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By far, the number one problem with the global mining industry is its reputation in the minds of most institutional and private investors. Despite the current bull market in mining stocks- once this cycle ends (and end it will because that is the nature of this business) everything will return to normal- and mining stocks will be largely ignored by the investment banking world.

Without a doubt- this lack of a "respectability" by the stock-buying public is the reason why in terms of market cap, the mining industry is miniscule compared to other industrial sectors. According to the internet news site, Mine web, the entire market cap of precious metals is about $100-110 billion- less than half the size of Microsoft.

Why some bulls out there may be saying to themselves- "good, I like it that way, I'm in the stocks and it is in a bull market and they aren't yet" but that merely serves their interest. We all need to grow up a bit and concern ourselves with the long-term viability and strength of the global mining industry. There is more at stake in this issue than how much money some individual investors are able to make during the bull markets of the mining cycle. In order for this industry to mature and become a legitimate target of investment for institutions and private investors- a number of issues must be addressed.

For instance, mining companies are extremely undervalued compared to many other industry sectors. Why is this so? Why do (did) high tech start ups receive such rich valuations at IPO when they could show no more of a proof of "future earnings" than most junior mining explorers do? Why do entrepreneurs who run biotech start ups get such honor and respect due to their scientific background yet no such premium is given to the many highly educated and skilled geologists and explorers that run the juniors in our industry? Why is there literally hundreds of millions of dollars of private equity for the biotech start ups and zilch for junior mining explorers?

Something is not right here and we need to correct it if in ten years there are to be 100 blue chip companies in the mining sector- not 20.

The basic problem is bad public relations

The problem is an intangible one: a perception in the minds of the investing public. Simply put- the investment banking side of the global mining business has terrible PR. That needs to change if the fortunes of the industry are to grow and develop into a proper industrial sector that corporate and private investors deem worthy of investing in.

The problem is the perception in the minds of the public that the purchase of stock in a mining company is not a valid investment option. The "speculative" aura of mining companies- and the volatility of cycles that afflict the industry- is why the mining industry doesn't get its fair share of private and institutional investors. If more people invested in the industry- market caps would rise and companies would have more financial options to carry out their long-term strategies- and be able to better cushion the downturns in the cycle.

It is important to strengthen the financial backbone of the existing blue chip companies because it may very well be a fact of life that can't be changed that the mining industry is plagued by cycles in its market- which may be natural and thus unavoidable. These cycles vary between 4-6 for base metals- and 7-10 for precious metals-and thus the "next downturn" is guaranteed. This is not the way other markets are structured. While other markets have their downturns on the volume side- and while this does have an affect on projected earnings and thus market cap- the problem in the mining industry is that it is so difficult (even for the blue chip companies) to get by on the investment banking side- during the bear stage of the cycle. Thus mining companies are at a definite disadvantage and hence they need to find a way to change the reputation amongst investors so that more investment in made in mining companies- their market caps are raised- and they can better deal with the inevitable down cycles.

One of the major challenges for the world's mining industry is to overcome this dangerous cyclical aspect of the industry- and the impression in the investment community's eyes that mining is "risky" and "speculative". Someone needs to establish a "Friendship Society to encourage investment in public mining stocks" to get the ball rolling. If the size of the current investor base in public mining stocks increased by just 20- 25%- it would probably create another 25-50 blue chip companies with multi-billion dollar market caps as well as strengthen the capital base of the existing companies.

Private equity and the mining industry

Another major problem with the global mining industry is that it lacks access to private equity.

It never ceases to amazing how there is a complete lack of private equity in the junior mining sector- yet fundamentally- junior exploration companies are no more risky than early stage high tech start ups- yet there is billions for these type of companies- and nothing for junior explorers.

As start ups do- early stage explorers provide an important and necessary function in the mining world- yet unlike high tech start ups- their "exit" comes at the start of their corporate history- instead of much later on. For instance, in biotech- it assumed that no biotech start up will actually put the drug they are developing on the market but will sell itself out to a multinational. Yet if that event doesn't happen for five years- there is plenty of private equity to support the start up until the exit. Yet during this time the junior explorers have had to do a public offerings- and then tiny private placements and pay a huge fee just to raise a few measly million while the biotech start up picks up a phone to his venture capitalist and 90 days later another $5M in private equity is waiting for the company- as its valuation gets into the low hundreds of millions of dollars- and yet still private. What an unfair situation junior mining companies are in compared to these well-financed biotech start ups.

I would love to see the research which shows how many biotech starts ups actually developed a drug and then sold out to the multinational- or went public for hundreds of millions in market cap- and how many junior explorers actually brought a mine to market- either on its own or in partnership with a large producer? The numbers are probably the same. Yet compare the market cap of the junior mining company to that of the biotech start up?

Whereas the biotech start up has as its core assets its intellectual properties- the early stage mining explorer doesn't receive the same respect when it comes to receiving a premium for its "accumulated brainpower" as does the biotech start up. Yet just as the biotech start ups "wins" by selling out to a major company in the field- or licensing the drug to a large company- so too does the junior explorer "win" when it gets acquired by the larger producers or another company decides to build a mine on its property. Yet to get to that same stage- the junior explorer has to go public immediately- whereas the biotech start up can raise tens of millions of dollars of private equity.

The end result is no private equity is allocated to early stage mining exploration companies and as a result- these companies have to go public well before they should causing them to have to focus on the responsibilities of being a public company- yet in reality- are just a tiny operation of miners looking for a resource. This lack of private equity is the reason why the junior explorers have to go public so early on in their corporate life- something a few months after establishing the company.

The risk-reward ratio with junior mining explorers is much better for investors, than say, early-stage biotech start ups. A typical biotech start up can consume upwards of $100 million in private equity capital before it is suitable to be sold to a larger company or to do an IPO. In comparison- junior mining exploration companies have very low yearly burn rates- a fraction of what biotech start ups have- yet in the end- when they win- the payoff is no less than what the rewards can be for an early stage biotech investor.

Why is there plenty of private equity for biotech start ups and junior petroleum explorers- but not for junior mining exploration companies?

So why are there literally billions of dollars in private equity available for biotech start ups and junior mining exploration companies have to pay 10% commissions to raise a lousy few million dollars? Why doesn't the investment banking community consider early-stage biotech start ups as "risky" as they do junior mining explorers?

Because the junior mining explorers- for lack of private equity- are forced to go public very early in their corporate life- and thus they are in the public's attention span- where as private biotech start ups are not as there is no public information on these companies nor any stock analysts do research on these firms. While junior mining explorers are the subject of research by some investment banks- there is always the issue the investment bank having to warn the reader how "speculative" the stock is- as the company has no revenue. That doesn't happen in early-stage biotech start ups because they are awash in private equity and aren't forced to issue shares to the public in order to advance their R&D and product development.

While there is nothing wrong with the Canadian venture exchange- and the Australian experience with public funding of junior mining companies- the function of stock exchanges is to fund later stage companies- not start ups. It is clear that many junior mining companies would be much better off putting off their IPO until later on in their corporate life so they don't have to deal with being a public company and yet be such a small company. Even though the monthly expenses of a junior explorer can be tiny- they still have to deal with the responsibility and cost of being a public company. If they were able to stay private longer- they would be able to focus strictly and solely on their exploration work- and be able to reach these discoveries quicker- thus enabling the large joint venture partners to come in sooner and thus the time lag between discovery and production will be shortened.

It is interesting to note that while there are some junior explorers for natural gas and petroleum that are public in Toronto or Vancouver- there are also many that are owned by a "private trust" that was set up to invest in these companies- essentially private equity but not packaged as a fund- but as a pool of money. The market caps and image of many of these gas and petroleum juniors are much higher and than for junior mining explorers. That type of "trust" investment doesn't exist for investors in mining companies- and thus with the lack of any private equity- most of the juniors are forced to go public too early in their corporate life This makes the entire sector less efficient in its use of capital and how much capital is required at any given time to allow the company to grow. If junior mining explorers are spending so much time on road shows and with investment bankers to raise a few million in a private placement- that is time spent away from the resource. .

Those in charge of the future destiny of the mining industry (ok, I know there isn't anyone like that- but there ought to be) should begin to think about how to correct this problem so that young companies have a longer period to grow- because they enter the public markets. Many juniors have hundreds of millions of shares in the market- and thus their shares sell for under a buck. That doesn't happen with the juniors in the natural gas and petroleum exploration- as there is money in the various "investment trusts" to provide an alternative to going public so early on. Someone needs to investigate this and find out why one speculative company from one sector enjoys a form of private equity- while the other does not.

A lobbying group needs to be establish to convince the stock buying public that investment in public mining stocks are a respectable and solid investment opportunity.

Unless these two paths are embarked upon by some body of representatives of the global mining industry- ten years from now the situation will be the same as it is today. A group of the blue chip companies need to sit down and form an umbrella lobbying arm to make sure that something is done to improve the image of mining companies as an investment target- and to find ways to encourage more private equity into the industry at the level of the junior explorers.