Research from Liberum shows that in the run up to Easter, and for the first quarter of 2016 overall, the best performing sector was the mining sector.
In one sense, this will come as no surprise to those battered participants who’ve seen quarter on quarter of relentless weakness over the past five or more years.
Between the beginning of January and the end of March this year there was at last some respite, as gold turned a corner, reversed its relentless downward trajectory, rose and then stuck, range-bound, between US$1,200 and US$1,300 per ounce.
Other metals too, have either risen or levelled out, as the dollar’s strength has come and gone, waxing and waning on different smoke signals from the Fed about rates and by some measures enduring its worst quarter since 2010.
For the past couple of months aluminium has been bouncing between the US$0.63 and US$0.74 per pound range. The nickel price is up from its US$3.5 per pound five year low, and is now trading at US$3.82.
Meanwhile, Bank of America Merrill Lynch reckons zinc is best placed of all the base metals to outperform over the coming quarters, as major mines run dry. And indeed the zinc price looks to have bottomed out from five year lows in early January, and is now about 20% stronger.
Others say copper is likely to pick up sharply in the face of future supply shortages. But still others say that the outlook for copper is distinctly bearish, with demand levelling off as Chinese growth slows and Western usage continues to tail off.
As if to lay further emphasis on the mixed nature of this picture, on the same day that Liberum’s research came out Asian markets recorded their worst session for seven weeks as both the Tankan and the Topix dropped markedly, while conversely activity levels in China’s manufacturing sector expanded the first time in eight months.
What is a junior mining company to do in the face of all this uncertainty and volatility?
One obvious answer is to diversify, as the likes of Regency Mines (LON:RGM) and Galileo Resources (LON:GLR) have done. Regency has taken a leap out of its mining comfort zone, over into a whole new commodities universe: oil.
There, it’s done reasonably well, given that the oil price is also up markedly over the quarter, and that it now has a stake in a significant prospect on-shore in the UK. There’s been no outright breakout action from Regency’s share price, mind, but it did spike in mid-February, and is up by about 20 per cent on its mid-quarter lows.
Galileo meanwhile now owns phosphate, gold and copper prospects across two continents, Africa and North America. Its new Concordia copper project could bring a prolific old mining area back to life, but it’s a long game and investors have been chary of buying in in a big way.
After all, even Vast Resources (LON:VAST), a long-standing stalwart of the Aim market which has managed to bring two mines on stream in the past 12 months and looks like it might deliver a third before too long, has seen its share price decline of late.
Why is this? Some say there’s an overhang from Vast’s £5mln financing deal with Crede Capital, a US-based family office. But that’s only part of the story. Recent volatility has on the whole been a mixed blessing. While the dollar has weakened and some commodities and equities have improved, uncertainty also haunts the trading floors.
That means that the bigger miners, the ones tracked by Liberum and which are easier to build and run financial models on, soak up all the short-term attention. They’ll be the ones that get sold off too, mind, if the dollar takes a sudden turn upward again.
But in the meantime junior companies that play the long game, and which have the financing to do it, could well turn out to be the real winners.
The short-term costs of that financing might well be punitive. But no-one said that mining was ever for widows and orphans. It’s always taken strong nerves to hold out for the big winners. And it always will.