My base thesis the past 4 years, has been that the commodity sector hit a secular peak along with the consumer credit bubble in 2007-08. Since then, resource companies have struggled to downsize operations and costs fast enough to keep pace with falling commodity prices and fleeing investment capital. Cash burn has been high and new revenue and capital has been in short supply. Although quantitative easing has prompted some bouts of resumed speculation, risk-on bumps remain fleeting. Excess inventories and over-supply weigh heavy amid a secular decline in global demand and investor appetite that continues to sour on the once-loved sector. The trouble with long periods of boom is that the participants become overly optimistic, over-invested and over-levered and fail to prepare for the inevitable decline phase thereafter.
As with the over-built shipping industry, market cycles suggest that the resource sector continues in a prolonged period of rationalization and consolidation, as weaker players falter and are cannibalized by more liquid peers. In this clip geologist and mining analyst Brent Cook explains the liquidity crunch continuing to hit junior resource companies for foreseeable months ahead. See: Juniors to hit a fiscal wall.