Thursday, July 10, 2014

Eric Coffin on junior mining


I don't assume this blog has any readers who don't read IKN; it's really just an antechamber where certain select IKN readers go to get news about stuff that doesn't involve junior miners or the Bolivaran struggle against American imperialism. Oh and for Friday music videos that don't suck.

Still, even though IKN linked to this already, I will too:

Mining.com - Eric Coffin thinks junior mining has bottomed and is taking off. A lot of great thoughts here from one of the few junior mining analysts who doesn't have his head up his ass. For example:
Zinc prices recently hit new highs, printing prices above $1.00/lb for the first time in three years. Inventories are still not low by historic standards but they have been dropping since early 2013 and that fall should continue. At the current pace warehouse inventories could be down to levels that could trigger larger price gains before year end.

I point out zinc in particular since it seems to be subject to less “extraneous” noise—like Chinese commodity financing or doom and gloom western traders. It’s unsexy enough to be a useful guide to base metal complex demand and it ain’t following the script either. A zinc supply deficit is projected but it looks like things are moving quicker than expected. I don’t think its traders playing games—just good old fashioned demand.
Which is a metal that I haven't been paying attention to, and I'd agree you want to watch the metals that aren't part of Wall Street Whitey's playbook if you want a more honest read of what's going on. I've been concentrating on silver for clues, myself - I don't think Whitey bothers with silver anymore.

Also, re inflation:
Core CPI is now matching the US Fed’s 2% target and personally I don’t think it’s going to stop there. There are reasons to expect some of the larger categories like Owner Equivalent Rent to keep rising and we’re just starting to see the prices of goods rise—it’s been mostly services up to now.
Scary btw that here we have a junior mining analyst who seems to have passed Econ 101. I don't think there's another one out there.
This isn’t a “Weimar II” story. While money supply growth increases the odds of an inflation spike I don’t think that is likely. This is a more mundane move based on a stronger economy, improved lending and higher demand. That’s a good thing. Most of the move in base metals is basic demand but some is starting to come from traders expecting a lift in inflation. Copper has historically been a pretty good inflation hedge

The June US payroll report came in way over consensus. This led to gains in equities and bond yields but also seemed to feed directly into the commodity complex. All the base metals had a very strong move the day the job report was released. Base metals don’t drive money into the exploration sector as much as gold does but this adds to upward pressure I think is still building.
All in all a good article to read, though I find it disturbing that he doesn't touch on the fact that gold and the juniors are supposed to pop 30-50% every summer. It's seasonality.

So is he misleading himself by looking for sensible reasons behind the metals' performance? He usually comes off as a somewhat cynical, world-weary fellow, so the optimistic tone of this letter seems out of place during the summer pop in juniors.

Anyway, it's still a worthwhile piece to read, so go read it.


3 comments:

  1. If it's any help, I can guarantee that i only read here and never read IKN

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  2. I never read IKN unless there's a link here because I'm too lazy to go find it and it's too lazy to work with Opera's rss feeder. Did I miss anything South American, like, was there a big soccer game recently? Or maybe a shipment of plantains got stolen? Should I invest in a new mine in some jurisdiction where a drug cartel will extort cash from the operation? Is there gold in them thar South American hills?!

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    1. Nah, it's all been stuff about the Inca peoples' heroic struggle against American imperialism. Oh and a fair bit recently about Thom Yorke not being a rodent-human hybrid.

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