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Tracking Junior Miners - Why Are they Underperforming?

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On second thoughts it could even do a double bottom with the December tax sell-off lows

 

It depends on the general market (and gold too!), I suppose.

If SPX is bottoming in the next day or two, then CDNX should make its bottom around where it is.

A futher break in SPX (or gold!) could take CDNX down to that 200wk. MA

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Speaking on FS, highly-articulate "private investor" Eric King talks about :

 

+ There are great values amongst the junior miners

+ Gold and Silver prices are going far higher

+ Majors are "going to have to go out" and buy juniors

+ The upside "is staggering"

+ Patience is key. "Sitting" not trading, is how the big money will be made

+ The really big money will be made at the end- in the manic phase

 

/link: (about 40 minutes in):

http://www.netcastdaily.com/broadcast/fsn2008-0119-3b.asx

 

"they are on their own time table"- the juniors will not necessarily follow the HUI

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Canadian Venture index (CDNX) ... update

001yl6.png

If key support at CDNX-2600 is broken, it may quickly fall to 2400

 

HUGE drop today : - 6.6% !

CDNX : 2,445.46 Change: -172.75

It seems that support area near 2,400-ish will be tested very soon, even today.

 

It is often a good idea to buy when only a single market is open (canada),

and you see these huge drops.

 

If you dont have a Junior mining portfolio, this could be a great time to buy in

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(from Advfn's RUG thread):

 

energyi - 24 Jan'08 - 12:29 - 33344

 

Sahara:

"E - I have the Gold mining juniors on high alert, and have been nibbling exponentially over the last few days, I posted a chart of the HUI and was impressesd with the prospects./\."

 

Actually,

A HUGE gap has opened up between HUI and CDNX,

as you can see on my other thread:

CDNX: http://www.advfn.com/cmn/fbb/thread.php3?id=16287876

 

If the CNDX plays catch-up now, it will be extremely profitable for those

of us with large Core holdings in the Juniors

 

- -

"If so short closeing could add to the mix. Explosive stuff"

 

Tim, I hope you are right about that.

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MIND THE GAP

001ip1.png

 

The Ratio of CDNX-to-SPX needs to get back over 2.05.

There's a sort of gap, in the area of 1.88 - 1.94 , and that could be jumped Friday or in the next

few trading days.

 

Everyday where the gain in CDNX exceeds twice the point gain in SPX pushes the Ratio higher.

 

Let's see what yesterday brought:

 

CDNX: 2,533.72 +93.38 / High: 2,533.72 Low: 2,476.26 / Volume: 182,000

Percent Change: +3.83%

 

SPX: 1,352.07 +13.47 / High: 1,355.15 Low: 1,334.31 / Volume: n/a

Percent Change: +1.01%

 

Overall Ratio : 1.874: (2,533 /1352)

Ratio-of-Chg : 6.93 : (+2.82%) that's Huge outperformance!

 

A real "jump of the gap" might require CDNX to be UP on a few days when SPX is down.

The overall gap back to 2.05 from 1.87 is: 9.6%

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Interesting interview with John Embry, Chief Strategist for Sprott

 

Next Leg Up For Gold *VIDEO* John Embry from Sprott Asset Management

on the outlook for gold and gold stocks. // Host: Victor Adair.

http://www.howestreet.com/audiovideo/index...mediaplayer/261

 

He says:

+ Gold and Gold shares will take off,

 

+ At some stage, Gold will decouple from stocks, and soar "like a scalded cat"

 

+ Gold shares should follow gold higher, but maybe with less enthusiasm

 

+ The Average person cannot "even spell gold" and is comfortable with money in the bank,

but at some point they will want to get out

 

+ Bonds at a 3% yield are a terrible long term investment

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"GOLD-in-the-Ground" is very cheap

========================

 

The Juniors (as represented by CDNX) as drilled down to a very cheap price

 

cdnxtogoldax4.png

 

Look at that !

 

Ratio has hit 2.60 in recent days, that is just HALF the peak ratio near 5.20

 

Latest:

CDNX: 2,533.72 +93.38 / High: 2,533.72 Low: 2,476.26 / Volume: 182,000

Percent Change: +3.83%

 

GOLD : $900.80 + $7 : $907.80

GLD-- : $ 90.08 +$2.19 / High: $ 90.25 Low: $ 89.13 / Volume: 10,627,400

Percent Change: +2.49%

 

Ratios: (using 10xGLD as a proxy for Gold):

Overall Ratio : 2.790 : (2,533 /$907.8)

Ratio-of-Chg : 4.26 : (93.38 / 21.90) /(+1.34%)

 

There was decent outperformance by CDNX yesterday

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I see more evidence of Canadian jnrs having put in a low on Monday.

 

Two double bottoms, a bounce off the long-term trendline, touching the 200 week MA and rejecting it.

 

bighh9.gif

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Nice relative move today, in early trading:

 

Ratio: $2578 /$1354.0 = 1.904

R-chg: +44.73 / +1.83 = 24.44 !

 

(That was intraday, On the close):

 

Points +20.34 / -21.46 = +40.80

Ratio: $2554 / $1330.6 = 1.919

R-chg: +20.34 / -21.46 = -00.95

R-pct: +0.80%-(1.59%) = +2.39%

 

That's even better.

Getting thru most of that "Gap" area

==

 

Nice chart, Fr.

that's how I see it too

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I could see this gap beginning to close, as the Juniors gather interest

 

aa0gs5.gif

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WHAT COULD ignite the Junior rally...

 

Greg Silberman - “Thirdly, whilst the index is at new highs, the gains have mostly come from large cap miners and has yet to filter down to the smaller caps. Most exploration and junior producers are still down in the dumps. POINT IS, THERE IS DEFINITELY STILL TIME TO CLIMB ONBOARD BUT THE SPECTACULAR GAINS WILL MOST LIKELY COME FROM THE JUNIORS WHERE VALUATIONS ARE STILL LOW. When the first announcement of a takeover hits the junior market it will be like a match to the flame as speculation over who will be next causes rapid upward revaluations – the good investor will be buying now in anticipation of this.” Kitco.com

 

/see: http://www.financialsense.com/fsu/editoria.../2008/0122.html

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WHAT COULD ignite the Junior rally...

 

Greg Silberman - “Thirdly, whilst the index is at new highs, the gains have mostly come from large cap miners and has yet to filter down to the smaller caps. Most exploration and junior producers are still down in the dumps. POINT IS, THERE IS DEFINITELY STILL TIME TO CLIMB ONBOARD BUT THE SPECTACULAR GAINS WILL MOST LIKELY COME FROM THE JUNIORS WHERE VALUATIONS ARE STILL LOW. When the first announcement of a takeover hits the junior market it will be like a match to the flame as speculation over who will be next causes rapid upward revaluations – the good investor will be buying now in anticipation of this.” Kitco.com

 

/see: http://www.financialsense.com/fsu/editoria.../2008/0122.html

What's the thinking on how many juniors one should own to be diversified enough to take advantage of this scenario. I think this will happen and am happy to buy small positions on a number of these juniors [i've been researching several in preparation] I noted Rubino's comments on CWR that you need a basket of these ; 10 or more.

MunsterK

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This is not my area, but I came across this:

 

Gold mining shares are not eligible as portfolio insurance since they have an ambiguous correlation to traditional financial assets. While from time to time they may be negatively correlated, and there is no question of their ability to benefit from promising trading opportunities, long-term wealth preservation demands fully allocated, segregated, and insured gold bullion.

 

The counterparty risk involved in owning gold mining shares is not zero. Worse still, the full extent of this risk is unknown. To complicate matters further, many a government (such as that of Ecuador) keeps a jaundiced eye on its gold mining industry and is trying to determine the most opportune moment to expropriate foreign shareholders. Gold bullion is not dependent on anyone's promise, representation, or ability to perform (nor, if properly stored, is it dependent on the propensity of the government to expropriate), in a word: gold bullion is not someone else's liability.

 

Therefore it is the only agent that can provide the necessary protection against both contingencies: systemic collapse and slow monetary debasement, while incurring the lowest possible level of risk.

 

http://www.safehaven.com/article-9322.htm

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POSSIBLE PROXIES - for the CDNX

 

Here's CDNX since Jan.2004, compared with Canaccord (CCI.t) and Endeavour (EDV.t) ... update

 

bigey4.gif

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Is somone following Condor Resources PLC?

(LSE:CNR)

 

500.000 unc Au

20 Mio unc. Ag

 

MarketCap 4.3 Mio BP / 6 Mio €

News yesterday:

Condor’s JORC Code Compliant Resources exceeds 500,000 ounces of gold and 20 million ounces of silver with the delineation of a maiden resource at the El Gigante Prospect, El Salvador. The El Gigante mineralized structure remains open at depth and along strike in both directions.

 

Last year strong downtrend because licence-trouble in El Salvador, but 2008 could become a good year.

It seems, they are on work again.

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Yes, I own some Condor from about 50c last year. I sold a lot of mine at around $1, but I still have a few shares. It is one of the few juniors that has bucked the recent nasty trends. The reason? In my opinion, lack of dilution.

 

I really like it - and if you bought last Monday you'd be sitting on a near 50% profit already!

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SENIOR GOLDS HAVE PERFORMED, Juniors Have Not

 

A sad looking performance in 2008 for the Junior Miners & Explorers.

I use the CDNX index as a proxy, and here's what I see for 2008:

 

Date- -GLD-- -GDX-- -CDNX- -SPX--

Latest 91.75 51.21 2557.8 1353.96

Chg.08 11.3% 11.7% -9.93% -7.79%

v. GLD 0.00% 0.47% -21.19% -19.06%

 

GDX (Seniors) has slightly outperformed GLD (the Gold etf), while

CDNX (a proxy for the Juniors) is lagging by a huge -21.2%.

 

 

The Main problem?

 

CDNX versus : GDX, RGLD, SPX ... update

 

bigac1.gif

 

CDNX lost a massive 8.7% on Jan.21st, when the Canadian markets were opened, and the US markets were not. It still hasnt managed to recover much of the big massive underperformance from that day. Last week, It looked like it might start to recover. Then yesterday's tiny 0.15% gain fior CDNX, when GLD jumped 1.61% and SPX was up 1.75%, was a big disappointment.

 

I still expect better, and hope to see it this week.

 

= =

 

Shale_Facing_Brick.jpg.bxp27929.jpg

 

Frizzers, and others interested in the detail, note:

Yesterday's news took the CDNX/SPX ratio back down to the top of that GAP, that I had previosuly identified. If you are looking for silver linings, I suppose you could say that "filling the Gap" first is not a bad thing. If the ratio jumps up from here, it will not leave those potentially-destabilising gaps in the the charts. A brick makes a better foundation than swiss cheese.

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I AM A "NOISE" TRADER

- harvesting those brief surges from results or aggressive promotion

 

What's the thinking on how many juniors one should own to be diversified enough to take advantage of this scenario. I think this will happen and am happy to buy small positions on a number of these juniors [i've been researching several in preparation] I noted Rubino's comments on CWR that you need a basket of these ; 10 or more.

MunsterK

 

I own over 30 miners and explorers.

Some are only small postions left over from water-testing exercises in new stocks over the last year

or two. I dont recommend so many, but I watch my portfolio carefullly, watch for signs of outperformance.

When one runs ahead of the pack, and then the voluem starts to slow, I will sell it. I then reinvest the

proceeds in more Juniors, or sometimes in Hk property.

 

Fortunately, I have had few big losers, and this form of trading, sell my winners, after their momentum

flags, has worked well for me over several years.

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CATALYSTS - which might MOVE the Juniors

 

1/ Takeover bids, from the Majors

2/ Consolidation in the Junior sector (esp. Silver)

3/ Explosive Move in Gold; Over $1,000 per oz.

 

I finally got around to listening to this weekend's broadcast:

per FS: http://www.netcastdaily.com/broadcast/fsn2008-0126-3b.asx

 

Includes an excellent discussion of what to look for in a Junior:

+ Very much from an institutional investor's Point-of-View

+ Does talk about charts or GIP points - that's OUR edge !

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Thnx, Fr.

We can see in that chart, that Gold is running and running fast ahead of the Juniors.

 

At some point, the rising Gold price pught to drag upwards the value of Gold deposits

within the Junior companies. We need to stay patient.

 

It is amazing to see these "development stage" companies sliding ...

0128.h3.gif

 

...while Gold powers ahead !

 

Here's what Frank Barbera says:

 

"On a relative strength basis, Juniors Gold’s remain in a solid downtrend which now dates back to a peak last March 15th. Certainly, a mature and extended period of relative under-performance, there is quite a mystery as to why these stocks are not moving up aggressively in light of record, multi-year highs for all metals. While no one explanation is readily apparent, perhaps the only explanation may be that of diminished risk appetite as the broader trend for stocks has entered a bear phase and financial institutions are pairing back risk rather then becoming more aggressive. With so many of these companies engaged in rigorous drilling programs, --- programs that enhance shareholder and property value, the inherent ‘value’ proposition illustrated in most quality juniors seems to be getting better and better with each passing month. Who knows, perhaps these are the key ingredients for a mania style bull market once more broad based confidence returns to the global markets."

 

I have chosen to draw my own lines on a chart in Barbera's article:

This shows the FS Index of Junior Golds vs. XAU

aa0jp5.gif

 

/see: http://www.financialsense.com/metals/FSJG/2008/0128.html

 

= =

 

My own optimstic interpretation is this:

From 2002 to early 2007, the Juniors ran ahead too fast, and the companies became too expensive for the Majors to continue making acquisitions. In their enthusiasm, the buyers of the smaller mining and exploration stocks had temporarily forgotten that many Junior co's are like "burning matches." They have to keep coming back to the market to raise money to finance their exploration and development efforts. As the credit crisis spread into stock markets, and finance became harder to raise, the risk-of-refinancing was brought back home to the markets, and risk premiums got larger so that the mining Juniors have lagged for months.

 

Now we are waiting from some takeover action (by Majors of Juniors) to confirm that they have gone back to being relatively inexpensive. Soon, I think, we will see from takeover activity, and some huge gains from discoveries, that the Juniors are cheap enough to start buying them aggressively again.

 

(I plan to contact Frank Barbera, and ask him to look at the argument in this posting.)

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Thnx, Fr.

We can see in that chart, that Gold is running and running fast ahead of the Juniors.

 

At some point, the rising Gold price pught to drag upwards the value of Gold deposits

within the Junior companies. We need to stay patient.

 

It is amazing to see these "development stage" companies sliding ...

0128.h3.gif

 

...while Gold powers ahead !

 

Here's what Frank Barbera says:

 

"On a relative strength basis, Juniors Gold’s remain in a solid downtrend which now dates back to a peak last March 15th. Certainly, a mature and extended period of relative under-performance, there is quite a mystery as to why these stocks are not moving up aggressively in light of record, multi-year highs for all metals. While no one explanation is readily apparent, perhaps the only explanation may be that of diminished risk appetite as the broader trend for stocks has entered a bear phase and financial institutions are pairing back risk rather then becoming more aggressive. With so many of these companies engaged in rigorous drilling programs, --- programs that enhance shareholder and property value, the inherent ‘value’ proposition illustrated in most quality juniors seems to be getting better and better with each passing month. Who knows, perhaps these are the key ingredients for a mania style bull market once more broad based confidence returns to the global markets."

 

I have chosen to draw my own lines on a chart in Barbera's article:

This shows the FS Index of Junior Golds vs. XAU

aa0jp5.gif

 

/see: http://www.financialsense.com/metals/FSJG/2008/0128.html

 

= =

 

My own optimstic interpretation is this:

From 2002 to early 2007, the Juniors ran ahead too fast, and the companies became too expensive for the Majors to continue making acquisitions. In their enthusiasm, the buyers of the smaller mining and exploration stocks had temporarily forgotten that many Junior co's are like "burning matches." They have to keep coming back to the market to raise money to finance their exploration and development efforts. As the credit crisis spread into stock markets, and finance became harder to raise, the risk-of-refinancing was brought back home to the markets, and risk premiums got larger so that the mining Juniors have lagged for months.

 

Now we are waiting from some takeover action (by Majors of Juniors) to confirm that they have gone back to being relatively inexpensive. Soon, I think, we will see from takeover activity, and some huge gains from discoveries, that the Juniors are cheap enough to start buying them aggressively again.

 

(I plan to contact Frank Barbera, and ask him to look at the argument in this posting.)

 

>From 2002 to early 2007, the Juniors ran ahead too fast, and the companies became too expensive for the Majors to >continue making acquisitions.

 

Intersting - think this is what AceofKY was saying earlier, but from his own fundamental analysis....

 

"1. I think most gold stocks were valued very highly until August 07. I assemble discounted cash flow models on every miner that I research, and prior to August it was impossible to find a gold miner in a safe country that traded at NAV or lower. Most, in fact, traded at prices at least 2 times NAV. The market was already pricing in a big jump in gold price.

2. I know I've been beating this like a dead horse, but the mining companies haven't been increasing their profits during this period of high prices. Construction costs and operating costs are rising as fast (or faster) than the gold price. Since corporations are valued based on expected future profits (rather than a simple proportional relationship to gold price), there has not yet been sufficient justification to bid up the already high valuations. Even things such as the acid used in heap leach operations are experiencing significant cost increases."

 

Wonder what his take on the value of them is now - I'll ask....

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1. I think most gold stocks were valued very highly until August 07. I assemble discounted cash flow models on every miner that I research, and prior to August it was impossible to find a gold miner in a safe country that traded at NAV or lower. Most, in fact, traded at prices at least 2 times NAV. The market was already pricing in a big jump in gold price.

 

2. I know I've been beating this like a dead horse, but the mining companies haven't been increasing their profits during this period of high prices. Construction costs and operating costs are rising as fast (or faster) than the gold price. Since corporations are valued based on expected future profits (rather than a simple proportional relationship to gold price), there has not yet been sufficient justification to bid up the already high valuations. Even things such as the acid used in heap leach operations are experiencing significant cost increases.

 

If/when the U.S. goes into a recession, this may relieve the pressure on the cost side of the equation and allow the miners' margins to increase.

 

Well done AceofKY.

What is your take on the value of the junoirs now ?

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Well done AceofKY.

What is your take on the value of the junoirs now ?

 

Most of them are much better values now than they were at the end of July 07 or Oct. 07! But, generally speaking, the gold juniors didn't sell off nearly as hard as the base metal juniors.

 

I think GORO is a slam dunk for a double here once they reach full production in a year and a half or so. Possibly a triple if drill results keep coming in good.

 

My base metal favorites (SRZ.to, GMC.to) got beat into the ground over the last few months, but I still think they're both good buys. Also, I like Victory Nickel (Ni.to) at current prices even though it didn't fall much.

 

I guess my feeling is that the Fed is going to try to inflate its way out of this financial crisis. Thus, I'm not too concerned about holding base metal stocks. At some point, they will need to be sold when the fed no longer has the tools or the political mandate to continue devaluing the dollar, but I don't think we're there yet.

 

What we really need are some acquisitions by the majors to reignite the market in base metals. Ni.to and GMC.to are excellent takeover prospects, in my opinion.

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