Get Real, It's "A Very Tough Market Right Now" Says Fund Manager
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(Kitco News) - Investors need to embrace the reality that poor performance from junior miners and difficulty raising capital have resulted in a weak mining sector from an investment standpoint, this according to Michael Danov, president and CIO of SBP Management.
“I’ll be honest, it’s a very tough market right now. We have seen, unfortunately, poor performance from the junior companies over the years. I don’t think money’s going to get any easier, unless it’s a proven track record in terms of management,” Danov said. “What we focus on is guys who have succeeded previously, who have either sold companies or have done strategic smart advice on how they’re going to grow the company.”
Danov noted that the gold mining sector is currently lacking that “hype” that it saw in 2010, and that a return of investor capital will likely come from generalist, not institutional investors.
“I think as capital gets friendlier and people see better returns, I think there will be more funds starting to raise and come back to the market,” he said.
Danov’s comments come as gold miners suffered a weak half of the year, with the VanEck Vectors Gold Miners ETF (GDX) relatively unchanged year to date, down 0.5% since the start of January.
Danov noted that many miners are still not producing asset with sustainable margins that are needed to entice investors into the space.
“You have to [produce] an asset that is going to be costing you an all-in sustaining cost of, let’s say if you’re a gold producer, $700. At least you have a 30% margin, but realistically, it’s a 60% margin over $1,300,” he said. “I think [once] we see asset like that, [which] are going to be more fruitful to investors, and people actually think this going to be cash-flow positive investment, then you’ll see more money coming in.”
On how to navigate the current landscape, Danov said that investors should find ways to make the best out of current price levels.
“There’s momentums when you can come in and invest, but people always complain that the gold prices need to be higher. No, I think the gold price needs to be where it is so you need to figure out what you could work with,” he said.