(Kitco News) - Momentum in the gold market is creating significant value in the mining sector as prices push above $2,600 an ounce; however, according to one mining executive, the market is still not ready to take off.
In a recent interview with Kitco News, Warwick Smith, CEO of American Pacific Mining Corp., said that while this is a great environment for junior exploration companies, one key element is missing that is keeping investors out of the market: renewed investor optimism. |
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Smith explained that for the sector to attract new capital from generalist investors, the world needs to see a strong economy that will drive a risk-on sentiment in the broader marketplace.
"That's the piece of the puzzle that nobody seems to want to talk about. But truly, that is the real key to these markets when you're looking at it from a junior/mid-tier perspective," he said. "We've been saying for some time, since before $2,000 gold, that it's great prices are moving higher, but we need to see a risk-on market."
Smith noted that it's not just the mining sector struggling to attract new investment capital. He said smaller tech companies and start-ups are also facing challenges, even as equity markets remain near record highs.
While the Dow Jones Industrial Average and the S&P 500 Index have seen significant gains this year and rallied to record levels, Smith noted that the rally is being driven by just a handful of large-cap tech companies. He pointed out that if there were true risk-on sentiment, equity markets would see much broader gains.
Although investors remain concerned about the health of the global economy and inflation, Smith said he expects to see investor optimism grow as the Federal Reserve embarks on a new easing cycle.
Smith added that as market sentiment improves, he expects mining stocks to be the biggest beneficiaries as investors start to recognize their value and growth potential.
Copper Will Shine Brighter Than Gold
While gold is attracting a lot of attention as the best-performing asset in commodity markets this year, Smith said investors should be paying attention to the growing potential in the copper market as demand continues to outstrip supply.
Smith described American Pacific as metal agnostic, as it is currently developing both precious metals and base metal projects.
The junior explorer is developing two flagship assets. The first is the Palmer Project, a Volcanic Massive Sulphide (VMS) project in Alaska; the deposit holds copper, zinc, silver, gold, and barite. American Pacific is working under a joint-venture partnership with Dowa Metals & Mining, the owner of Japan's largest zinc smelter.
The company's second major asset is the Madison Mine Project, a past-producing copper-gold project in Montana. Between 2008 and 2012, the mine produced 2.7 million lbs of copper and 7,570 ounces of gold.
As investor sentiment improves, Smith said the mining sector needs to reach out to younger investors to help them understand the importance of base metals in the broader economy. He noted that a big problem in the technology age is that instead of looking for value, investors are chasing the momentum of the next big stock.
He said that the mining sector is seen as outdated. "You ask investors if they've ever looked at a mining story, and they look at you like they're driving a car past a horse. They're Nvidia investors and Bitcoin buyers," he said. "But we know that if we want to move this economy forward, we're going to need an awful lot more copper."
As for how much copper the world will need, Smith said that to meet green energy transition goals by 2050, the global economy will need as much copper as has been produced in the last 3,000 years.
"There just isn't that amount of copper available, and we're running out of time. It takes 16 years to develop a copper mine from discovery to production. That's why we're so bullish on copper," he said.
With demand expected to rise exponentially over the next few decades, Smith said the final piece to creating a successful junior mining company is that executives need to embrace their entrepreneurial spirit and tackle the challenge of meeting global demand.
In an opinion piece published in the May in Global Mining Review, Smith wrote that exploration companies need to highlight their entrepreneurial spirit.
"In my view, celebrating junior miners as entrepreneurial ventures will help demonstrate the value of juniors inside and outside the industry; generate increased interest and excitement with the larger investing community" he wrote.
