Looking back

The past year was not one of the better ones for the North American industry, one reason being this continent’s love affair with technology ventures, which have sucked up billions of speculative dollars that once went into mineral exploration.

Investors have lost interest in which junior might find the next Voisey’s Bay (not that we blame them given the sluggish pace of progress and the Newfoundland’s government’s less-than-supportive role) and have turned their attention to dot.com companies and the latest technological breakthrough in that fast-paced sector.

Technology stocks have soared into the stratosphere, making mining companies seem like a bunch of timid turtles, hiding under their shells, hoarding what cash they have left until better times arrive.

Mining industry people have seen deep troughs before, but some say this one is different. The economy is booming in the U.S. and is picking up in many other parts of the world, yet mining isn’t booming along with it. Granted, some base metal prices have strengthened, giving a shot-in-the-arm to nickel producers and the like, but, so far at least, investor interest has remained surprisingly tepid.

Some mining veterans say that until technology stocks came along, they never had serious competition for venture capital dollars. Well, they have it in spades now. Investors are falling over each other to give big bucks to pony-tailed entrepreneurs with new techno-gizmos and online merchants selling everything but the kitchen sink. It’s a case of the new economy pitted against the old, and everybody wants to be on the side that’s winning.

Gold, too, has been losing ground in the old-versus-new battle. A younger generation is in charge now, and they weren’t around during the Second World War, let alone the Great Depression. The wired generation is more comfortable with intangibles than their parents and grandparents were. Gold, as a tangible asset sitting in a bank vault, makes little sense to them. Why not monetize it and put that money to work? And work it does, whipping around the world at speeds that would amaze even Superman. This boldly-go-anywhere attitude has spawned a new generation of financial instruments — derivatives and the like — that would have seemed incomprehensible to their grandparents.

Times change and new ideas come into vogue, but, on at least one level, things stay the same. The laws of physics kick in sooner and later and none is more brutal than gravity. What goes up always comes down.

The advantages mining veterans have over technology veterans (if there is such a thing) are age and experience. They’ve seen the market go up and come down so many times they get whiplash just thinking about it. Technology traders are, in general terms, a younger crowd, and most have never seen a market crash. Old in the technology sector is Bill Gates, and we don’t see too many grey hairs on his head yet, even with the entire weight of the U.S. government breathing down his neck.

At the moment, mining companies are eating dom.com dust, and things may stay that way for some time. But bubbles always burst and this one will too. It may take a major stock scandal, or the realization that a burn rate of a million dollars a month and no revenue are not sustainable over the long term. Fundamentals do matter. Sooner or later, mining companies will be able to stick their necks out from under their shells and enjoy better times.

It may sound mean-spirited to find cheer in the notion that mining’s prospects will improve when the technology bubble bursts, but life is tough. We have no control over the laws of physics.