Following Kerrisdale's comments I thought it would be useful to zoom out a little and try to get the big picture. No doubt junior mining investment in Canada has been negatively impacted by developments in Ecuador and elsewhere. Aurelian was the flagship discovery of this cycle, so the news has spread far and wide. This will have a chilling effect on the ability of new ventures to raise capital, especially if their properties are in unstable jurisdictions - a definition that will now broaden to include some nations that probably shouldn't be tagged as such, like Peru and Mexico. The effect, seen immediately in Ecuador, will be less exploration. This comes on the heels of a severe shortage of qualified personnel, a result of the previous lengthy bear market in commodities, plus sharply rising costs, most notably the cost of oil. Not the best of fundamental environments, to put it mildly.

The dedicated core of professional mining investors will remain I'm sure, but their focus is likely to shift towards more secure locations. That said, what about the serious investors at the margin - among which I count myself - the sort of person who follows sector developments, and then invests based on their fundamentals? Gauging my own response as typical, I'd have to say we'll lose a lot of people over this. Anger with the Ecuadorean authorities is well placed IMO, but this is not the whole story. The industry itself has too much of a wild west atmosphere with very little regulation of such things as stock manipulation, insider trading, bear raids and so forth. The Canadian regulators, and ultimately the ministries responsible have to answer for some of these effects which will drive people like myself away.

Investing is risky business at the best of times, and these are not the best of times. My impulse, following these events, is to look to other sectors for investment. Even if I were to stay in this sector, I might decide to shift my focus towards enabling companies (eg. Major Drilling Group) who don't have the exposure that a pure mining company may have. I'm also considering a low-leverage approach to trading commodities, since the above effects will limit the supplies thus leading to higher prices. I may not get the outsized returns from a discovery such as Aurelian, but these plays are few and far between. Better to concentrate on the longer haul with a more reliable return. I would place certain areas of technology in this category, especially anyone working on energy efficiency devices, and/or alternatives to oil. It is still early days for this sector, and as resource and energy shortages start to bite, we can expect mandated solutions (workable or not - see ethanol) to follow the market.

I may be reacting out of my own frustration, but I truly can't see how this industry will attract the kind of investment needed to meet the very critical demand for materials we'll be facing in the years ahead. The net effect will be to raise the price of everything we need to run a modern economy, from food to energy to metals and so on. The effect on the developing world will be devastating, and I think we can look to Ecuador in the months and years ahead for a textbook example of that.

This is not a happy prognosis, but it's the one I see most clearly at present. If someone has a better take, I'd surely be willing to listen.

ebear