Aaron Hoddinott www.pinnacledigest.com
The TSX Venture has been the worst performing stock exchange in North America for over a year now.
The TSX Venture is Trading at the Same Level it Did Nearly 9 Years Ago
In October of 2003, the TSX Venture Exchange traded at the same level it does today. What's important to note about October 2003 is that gold traded for roughly $380 an ounce - it trades 425% higher today. In October of 2003, silver traded for about $5 an ounce - it trades 600% higher today. In October of 2003, a barrel of oil traded for $30 - it trades 320% higher today. In October 2003, Comex copper traded for
.92 - it currently trades 415% higher.
Aside from these commodities trading near record highs (the main commodities the 1275 explorers/miners on the venture are drilling for), it has become increasingly difficult for explorers to make economic discoveries. Many of the world-class deposits are being mined right now because of the record high prices. Simply put, there isn't nearly as many world-class commodity assets on the globe as there were in 2003. So wouldn't it make sense that these companies, with proven discoveries, be valued higher in this market environment?
The exploration companies on the Venture don't cash-flow, that's not what they're about. These companies are about making discoveries and being bought out, or years later going into production and then cash-flowing. When a company doesn't cash-flow and only drills, it must regularly go to the market for financings. This creates uncertainty and volatility. This creates the fear factor we are seeing in the market right now. During uncertain times, investors are fearful that many companies on the Venture won't be able to raise capital and could potentially dissolve. This, in most cases, is an irrational fear. Many companies have deep pocketed management teams which can raise capital in any market. Some companies won't need to raise capital for another 2 years. Let's not forget that we recently came off the greatest rally in the TSX Venture's history (December 2008 - March 2011) and the fundamentally sound explorers were able to raise major cash at much higher levels than today. Many of these prudent juniors are sitting on several million dollars in their treasuries from previous financings.
As Rahm Emanuel said "A crisis is a terrible thing to waste."