Notwithstanding the volatility of the equity markets and commodity price projections, the fundamental paradigm continued under investment in the mining sector over the last decade remains an overriding factor that clouds the industry’s supply side outlook. This factor is particularly topical given the cash being generated by the sector due to better operational stewardship and as of recent, elevated commodity prices. However, the simple fact remains that discoveries supporting industry performance are made through the drill bit, and fundamentally require the ‘boots-on-the-ground’ facilitated by the junior exploration segment. As a result, we look for continued investor interest in the precious metals equities, including the junior exploration and development space, as investment capital filters downstream into higher risk opportunities supported by a renewed interest in grassroots exploration programs, further top-down industry consolidation, and the development of new projects to support the longer-term production pipelines of larger industry participants.

Eoin Treacy's view

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Many of the world’s most prolific gold producing countries are very well explored. That means just about all visible surface mineralisation has already been located. What is much less well understood is how much gold is available to be found below the ground.

Drilling is uncertain and costly. Moreover, there hasn’t been a need to engage in that kind of capital-intensive program because there was plenty of gold to be found elsewhere. As mine grades decline, the demand for more drilling is only going to increase. Fortunately, the oil bear market is freeing up rigs at a prodigious pace.

The rising cost of marginal production reflects that reality. It also means investors are reticent to supply capital until they have clear evidence of demand dominance in the gold market. Prices in the region of $2000 are high enough to encourage more drilling and positive results are being rewarded by the market.

For example, Cabral Gold is a $40 million market cap company that has been posting very impressive drill results over the last week. The share is breaking out as a result.

Great Bear has been the poster child for impressive drilling results and the share has been among the best performers in the sector globally.

The Junior Gold Miners ETF is playing catch up as demand for leveraged plays on gold increases.