IU: What are we looking at when we say “resource equity”?
Calandra: Anything that produces or prospects metal or energy. Gold, silver, copper, platinum, nickel, oil, some natural gas. Also, some specialty metals like molybdenum or tantalum.
IU: If the downturn's been going on for so long, why do people keep investing in these resource equities?
Calandra: Apparently, not too many people are investing. It's beyond depression.
Why? Maybe a better question might be, When are people going to start coming back to the sector so that we can see a rising trend again?
I keep thinking, oh, it's about to happen. And then the promise fails, the potential fails. I don't know. I think operating costs have to continue to fall, so you need to have a lot of companies producing gold, and it needs to cost them $800/ounce not $1,100/ounce. But that's not happening.
IU: Why the broad abandonment of metals production investments?
Calandra: The fact is that there are other things that are very attractive out there, such as technology, like Internet companies. Also, inflation's usually good for gold, but right now we have a pretty tame pace of inflation. Just looking at North America and parts of Europe, we're probably only running 2.5 to 3.5 percent inflation.
Plus, when the dollar is still relatively strong, it's still a safe-haven currency; people still flock to the dollar. When the dollar is strong, gold is weak, period.
My favorite reason, though? Resource equities over the last five or six years just issued way too much paper. They all thought this was going to go on for a long time, and from about 2002 to 2009, they just kept raising more and more money and issuing equity. The conclusion? Now, you can't even figure out now how much paper is out there.
Everyone keeps saying the market's going to contract; companies are going to disappear; that's good for the market. But they never disappear. They always come back in some other bizarre form.
IU: Is the endgame for junior mining companies to get absorbed by a major?
Calandra: Yes, almost always. But if there are 10,000 of these companies in the world—which there are, publicly traded—then 9,500 of them will never produce one speck of metal.
IU: Is there a foreseeable solution to the “junior miners problem?”
Calandra: I would love to see some acquisitions between miners before the end of the year. That would definitely help us out. The last time we saw a huge deal was when Newmont bought Fronteer, a Nevada miner, for around $2.5 billion. That was 2 1/2, three years ago.
But I’d love that: Wake up on Monday morning to a handful of mergers and acquisitions.
IU: You think that could ignite the sector?
Calandra: I hope so. It certainly would ignite my portfolio.