Be selective VTR has money and if they keep showing the good grades .. VTR should separate it's self from the pack.. IMO
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S&P/TSX Venture (JX : 1,549.76), Net Change: -0.49, % Change: -0.03%
What will it take to get you to love me?
The price of gold has certainly been volatile; however, even with the price of gold
down 13% from its peak, a price of above $1,650/oz can hardly be disappointing for gold equities. And yet, despite the
favourable gold price environment, gold equity valuations have been quite disappointing. In this week’s edition of Canaccord
Genuity's Junior Mining Weekly, titled “Investors hate gold equities”, the Canaccord Genuity Junior Mining Team reviews
some of the factors that are impacting gold equity valuations. First, they consider larger-cap producers that have been
disappointing over the past few years as new projects have been slow to come online and have come with substantially higher
capital price tags. Some high-profile acquisitions have not met expectations, resulting in significant write-downs. A lack of
growth, significant operating cost escalation, and increasing political and regulatory risk have weighed down many equities.
There is an industry-wide challenge of retaining and recruiting qualified personnel, contributing to the relatively poor execution
and operating performance. At the same time, the size of the gold ETF market has exploded (to almost $140 billion), creating a
viable, liquid, and significantly lower-risk investment vehicle for investors to gain exposure to the price of gold. As for the
juniors, when times are good and investors are generating significant profits, capital begins to search out higher returns in the
less liquid, higher risk, small-cap gold equity space. When times are bad, investors are more precious of junior companies that
are less diversified, mostly have no source of cash flow or funding other than equity offerings, have to compete with larger caps
to attract and retain talent, and are often liquidity challenged. While these factors usually result in a lower valuation relative to
the larger-cap producers, there seem to be number of other factors dragging down the juniors: 1) Too many companies: There
are simply too many junior gold companies and very company is competing to attract attention from investors; 2) Too many
low-grade deposits: High gold prices have allowed companies to significantly reduce cut-off grades applied to new deposits and
resource estimates. It is no longer unique to have a one million ounce gold project. As grades have dropped, the focus shifted to
scaling up projects to benefit from economies of scale, which have resulted in substantially higher capex requirements; 3) Too
much spending/overhead: Robust junior market environments from 2009 to early 2011 offered ample opportunity to tap equity
markets to finance overhead, exploration, and development programs; however, during challenging environments like our
current market, capital becomes scarce. Management, in general, has not exercised sufficient caution in response to changing
market environments. Balance sheets are starting to (or have already) run low, and companies are now facing significant
dilution to keep programs going; 4) A lack of genuine world-class discoveries: While there have certainly been new gold
discoveries by juniors over the past couple years, few would truly qualify as world-class. New discoveries drive capital into the
junior mining space, which generally drives equity valuations higher; 5) A lack of M&A: Despite issues with execution and
rising costs for the larger cap producers, margins remain high and balance sheets have grown substantially; however, the largercap
producers have only sparingly used their large balance sheets to consolidate the junior gold space. The lack of M&A has
taken some of the premium out of the junior gold equities viewed as likely acquisition targets. While the overall performance of
the gold equities has been disappointing, there has been selective outperformance, and this, the Team believes, is the key
takeaway in the current environment for gold equities. Investors need to be selective in the current market environment.