Issue link: http://resourceworld.uberflip.com/i/1058321
8 www.resourceworld.com D E C E M B E R / J A N U A R Y 2 0 1 9 T This year has not been good for inves- tors in the mineral exploration sector. Macroeconomic concerns bedeviled the industrial metals, a strong US dollar pounded precious metals, the energy-metal bubble burst on oversupply and risk capital fled into the cannabis and crypto currency sectors. Now, nearing the end of a year when mineral exploration stocks are trading lower than their starting point, industry speculators are saying there's likely not much to look forward to in 2019 either. Fears that US protectionist economic policies are going to spur a broad market downturn in global economy will haunt junior exploration investors throughout 2019. The thinking will go something like this. A slowing global economy will mean less demand for aluminum, copper, lead, nickel, steel zinc and tin resulting in less investor interest in new mineral discoveries. Signs of this sentiment started in the third quarter of 2018, after cracks appeared in the Chinese, Europe and emerging markets. Shortly after the global forecast of economic growth of 4% in 2018 was predicted to slow to 3.7% in 2019, investment in the junior mining sector came to a skidding halt driving the S&P- TSX Venture Mining Index down by 34% for the quarter. Inflation will also be on the minds of mineral exploration investors next year. While inflation alone is not bad for the junior exploration industry, if it is in combination with economic growth, it is bothersome when the economy is contract- ing. And now, with January looming and the threat of the US trade tariffs being lev- ied on $287 billion of Chinese imports, the markets are starting to believe that things are going to get grave. There are two more pieces of the puzzle that are going to drive investment in the junior mining sector down in 2019, one is the rising global debt. When you add increasing inflation rates with a cooling economy, global debt comes into play. World debt reached US $250 trillion in 2017, the last year the amount was calcu- lated, up from US $100 trillion in 2008. Measured as a percentage of GDP, global debt has gone up from 248% in 2008 to 321% in 2017. Concerns of rising debt could slow investment in the public mar- kets in general and mineral resource stocks won't be exempt. Rising debt and slowing economic growth rates prompted Moody's Investors to adjust their 2019 forecast suggest- ing that mineral exploration and mining stocks are expected to be 'range bound' in 2019 and generally on par with 2018 with no material upward movement. The firm pointed out that the outlook could move negative if the Purchasing Managers Index in the US, Europe and China track below 50 for two consecutive months and if the global macroeconomic outlook for GDP growth changes to less than 3%. Moody's concluded that the market is meaningfully influenced by prevailing investor sentiment and trading activity and the firm anticipates that heightened volatility will remain the hallmark for the industry in 2019. If end-of-year selling is any indication, the fear from rising debt levels is already playing out on the junior exploration market. There has been coordinated and aggressive selling by institutional inves- tors that has been well ahead of the herd this year. Junior exploration stocks were pummeled on the TSX Venture Exchange in September and October, losing 6.46% and down to their lowest level since 2001. "2018 marked the 10th year of the cur- rent credit cycle. Nearing its end, interest rates are rising prompting banks to sell their Treasuries and make loans. With that, the real economy is growing leading to rising wages and prices. Inflation fears are rising, setting the stage for the end of the cycle. But this is not your father's credit cycle. Debt is rising much more rapidly than GDP and growing geopoliti- The macroeconomic forecast doesn't look promising for investors in the junior mining sector for 2019, but there are opportunities, galvanizing events and potential new discoveries to watch for that could drive investors back to mineral resource stocks. by Robert Simpson OUTLOOK 2019 mining stocks