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Where are we in the mining investment cycle?

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This is a question on which small fortunes, and some big ones too, will turn. Certainly, the commentators and analysts have a clear enough idea – Investec, borrowing from an idea originally put together by the Lion Selection Trust, reckons we are between 5 o’clock and 6 o’clock.

On the standard modulation of the clock, bust happens at 12 o’clock, with all the aftershocks running in succession though the following hours up to 6 o’clock when the first signs of boom begin to re-emerge.

According to Investec we are currently at between 6 o’clock and 7 o’clock with boom times already well underway.

If this doesn’t exactly feel like a mining boom, that’s perhaps because the last one was so exceptional. The Chinese aren’t going to come out of nowhere to emerge as the world’s second largest economy this time round, and although there is still an element of monetary easing occurring around the world, it’s no longer on anything like the scale that drove gold to close to US$2,000 nearly five years ago.

But still, no less an illustrious a figure than Trevor Steel from Baker Steel Resources Trust Limited (LON:BRST) has been using a graphic illustration of the Investec/Lion Selection clock in presentations around the City recently, and he’s a man who knows a thing or two about gauging markets.

Steel was one of the founders of the famous BlackRock mining fund, now one of the powerhouses of London resources finance, and went on to establish several Baker Steel funds that survived the bear market intact and which are now pushing hard for a higher profile.

The net asset value of the Baker Steel Resources Trust, the most generalist of the funds, has narrowed markedly over the past couple of years, a sure enough sign in itself that interest is returning to the sector.

But Steel himself is acting on the gradual turning of the dial – the trust is now deploying the last of its remaining cash into a major investment in a new Australian coking coal listing called Gateway. This will mean that once again the Baker Steel Resources Trust is fully invested, a sign of faith that the boom will continue, at least for a while.

Because, as the doomsayers say, it’s always later than you think. If it seems like the boom in London has hardly even got going yet, it has at least been more visibly on the move elsewhere for a little while. Hence, exploration companies like Eastmain Resources Inc. (TSE:ER) in Canada and Artemis Resources in Australia have been delivering successful exploration results all year.

And in London we are finally seeing signs of life too: Greatland Gold plc (LON:GGP) has been getting in on the act, Altus Strategies PLC (LON:ALS) has finally got its early stage exploration portfolio listed on Aim, and within the past month we’ve seen Cora Gold make it onto the market too.

But beware. According to the Investec dial the rise in exploration activity is likely to take us well past 7 o’clock on the dial, and according to the original Lion Selection way of thinking, and according to Investec too, the time to start selling is at 8 o’clock.

Sure, you can ride your luck between 8 o’clock and midnight, as debt levels start to rise again, shares are increasingly used as currency in takeover bids, and new, larger flotations start to happen as the smart money increasingly heads for the exits.

At midnight, according to Investec, the onset of the crash phase of the cycle is marked by a tendency on the part of governments to start raising taxes. It will come as no surprise to anyone that governments are among the worst of the market operators when it comes to maximising gains from economic cycles.

In fact, according to the mining investment clock, it’s governments that kill off the last vestiges of a collapsing boom, and lead once again to the crash phase of the cycle. But we are a little way away from that yet.

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