‘The risk takers have gone’: Junior gold companies irked by bitcoin

March 9, 2018 at 10:31


On Tuesday morning, Chris Haldane, of Marathon Gold Corp., was looking at the price of gold and looking at his stock price: Gold had climbed US$17 per ounce, but the company stock was barely moving.

“It just seems like the junior gold space has gone into a pause mode,” said Haldane, who handles investor relations for Marathon, and had just issued a press release touting positive drill results for its prospective gold camp in Newfoundland.

The likely culprit: cannabis, bitcoin and the many cryptocurrencies out there. Although no one could point to any formal studies, there was wide consensus on the trade show floor at the Prospectors and Developers’ Association Conference in downtown Toronto this week, that junior mining gold companies have lost some of their mojo this cycle as a result of the flood of speculative capital that’s pouring into cannabis and cryptocurrency stocks.

Nonetheless, gold has consistently traded above US$1,300 an ounce in 2018, a feat that never took hold in 2017, and yet many junior gold producers are still waiting for a bounce in their stock price.

Haldane said one of the most bothersome aspects of the situation is that no one — not the investors, not the companies — even understands how cryptocurrencies work.

“They’ve just moved on to something more speculative,” he said. “Try and ask the smartest guys you know to explain it — no one really gets it.”

It doesn’t help that U.S. President Donald Trump earlier this week said he would put tariffs on aluminum and steel; leaving those in other metals, be it gold, copper or something else worried that they could be next.

But bitcoin and cannabis seemed to raise the most ire for chasing away the speculators, who in the past were excited by the high-risk, high-reward game of precious metal exploration.

The cryptocurrency craze is evident from looking at companies such as Vancouver-based Hive Technologies Ltd., which has a data center in Iceland where it “mines” for digital currencies. Its stock price soared more than 459 per cent between its first day of trading last September and the end of 2017, and it hit close to $2 billion of market capitalization during that time. It has fallen dramatically since then, and is trading 56 per cent lower since the start of the year.

As Canada prepares to legalize marijuana, companies looking to claim a piece of the burgeoning industry have been attracting hordes of capital. For instance, stocks of Aphria Inc., Canopy Growth Corp. and Aurora Cannabis Inc., have surged 120 per cent, 189 per cent and 316 per cent, respectively over the past 12 months. As a comparison, VanEck Vectors Gold Miners ETF, one of the largest gold mining companies’ funds, eked out a 0.44 per cent gain during that period.

It’s left gold producers feeling like a pall hangs over their sector.

“The risk takers have gone somewhere else — they’ve gone into bitcoin or cannabis,” said John Green, chief financial officer of of Unigold, who added that his comments reflected his personal view, and not the official views of his fledgling company.

Nor is the sentiment limited to junior mining company executives.

Even Clive Johnson, chief executive of B2Gold — which he describes as the “new senior” as it predicts its gold production will increase from 650,000 ounces last year to as much as 950,000 in 2018 — said marijuana and cryptocurrencies have hurt junior gold companies.

But he also blamed larger gold companies for underperforming during the last few years, for deterring investors from the gold space.

“It’s not just the weed phenomenon, which is relatively new,” said Johnson, “the fact is the gold industry was not performing well — quite badly actually, and it gives me no pleasure to say that.”

Theoretically, undervalued junior gold companies, would be a good thing for the senior gold companies that look to purchase them — but Johnson expressed little excitement for the junior sector and said his company is focused on its own projects.

At the end of the day, many gold producers are reminding themselves why they got into the space in the first place — because gold has been a store of value for millennia.

“You always need metals,” said Green. “Are people going to need bitcoin in five years? I don’t know.”