The Best Junior Miners Understand That the Demographic Profile of Natural Resource Investors is Changing

Natural resource investors are becoming younger, more female, and more ethnically diverse

• Passive investing through ETFs is growing in popularity and influence, prioritizing scale over quality
• We are at the early stages of a new exploration cycle that could lead to major discoveries and lucrative takeovers
• Uranium remains a viable investment for at least 2 more years due to increasing long-term contracting, new reactor builds and SMRs
• Silver is the most hated commodity now, but a bull market seems inevitable given its increasing industrial utility

The Changing Face of Natural Resource Investors

We are now witnessing a changing demographic profile of investors in the sector. Our data reveals that the typical resource investor - once dominated by irascible old men - is getting younger, more ethnically diverse, and increasingly female. Good news, as it means new money. And more investors for the best junior miners.

Our subscriber numbers are growing, reflecting an interest in the Metals Supercycle, the electrification of everything / EV Revolution and the role of precious metals in a new economic reality.

Mining companies that fail to recognize this shifting demographic mix will likely encounter a higher cost of capital in the future, as new market entrants prioritize different environmental, social and governance (ESG) concerns and investment priorities compared to earlier generations. Yes, it's about making money but these new investors have choices and the best junior miners will work out a new way of reaching out to and talking to them.

The Rise of Passive Investing

In tandem with demographic changes, passive investing is recognised as a safer entry point, eg instruments like exchange-traded funds (ETFs). ETFs have provided mainstream investors with diversified exposure to natural resource equities and precious metals with unparalleled ease-of-access and liquidity. This soft entry into natural resources investing also provides a way to learn about the sector with less risk. We'd go so far as to say, ETFs are a better way for investors who find it hard to find the time or are not equipped to do proper diligence themselves.

However, the ballooning influx of capital via passive vehicles also carries some negatives. This is both good and bad because it emphasizes scale over quality. Companies favored by ETFs are those achieving larger market capitalizations through mergers and acquisitions, rather than new exploration discoveries.

This risks damaging the sector. Having already diverted direct investment away from the smaller junior minors, they also proceed to ignore them in favour of more liquid larger stocks. A case of quantity over quality in some cases.

While passionate stock pickers may dislike this dynamic, ETFs are here to stay and investors must understand the macro impacts of these capital flows. Those include strengthening the ability of mid-tier producers to raise money through at-the-market (ATM) equity offerings in liquid markets, like the United States.

Could Passive Investing Lead Active Investors to Resource Stocks?

The hope is that once bedded in, the popularity of passive vehicles could ultimately translate to more active stock picking in the resource space - serving as a gateway drug for these new investors. Having had the time to observe what works and what doesn't, some junior mining investors will remain permanently content leaving investment decisions to fund managers, while others will get intrigued after gaining sector exposure via ETFs and graduating to selecting companies themselves. Good news indeed.

Passive investing logically appeals to those without excessive time for research, or self-directed portfolio management.

And for seasoned investors? Buying benchmark-tracking products during raging bull markets can still make sense. The nature of a resource bull market is that when it comes into favor, it generates so much return that you don't necessarily have to outpace the market, you merely have to be in it. Outsized gains typically flow to those choosing individual stocks, but major sector uptrends can lift all boats.

Is the Exploration Boom Just Beginning

Given the lag between heightened exploration spend and resultant discoveries. Whereas past precedent suggests at least a decade before major fruits of expenditures materialize, we are only now in the very early days of realizing this potential. We're at the front end of the discovery cycle as a consequence of the exploration boom that took place in the second part of the first decade of this millennium. The exploration expenditures that we saw from 2006 through 2011 are just beginning to be felt.

Takeover Speculation Running High

We are seeing elevated investor focus on takeover potential. However, it is not a certainty for most companies, despite what the Directors and shareholders may wish for. Beyond healthy optimism surrounding assets an acquirer could covet, is more likely due to fatigue with lackluster junior mining equity performance since 2021, and seen as the only way 'out' rather than based on solid fundamentals that an acquirer would look for. Relying on an acquisition is a foolish strategy and leaves the company (and shareholders) out of control. Additionally, relatively depressed valuations across the space make more companies look like bargains, even when they are not.

By historical metrics the better smaller companies are cheap and the probability of a takeover going into 2024 is high. Our suspicion is that with some of the issuers, as they continue to add value, either the share price goes up or they become taken over by companies with a lower cost of capital. And as generalist investors finally pivot back to the sector, there may not be enough junior market capitalization to absorb the surge.

When will Silver Get Back in Favor?

Silver and the miners producing it have been through a painful couple of years. Not helped by the Mexican govt's major overhaul of mining regulation and project outlook. In addition, overly inflated expectations by retail traders in recent years has contributed to a massive fall from grace. Investors had ridiculously high expectations in 2020. The Reddit silver crowd believed that there was a broad-based Wall Street conspiracy to depress the price of silver and they decided to fight back. Although one could question the intellect of the people behind this campaign, it was a demonstration of the power of 'the pack' irrespective of the realities and facts. Social media seems to empower those who feel they should be listened to. Intellect, knowledge, experience, data and honesty are not a prerequisite it seems.

However, a pronounced bull run in silver is approaching. It takes at least a decade for new exploration ideas or new exploration efforts to bear fruit so you could argue that we're at the front end of the discovery cycle. Precious metals operate in lengthy cycles and patience is required for gains.

Gold typically acts as the early leader in a commodity upswing, as safe haven-seeking investors bid it upwards first. Silver then follows with increased velocity. Gold has to establish the pattern. The most scarce of all natural resource investment assets are reasonable quality silver stocks. When the eventual tide turns, small market capitalization names tend to surge under extreme speculative passion.

Given silver's growing industrial relevance and the years-long stagnation preceeding, it may make sense to invest in silver and silver stocks because there's a chance that we see a much more dramatic move in silver.