Sunday, December 9, 2012

More pondering of Kaiser and the Great Extinction


So as I was saying earlier this week, I find it intriguing to think about the imminent Kaiser Extinction - where several hundred explorecos are about to disappear off the face of the earth.

The idea is, there's a load of companies out there with nothing to show for several years of "exploration"; they can no longer finance without it being prohibitively dilutive, some can't finance cos of the 5-cent rule, and now they have so little money left at bank that they can't even afford the cost of quarterly Venture filings and a P.O. Box. In the words of Brent Cook, who's been a big proponent of Kaiser Extinction Theory, they're "just going to... [dramatic pause] go... away...."

Now, here's the thing.

OK. If all you can show for 3 years of hookers and blow exploration is a VTEM conductor or a soil sample, then sure. I get it. You have nothing, you'll continue to have nothing, the door has closed on your continued existence, pack it in.

But there are also companies out there who have seen their market cap collapse, but who do admittedly have deposits that should be worth something. In some world, maybe not this world, but in some world.

Why is the Great Kaiser Singularity occurring? If it's because the capital markets are scared of a US recession, a Euro depression and a China collapse, then I can see why nobody considers a property worth pursuing anymore if its break-even point is $2.50 CU or $1400 Au.

But if the US has already bottomed and is going to start growing strongly this year, and if the Euro has already hit bottom and will begin to see improvement soon, those two things alone should create enough aggregate demand to bring China back up to >8% growth, no? In which case all of a sudden China is fine again. And then the rest of the world is fine again.

In which case we get back to thinking that demographic-driven demand growth will continue, and with the supply contraction that's happening we get back to assuming inflationary pricing for PMs and base metals.

Point being, if a company has been slaughtered down to a $5M market cap, but you've got some analyst who swears up-and-down that e.g. no really honestly at $3 Cu this property is worth $500M on buyout, then really, they shouldn't "just go away", should they? Cos they have something of value. Just not of value right now with all the worries about the world economy.

So if I'm the CEO or director at some exploreco with a property that definitely is worth a hell of a lot more than the market's giving us credit for, and I see the bank is down below $200K, why wouldn't I offer to privately finance the company, for say a $200K placement, even at twice the present share price with no warrant? It keeps the company going for a year, after which time we'll have a better read on whether the world economy has moved back into growth mode.

Even if it's only a 40/60 chance that we move back to strong world growth in 12 months, and I finance at twice the price, I only need a 5-bagger to even out the risk-reward. And there's a heck of a lot of companies out there who would be 5-baggers if the damn world economy just turned around, no?

And I'm saying it's a lot more than a 40/60 chance that the world economy is better 12 months from now.

So really, if there are any tuppence-ha'penny explorecos out there that really definitely have a deposit of value, then now would be precisely the time to gobble up their shares, no?

(Of course this thought process didn't stop me from selling my 7-cent AQM shares for 10 cents on Friday... but you get the point.)

3 comments:

  1. Cookie and Kaiser would probably agree with you but say that the extinction hypothesis is really about the companies who have zippo and that there are literally hundreds of those, according to them.

    I haven't got the time or the brains to analyze 1800 junior explorecos and figure out if that is true but I guess they either have done so themselves or are somehow extrapolating based on a sampling.

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  2. I expect that is exactly what will happen...things with real merit will not simlpy "dissappear", they will get taken private by those in the know (or they will get bought out by others in the know). The problem is there are way too many "hookers and blow" (I loved that line - still laughing) BS companies out there and we all need them to fuck off and die so we get get back into funding real serious businesses with actual chances of a return on investment rather than Vegas field trips for the directors.

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  3. Kaiser is scheduled for BNN Commodities this coming Friday. Here's a sneak peak:
    http://www.youtube.com/watch?v=3lauOEEillQ

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