The Mining Clock

Mining is one of the most cyclical industries on the planet, gains are very large on the upside, and losses are also magnified on the downside.

The mining clock is a concept originally introduced by Lion Securities. The clock above gives us a sense of where we are in the mining cycle based on various liquidity indicators.

According to Bob Thompson, VP, Portfolio Manager at Raymond James Ltd., the clock has been positioned at 6:30 since April 2020.

Why is it important?

It is crucial to know where we are in the mining cycle so we can properly plan for reaping the rewards the mining sector can give. Without a logic based system, investors end up doing the investment round trip making sizable money on paper only to see it vanish when the cycle turns.

You can see that there are times to look, times to buy, and times to sell. Unfortunately, most investors sell when they should be looking, look when they should be buying, and buy when they should be selling. Bull markets create bear markets, and bear markets create bull markets. The ways you look at the market must change depending on whether a primary bull market or a primary bear market is at hand.

Closer to 7

But beware; 2020 has seen a rise in exploration activity that is likely to take us well past 7 o’clock on the dial, and according to the clock, the time to start selling is at 8 o’clock. A report published by S&P Global Market Intelligent on October 23rd 2020 states "Gold's share of the global exploration budget increased by 6%, or $51 million, year over year and represented more than half of the global budget; the increase contrasts with a $958 million decline in the global budget. To further emphasize the importance of gold exploration in 2020 (...) The number of companies exploring for gold increased by 151, from 969 to 1,120. This indicates that while gold represents 52% of all budgets in 2020, 64% of all companies with a budget in 2020 are exploring for gold. This compares with 57% of companies in 2019."

Christopher Galbraith, author of the S&P article continues; "Since gold exploration budgets hit a low for the past 14 years of $3.32 billion in 2016, the precious metal has been among the best-performing commodities, with this year's budget 31% higher than the 2016 low. This compares with a global net increase of just 19% for all target commodities over the period, with copper budgets increasing by just 11% since their 2016 low. Budgets for gold nevertheless remain well below the 2012 all-time high of $9.68 billion."

2020 Gold price and gold exploration global budget

However, the increase in budget for gold exploration programs was not the same around the world.

The S&P report explains that there were 51 countries and regional allocations with increases totaling $357 million, compared with 45 countries with decreases totaling $306 million; "Latin American budgets, the most impacted in 2020, fell by 14%, or $135 million. Despite the decline, Latin America remained the top region for gold exploration with allocations totaling $858 million. Temporary pandemic-related travel restrictions and lockdowns in April factored heavily in Latin America's gold budget decrease, led by Peru, Argentina and Chile, whose gold allocations fell by 31%, 39% and 26% respectively."

In conclusion; read about exploration budgets and debt news closely; according to the Mining Clock, these will point to a time where investors should consider starting to sell.

Sources:

Thompson, B. (2020). The Gold Digger. Financial Strategies to make work optional for mining executives. (2020-09).

Galbraith, C. (2020). CES 2020 - Growth-focused intermediates lift gold exploration in 2020. (2020-10-23).