representation of
global exploration trends. Per our latest research cycle, we've accumulated
data on nearly 700 junior gold explorers that operate thousands of
projects all over the world. And as you can see in the map below, the
concentration of projects is not as one would expect.
Highlighted on this map are the
world's ten largest gold producers, which account for about two-thirds of
total mine production. And displayed next to these countries is the
percentage of junior explorers that own projects within their borders. Also
displayed on this map is a project percentage breakdown by respective
continent, inclusive of all projects within that continent. And by our count,
the juniors are currently exploring in 73 different countries.
With the world's top-ten producers spread
across five different continents, it is clear that gold mining is a global
affair. But what immediately sticks out is the perceived inactivity in the
world's most-productive continent. Asia is host to four of the world's
top-ten producers, with just these four accounting for a whopping 28%
of 2011's 2700 metric tons produced. Yet in terms of junior exploration, this
part of the world isn't seeing much play.
Provocatively this lack of play is
counterintuitive considering Asia's output, especially in view of the
production growth seen in China and Russia over the last decade (+92%
and +31% respectively). Though the juniors seeking investment capital in the
stock markets appear to stay away from Asia, there is clearly another means
of exploration feeding its growth.
And in general this means is
exploration being performed by either state-owned or domestically-based
private companies. Even though many Asian countries are under authoritarian
rule and thus close their borders to outsiders, they aren't blind to gold's
powerful bull. China, Russia, and other Asian powerhouses aren't afraid to
aggressively exploit their natural resources in order to line their coffers
with gold.
Overall with a total of only about 4%
of all juniors owning a project in Asia, it is clear that the barriers to
entry are too high for most to stomach. And unfortunately with the stigma of
big geopolitical risk associated with operating in this part of the world,
the juniors that are brave enough to venture there tend to see their stocks trade
at discounts to their peers.
Australia is another country that is
seeing a surprisingly small amount of junior exploration. Amazingly only
about 1% of the juniors in our pool own a project within its borders, with
the number jumping to 2% if I include projects in neighboring Papua New
Guinea, New Zealand, and Tasmania.
Interestingly though Australia's low
project percentage is driven by a different set of circumstances than what we
are seeing in Asia. First is Australia is host to one of the world's only
other resource-friendly stock exchanges outside of the US and Canada. As one
of the world's top gold producers (currently #2
behind China), Australia's investors have long had a strong cultural affinity
to gold stocks. And as a result, most locally-based mining companies don't
need to list elsewhere to procure investor capital.
From an outsiders' perspective
Australia does have some operational, geological, and geopolitical factors
that tend to dissuade investment. On the operational front this country is
struggling with soaring mining costs. Part of this has to do with rising
labor and energy costs, while part is attributable to lower grades due to the
fact that much of Australia's low-hanging fruit is gone. On the geopolitical
front the barriers to entry aren't high compared to other countries, but some
recent policy issues (especially in regards to taxes/royalties) have been a
turn-off to the explorers.
With 8% of the junior population
owning a project in Africa, this continent is definitely seeing more play
than Asia and Australia. And this play is spread across 24 different
countries, from big producers like South Africa and Ghana to countries like
Gabon and Sierra Leone that are seeing their first modern exploration.
Overall considering Africa's vast mineral
wealth, it is a shame it doesn't attract a higher percentage of junior
explorers. And the main reason for this is heightened geopolitical risk in
nearly every country on the continent. Unfortunately we've seen every
possible scenario of geopolitical shenanigans play out in Africa over the
last decade.
From resource nationalization, to
civil war, to unreasonable tax/royalty regimes, to overbearing environmental
regulation, the miners have seen it all. And one common theme that leads to
these issues is central-government instability. Unfortunately many of
Africa's governments are too busy trying to stay in power to realize what
investment in their natural-resources sectors could do for their economies.
Thankfully there are some exceptions
to the rule. Though far from perfect and not without risk, countries like
Ghana, Tanzania, Burkina Faso, and Mali tend to be mining-friendly and thus
attract a lot more junior exploration than other countries, especially more
so than Africa's top producer.
As recently as 1970 South Africa was
responsible for over two-thirds of the world's gold production. But over the
years a variety of factors (a national power crisis, lower ore grades, higher
labor costs, currency issues, and ridiculous government policy among the many)
have contributed to a huge fall from mining grace.
Incredibly in 2011 South Africa had
slipped to fifth in global mine-production rankings, sporting an 80%+
drop in volume from its high, to its lowest output in nearly a century. And its foolish government still doesn't get it as it
currently tosses around the idea of mine nationalization or a 50%
mining windfall-profits tax. It's no wonder junior explorers won't touch this
country with a ten-foot pole!
In South America we can start to see
some real exploration action. With well over 100 juniors exploring every
major country on this continent, we get a tally of 16% of all juniors owning
a project there. As for its constituents, there are definitely countries that
have major strategic advantages over others.
In Peru for example mining is the
linchpin of its economy. It has long embraced foreign investment, and the
mineral-rich Andes Mountains that span this country have long been attractive
to global explorers. As a result, Peru is South America's leader in both
exploration and production (world #6).
Other popular destinations for the
junior explorers are the strong producer nations of Brazil, Chile, and
Argentina. Around 50 juniors hold projects in these countries, and some big
discoveries have been made in them over the course of this bull. But perhaps
some of South America's finest discoveries are being made in Colombia, one of
gold's newest exploration frontiers.
Interestingly Colombia is no stranger
to gold, with mining dating way back to the pre-Columbian era. But as a
result of a major rough patch for this country that spanned nearly the
entirety of the second half of the 20th century, its massive gold fields had
seen very little modern exploration.
Thankfully Colombia's geopolitical
scene started seeing radical improvements over the first decade of the 2000s.
And as a result, this country has been experiencing a modern-day gold rush.
Juniors and majors alike have made some big discoveries, and we ought to see
Colombia jump way up the producer rankings over the next decade as they are
developed.
Of course South America does come
with its fair share of red-flag countries, the most notorious being
Venezuela. Venezuela is blessed with simply massive known gold deposits,
along with numerous prospects. But unfortunately its Hugo Chavez-led Marxist
movement has led to a rampant resource-nationalization campaign that is
enough to scare away most foreign investment. And sadly other countries like
Bolivia have followed suit.
Next we venture to North America,
where we are seeing by far the most activity on the junior-exploration front.
Incredibly 71% of juniors own a project in North America, with over half
owning a project in Canada, 17% in the US, and 11% in Mexico. And the juniors
are descending upon this continent for good reason as all three major
countries have a solid mix of rich gold-mining history, large underexplored
mineral belts, and low geopolitical risk.
In Canada the junior explorers have
been flocking there in droves. And they are finding immense brownfields and
greenfields success. On the brownfields front the
explorers are reviving past-producing districts where historic gold deposits
still have plenty of the shiny stuff remaining. They are also uncovering
major new deposits underneath and adjacent to these districts. There's no
better place to look for gold than where it is already known to exist!
On the greenfields
front the explorers are making major new district-scale discoveries all
across the country. Many of these discoveries are being made within the large
greenstone belts housed within the Canadian Shield that covers most of
Ontario and Quebec. And many more are being made in remote frontier areas
like the Yukon, British Columbia, and Nunavut.
In the US there are over 100 juniors
exploring for gold via both brownfields and greenfields
methods. Nevada and Alaska are of course the bellwether locales, but the
juniors are also finding excellent success in such places as South Carolina,
Idaho, and California. Overall the US's strong exploration has led to its
first production increase in ten years in 2011.
Interestingly it is Mexico that is
probably the best story of this gold bull so far. This country actually has a
much longer gold-mining history than the US and Canada, with its rich precious-metals
belts having been exploited for well over 500 years. And with thousands of
historic workings acting as virtual treasure maps, the modern explorers
haven't had a problem finding the gold.
A huge increase in Mexican
exploration over the last decade has led to a 254% increase in
production, vaulting it up the charts to where it is now the world's
11th-largest producer. And with over 75 juniors currently exploring and
developing in Mexico, its impressive growth trend ought to continue.
In all North America was responsible
for 16% of mine production in 2011. And with year-over-year production growth
of an impressive 9%, well above the global average, along with a bevy of
ongoing junior exploration, North America will be pumping out a slew of new
mines.
Not represented on this map since
they don't have top-ten producers are Europe and Central America. But it
certainly doesn't mean there isn't exploration going on in these regions. In
Europe there are dozens of juniors operating projects in 13 different countries.
And in Central America there are over a dozen juniors exploring in six of its
seven countries. There are even several juniors with projects on the orphan
island of Hispaniola (the Dominican Republic and Haiti).
Overall there are several things we can
glean from this junior-gold-exploration map. And perhaps the most interesting
is that major production centers don't necessarily line up with where the
juniors are spinning their drills. While there are some solid juniors doing
good work in Africa, Asia, Europe, Central America, and Australia, the real
action is in North and South America. And since North America is carrying the
load, I suspect we'll see more production growth from this part of the world
than any other in the years to come.
At Zeal we just published the second research report in our
two-report series profiling our favorite junior-gold-exploration stocks. And
though the two dozen stocks profiled in these reports operate a wide
geographical array of projects, in aggregate the global breakdown is very
similar to what we see in our junior-gold-exploration map. To have the
detailed fundamental profiles of these high-potential stocks at your
fingertips, buy your reports
today! And to find out which ones we are recommending in our acclaimed weekly and monthly newsletters, subscribe today!
The bottom line is gold exploration
has grown increasingly popular over the course of this bull. Taking to the
hills in search of the next generation of gold mines are many hundreds of junior
explorers. And they are scouring the planet in their efforts.
But while the juniors spread
themselves far and wide, there are definitely popular locales they tend to
favor. And interestingly these locales don't necessarily line up with all the
major production centers. Currently there is a huge exploration bias towards
North America, and this ought to continue to feed major production growth
from this continent's big-three countries.
Scott Wright
Our expert research team looked at the universe of 100 or so junior
producers trading in the US and Canada, and after thorough analysis whittled
this group down to our dozen fundamental favorites that we believe have the
highest probability for success. Each of these stocks is profiled in detail in
our hot-off-the-presses 34-page research report that is now available for purchase on our website. Buy your copy today!
At Zeal we use reports like this to feed trades in our acclaimed weekly and monthly newsletters. And we recently issued new buy
recommendations on several of our favorite junior gold producers. We
anticipate that these stocks will see gains akin to the 51%+ average
annualized realized gains that we’ve had in nearly 600 stock trades
recommended in our newsletters since 2001, and hopefully better. Subscribe today to see our current trades and get truly contrarian
stock-market analysis.
The bottom line is even though gold continues to forge higher, gold
stocks have disconnected from the historically positive leverage that investors
are used to seeing. Not only have the gold stocks not kept pace with gold,
they’ve sold off hard, with the juniors just getting brutalized.
But so long as gold’s bull remains intact and its fundamentals
compelling, this gold-stock fear will prove totally unjustified. The most
ardent of contrarians realize that gold stocks can’t be held down for
long, and that the carnage we’ve seen, especially in the juniors,
offers huge buying opportunities. Selling has likely reached the point of
exhaustion, so carpe diem before the herd returns.
So how can you profit from this information? We publish an
acclaimed monthly newsletter, Zeal Intelligence, that details exactly what we are doing in terms of
actual stock and options trading based on all the lessons we have learned in
our market research as well as provides in-depth market analysis and
commentary. Please consider joining us each month at … www.zealllc.com/subscribe.htm
Thoughts, comments, or flames? Fire away at scottq@zealllc.com . Depending on the volume of feedback I may
not have time to respond personally, but I will read all messages. Thanks! Copyright 2000 - 2005 Zeal Research (www.ZealLLC.com)
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