The Herd

I am due to go to Guinea next week but my colleagues in Conakry have told me that the Ebola virus which has killed about 150 people so far and half of that number since the end of April is still not yet under control.  I have been advised not to travel.  It is a deadly virus but does not survive for long outside the human host and so I understand that basic hygiene in hospitals and efficient quarantine and isolation are very effective ways to combat Ebola.  Risk is all about perception.  It is probably statistically more dangerous for me to drive into town than for me to travel to West Africa.  After 9/11 there was an increase of some 1,500 people who died on American roads because of the switch by some people from air travel to land travel.  The fear for some of another terrorist attack in the air was greater than the familiar and under estimated risk of travelling by car, with tragic consequences.

I arrived in the financial capital of the global mining industry last week for a couple of days and after ten or so meetings, which represented a reasonably good thin-slice of institutional investors and analysts, I came away with a consistent message ringing in my ears: “we will look at producing mines or near production projects but not early stage exploration”.  I cannot recall such consistent negativity but then London was always about mine finance with the grub-staking of exploration left to Vancouver and Perth.  So risk is off, at least the appetite for new discovery is missing.  It will need a big find to get the juices flowing but hard to see where the major discoveries will come from without investors willing to fund the testing of even very compelling drill targets within highly prospective properties.  Anecdotally, I am gathering that there are many exploration geologists in Europe, Canada and Australia slowing down with not much work in the pipeline.  I am even seeing  some of the bigger consultancies prepared to do unpaid generative desk-top work.  We have been here before.  Financing of exploration will no doubt return again with the speed of a knee-jerk reaction to the sudden realisation by the herd of what should already have been apparent.  But the building of a new mine requires patience, persistence and relentless attention to detail over the longer term.

How long can an industry last which does not invest in the future?  What is this paralysing fear to fail or more concretely fear to lose money?  Have we all reverted to the mean or the mediocre?  There is comfort and security in imitation and being lost in the herd so as to avoid becoming an underperforming straggler even at the risk of being a leader who delivers superior returns.  But the risk aversion for exploration is selective because there still appears to be an appetite for oil and gas exploration as shown by the $100 million dollar share placing of Petroceltic last week.  No doubt the sudden transformational, reservoir-wide, scale and quality of oil or gas discovery satisfies the addiction for instant gratification much better than the careful slow-burn building of metal resources.  So it is not all about risk but speed of investment return.  My only consolation is that where there is consensus there is opportunity for the contrarian.  Where there is unwavering focus on the short-term there might be an opportunity in looking at the longer term as I discuss more as part of my continuing theme on the looming zinc supply-demand gap in my other post today: “The Present is the Key to the Future?”