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Tracking Junior Miners - Why Are they Underperforming?

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You really think so?

 

SURE. We are still in the middle of it.

 

The really dramatic part ought to be triggered by Gold's sprint through $1,000, and after a "kiss it goodbye" ("back to ice") move

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I notice that CDNX (and SPX too!) has worked its way back up to the gap it left when it fell sharply on the opening back over a week ago (last Tuesday's opening):

 

aa0qk3.gif

 

bigtb0.gif

 

It is likely, that CDNX will need to show more volume, if its rise is to continue. (Ditto for SPX)

 

My favorite stock from Capetown is North Atlantic Resources (NAC.v), and I have been eating away at a big block for sale at $0.37. It looks like, we finally "ate through it yesterday". I like the story. In 2006, it traded as high as $5.00. Market Cpa is under $10 Million, with Gold, Oil, and Uranium assets. The Uranium in Niger, is being spun off into a new vehicle.

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(David Vaugh remains Bullish on Gold Miners):

 

The large gold financial institutions are buying gold equities by the bucket load. And which stocks are they buying? The senior companies. It is only a matter of time before the junior stocks are covered. Let’s listen to who I believe is one of the most competent gold analysts in the market.

 

Ken Gerbino -“…the juniors on a relative basis are extremely undervalued and that a substantial rally should be starting soon.”“New money into the gold arena is going into the big names. These managers and investors have not started to look at Canada and the junior sector yet. But as they eventually get more familiar and comfortable with the industry they start looking for smaller growth and value situations and that leads them into the junior sector.” “The key to making an above average return is competent evaluations and patience. This sometimes takes many years. Patience will outweigh the volatility of the gold and silver mining sector as intrinsic value eventually gets recognized. The laws of supply and demand let you sleep comfortably.” Ken Gerbino, Kitco, 2-4-2008

 

Gold mining stocks will eventually rally but patience is the name of the game. Another highly rated gold analyst shares his longer term price for gold this year.

 

“I still see $1200 gold and $25 silver coming this year.” By Rick Ackerman, Kitco, 2-4-2008

 

Think long term, always longer term. The price of gold in the short term will move in extremes in every direction but gold will be overall strong for the rest of this decade and beyond.

 

/more: http://www.financialsense.com/fsu/editoria.../2008/0212.html

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Nice opposite action between rising CDNX and falling SPX today (so far!)

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From Sinclair's webite.

 

Hi Jim,

 

As a young tad, I worked in several Canadian hard rock PM mines from jackleg drilling to drill core interpretation. I know the B from the BS regarding proven reserves and factors governing the viability of a start-up, but these juniors have me stumped. My modest portfolio is exclusively precious metal juniors with more than adequate proven reserves, and a mine in operation or close to it. I’ve been diligent in making sure that none of them are hedged yet still they are greatly underperforming in relation to the price of gold.

 

Does Jesse’s advice to “sit tight” apply to juniors with good credentials, and if so, what will be some signs of these juniors unhooking from the general market decline in the future? You and Dan are the major reason I have not and will not cut and run in the insanity of the present market.

 

Sincere gratitude;

CIGA Hardrock GH

 

Dear CIGA Hardrock GH,

 

The hedge funds are long the Barricks of the world and short ALL the juniors. The hedge funds have over-priced the big guys and under-priced the juniors.

 

Here is the question that needs to be answered:

 

With gold headed to $1650 what do you think your junior with 1,000,000 ounces of 43-101 compliant reserves and a deposit strike length of at least 4 kilometers would be worth? Here's a back-of-the-envelope estimate:

 

1,000,000 times $1650 minus a $300 total production cost per ounce.

 

In ground value: $1,650,000,000 (not including recoveries)

 

Cost of extraction: $ 300,000,000

 

Amortization of plant and equipment over say a 10 year mine life: $200,000,000

 

Value:

 

Value of the asset $1,150,000,000.

 

Now let's say the deposit goes to 5,000,000 ounces contained. In this case five times $1,150,000,000 is the value - all things being equal.

 

Does the enterprise plan to produce or will they sell the asset when it matures, say two to four years past initial production?

 

If they plan to produce for their own account, then the value is a combination of discounted present value times cash flow.

 

If they plan to sell the property, it is asset value. If the last sale of such an asset was at "x" euros times ounces contained, then the starting negotiation would be a premium above "x" euros times ounces contained plus a value for gold contained within other resource categories.

 

The hedge funds can play all the games they want but they will fail on valuations as gold goes to and through $1650. My personal money is wagered on my words.

 

So those that are demoralized should sell and stop the pain.

 

I am significantly committed and intend to continue my commitment with every cent I have, no margin.

 

Regards,

Jim

 

 

 

THEN

 

Dear Jim,

 

Looks like we are going to have a repeat of the 70’s with some gold shares. They won’t move until they do!

 

Alex

 

This is the chart for Hecla in the 70s (It's somewhere around $10 now BTW)

 

 

 

57221_February1408-Alex.jpg

 

 

 

 

 

Dear Alex,

 

This is what few of the present gold share holders and hedge fund operators understand.

 

From 1970 to 1979 on balance the entire junior gold and silver category lagged gold and silver themselves until it was obvious that both metals were going ballistic. The junior precious metals then outperformed gold and the major gold shares.

 

As each Angel is taken out we draw closer and closer to the same action of the junior gold shares as was true in February of 1979.

 

The hedge fund operators are long the gold share majors and gold ETFs and short every junior under the assumption that the gold share leaders and gold itself will outperform the gold juniors.

 

Soon they will experience February 1979 and screw up their spread badly.

 

The more emotional and disillusioned emails I get the nearer we are to that point of a significant, immediate and violent up move.

 

I am a man of patience, but also an elephant hunter.

 

Study the chart of Hecla below, as it was almost the same action with every gold and silver junior from 1970 to 1979.

 

Regards,

Jim

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The above from Sinclair's site is an excellent post and I recommend re-reading it.

 

It also shows a very simple way of valuing mining companies, for those that have trouble doing so.

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Just when you were getting really worried about Juniors... we get outperformance

 

Chart ... update

bigtn7.gif

 

Remember what JS said:

"From 1970 to 1979 on balance the entire junior gold and silver category lagged gold and silver themselves until it was obvious that both metals were going ballistic. The junior precious metals then outperformed gold and the major gold shares."

 

A sprint through Gold-$1000 may be just what the Juniors need

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CHART UPDATE

 

CHART: Gold and Major Gold shares vs. Juniors (CDNX) and SPX

bigti3.gif

 

With gold currently trading in excess of $900, I believe that junior miners now look very cheap relative to gold and to the major gold share, and are at levels which are attractively valued versus fundamentals. The senior gold shares have nearly kept pace with gold, but the juniors have not. And the ratio of the CDNX index (a proxy for Juniors) to HUI (an index of Major gold shares), has fallen by over 40%, from the May 2007 peak ratio of 10.24 to recent levels near 6.00.

 

RATIO : Juniors Miners (CDNX, as a proxy) to Major Golds (HUI)

001jv0.png

 

Several factors which we believe will drive this ratio higher:

 

+ Takeover bids, by Majors (whose stock prices are higher) of small companies,

+ High profile discoveries by the Junior companies - with many drill programmes presently underway

+ Greater interest amongst retail investors, if and when Gold moves above $1,000 per ounce,

+ A renewed interest in higher beta stocks, at some stage after fears in the general market ease

 

There is normally a sharp bounceback in the Junior stocks after tax-selling in November and December. I have seen that rally in something like six years out of the last six, and made handsome profits with the strategy of buying year-end “tax bargains” in each year. But a January bounce did not come in 2008. Why not? The likely reason is unusual weakness in the general market, which showed its worst January start in over a decade. So it is not surprising than Juniors suffered also.

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Pacific Northwest Capital : PFN.t chart

 

Looks a little gem.

What they have is a big PGM deposit (mostly palladium), and Angloplats as a partner

 

Other charts:

Beartooth / BTP chart

 

Gold Summit / GSM chart

 

Are Junior platinum shares going to lead the junior golds "out of the basement"? I hope so.

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Apologies if this has been asked before but is there a way to buy a tracker for CDNX or junior miners? In a similiar way that GDX (Gold Miners ETF, AMEX) 'tracks' the majors in HUI.

 

Alternatively which are the best funds which invest in Juniors?

 

Thanks

d

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KEY LEVELS

 

I can't help thinking that a great commodity shorting opportunity is coming up, we'll have to see is oil/gold or the XAU break out to new highs

but if they churn around here for a few days

 

CDNX (mostly Jr.Miners & Explorers) has rallied back to a key resistance level/

 

aa0ix8.gif

 

It's going to need some volume here, to punch through this important level.

If gold gets through the recent highs (GLD-$92.58with conviction, we should see that

 

bigus3.gif

 

*** Note: These levels and charts are discussed in this week's podcast ***

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Apologies if this has been asked before but is there a way to buy a tracker for CDNX or junior miners? In a similiar way that GDX (Gold Miners ETF, AMEX) 'tracks' the majors in HUI.

 

Alternatively which are the best funds which invest in Juniors?

 

There isnt an etf for Junior miners

I normally recommend a basket, of at least 6-10 junior stocks.

 

For funds, or stocks with similar historic action, have a look at:

+ Endeavour / EDV.t

+ Canaccord / CCI.t (a Vancouver broker)

+ Us Global Investors / GROW* (a fund mgr. involved in EDV.t)

 

* there are traded options

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For funds, or stocks with similar historic action, have a look at:

+ Endeavour / EDV.t

+ Canaccord / CCI.t (a Vancouver broker)

+ Us Global Investors / GROW* (a fund mgr. involved in EDV.t)

 

* there are traded options

 

Perhaps Longview Capital Partners is worth consideration - Ticker "LV" on the TSX

 

I haven't done any research yet, but at least their investee list is manageable. Nevada Copper is the real deal; a good long-term investment. The others I'm not familiar with:

 

LV Portfolio:

Buffalo Gold

 

Finavera Gas

 

MacArthur Minerals

 

Oriental Minerals

 

Waratah Coal

 

Nevada Copper

 

AMI Resources Inc.

 

Pacific Coast Nickel Corp.

 

Pencari Mining Corporation

 

Cue Resources

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CDNX is still holding rather well, and showing some strength relative to SPX today

 

Here's the CDNX-to-SPX ratio

001bj1.png

 

This looks to me like a 4th wave "flag" with a wave 5 UP still to come.

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"CDNX (mostly Jr.Miners & Explorers) has rallied back to a key resistance level"

 

Wednesday's rises ...

 

GLD- : 93.24 Change: +1.66 Open: 90.84 High: 93.31 Low: 90.75 Volume: 10,633,281

Percent Change: +1.81%

(volume over 10mn is good. It was good to see a dip into the gap before the rally too.)

 

GDX- : $50.95 Change: +1.35 Open: 49.13 High: 50.95 Low: 49.00 Volume: 6,070,612

Percent Change: +2.72%

(nice. more perky than gold.)

 

RGLD: $30.09 Change: +1.01 Open: 28.92 High: 30.24 Low: 28.55 Volume: 637,979

Percent Change: +3.47%

(even nicer. It's good to see RGLD back over $30.)

 

CDNX: 2,642.49 Chg:+19.89 Op: 2,618.43 H: 2,642.49 L: 2,608.17 Volume: 182,000

Percent Change: +0.76%

(The move was small. And it hasn't proven anything yet.)

 

...were what I wanted to see. All systems are GO !

 

Let's hope this continues

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INTERESTING article / Excerpts:

 

"Despite very difficult prevailing stock-market conditions, the HUI unhedged gold-stock index has soared 55% since mid-August! You’d think gold-stock traders would be thrilled with such awesome gains. Instead they are very disappointed, because gold itself is up 45% over this same period of time and the HUI hasn’t adequately leveraged its gains.

 

 

 

To delve into this vexing conundrum, a couple weeks ago I updated my research on HUI leverage to gold. It showed that leverage varies wildly over the course of uplegs, so it is pointless to worry about mid-upleg. Like the weather, it will soon change. As I was doing this leverage research, some fascinating peripheral insights into the technical structure of HUI uplegs became apparent.

 

Over its entire 1237% bull market since November 2000, the HUI has completed seven major uplegs and seven major corrections. I’ve studied these segments in depth over the years. Analyzing their gains, durations, rhythms, and leverage offers priceless probabilities knowledge to help maximize our odds of realizing big profits in today’s and future gold-stock trades.

 

The HUI’s seven major uplegs of this bull have coalesced into a very distinctive alternating pattern. First massive uplegs drive the HUI to dizzying new heights, catapulting it over 100% higher in less than a year. Then smaller consolidation uplegs follow, giving traders time to get comfortable with the new higher prevailing gold-stock levels. I recently discussed this critical pattern in depth.

 

The 2nd, 4th, and 6th major HUI uplegs of this bull market were massive, averaging stellar 136% gains over just 9 months each! The 3rd, 5th, and 7th were consolidation uplegs, averaging much more modest 47% gains over about 9 months each. Since the 7th upleg which ended last July was a consolidation upleg, today’s 8th upleg which started in mid-August is almost certainly going to prove massive."

 

Zeal022208B.gif

 

Provocatively if today’s HUI upleg tops by late May in line with the probabilities, we are nearing its final two months. The dotted-blue line above shows a stylized view of the HUI’s probable trajectory during the time between now and May. If this massive upleg follows precedent we ought to see slightly more than half of its total gains between now and May! The terminal ascents in massive HUI uplegs are simply awesome.

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Junior Mining Weekly ... Wendell Zerb

 

A ray of light?

 

While we still expect considerable ongoing volatility for North American equity markets, there is some renewed optimism, including the outlook for commodities, which bodes well for the resource-heavy TSX. The junior mining companies have not, as a whole, outperformed. With some renewed stability in the North American markets, we expect capital could begin to flow back into the small caps as investors recognize the value contrasts between the large producers and the small cap mining companies.

 

Exploration update: Canplats Resources Corp. (CPQ : TSX-V : C$3.67 | Not rated), International Tower Hill Mines Ltd. (ITH : TSX-V : C$2.00 | Not rated) and Luna Gold Corp. (LGC : TSX-V : C$1.20 | Not rated).

Site visit notes: Pediment Exploration Ltd. (PEZ: TSX-V : C$3.07 | Not rated).

 

Uranium in situ chart and spreadsheet. Current value at US$ 6.75/lb;

Gold in situ chart and spreadsheet...... Current value at US$77.01/oz.

 

- Canaccord Adams

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CDNX - Ready to Roll?

 

CDNX closed : 2,715.49 Change: +29.25 / +1.09% ... update

 

That's right on another resistance level (76d.MA), if it can break through, and get some volume behind it,

it could really get rolling.

 

 

WINNERS OF THE DAY / #1

 

(Readers of GEI may know that I hold a wide diversity of shares,

I thought it might be interesting to report here some of the stocks I hold that have

good days as they happen. And also report where I am investing the capital raised):

 

GPR.v / Great Panther : $1.21 Change: +0.20 / + 19.80%

TMM.v / Timmins Gold : $1.29 Change: +0.15 / 13.16% *

TRX.v / Terrane Metals : $0.43 Change: +0.04 / + 10.26%

GORO / Gold Resource Corp : $4.15 Change: +0.36 / 9.50%

 

(these next, maybe?)

PIK.t / Peak Gold : $0.63 Change: +0.03 / + 5.00%

ICX.v / ICS Copper : $0.63 Change: +0.03 / + 5.00%

 

* Has has a nice run, and so I am doing some profit taking, lightening up as it rises

 

= =

 

WHERE is the money going?

 

Some new placements ( China Energy Recovery/ CRCV, and Norwood Res./ NRS) and into HK Property.

(We close tomorrow on property number 6, with three more under purchase agreements, not completed.

I may buy property #10 on Friday- it's a forward purchase: 20% within 6 months, 80% 15 months later.)

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Any opinions on the Market Vectors Gold Miners ETF (GDX).

This seems to track the HUI pretty closely.

I simply dont have the time/knowledge to research the juniors sufficiently or the cash to invest in 10+ companies.

I figure buying an ETF of Gold Miners might be the better way to gain exposure.

 

Yes, GDX is virtually identical with HUI, and it tracks the majors.

But you will find more value amongst the Juniors.

 

Some funds that buy which, which I either: own, have owned, or are on my watchlist include:

(I occasionally buy them, but I think a broad exposure to "interesting juniors" may outperform these & GDX):

 

+ Pinetree Capital / PNP.t

+ Endeavour Mining / EDV.t

+ Longview / LV.t (thnx to Ace, for this one)

 

...Other which may have a reasonable correlation, given their business activities are:

 

+ Canaccord Capital / CCI.t

+ US Global Investors / GROW

 

...and in the UK, maybe:

 

+ Ambrian Capital / AMBR.L , and/or its spin-off

+ ?>?

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I think City Natural Resources High Yield is a very good low-risk fund. It's an investment trust listed on the LSE and the ticker is CYN.

 

There is a quarterly dividend, a persistent but not too large discount to NAV and it is mostly invested in a wide basket of Canadian/Australian mining juniors, with a few energy and agricultural stocks thrown in.

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Apologies if this has been asked before but is there a way to buy a tracker for CDNX or junior miners? In a similiar way that GDX (Gold Miners ETF, AMEX) 'tracks' the majors in HUI.

 

Alternatively which are the best funds which invest in Juniors?

 

Starvest (SVE.L) is basically a junior miner investment trust which has a portfolio of 20 to 30 investments if i remember correctly.

Looking at the last quoted value it seems to have a very large discount to NAV.

 

CYN.L invests in larger mining companies than SVE.L

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WINNERS OF THE DAY / #2

 

FO.v / Falcon Oil & Gas : $0.52 change +0.115 / +28.40%

WHD.v / West Hawk Dev'l : $0.28 change +0.06 / +27.27%

NAC.v / North Atlantic Res. : $0.60 Change +0.10 / +20.00%**

GNG.v / Golden Goliath Res. : $0.31 Change +0.04 / +14.81%

PBX.v / Int'l PBX Ventures : $0.315 Change +0.03 / +10.53%

 

From Yesterday

TRX.v / Terrane Metals : $0.455 Change: +0.025 / + 5.81%

PIK.t / Peak Gold : $0.67 Change: +0.04 / + 6.35%

 

(next maybe?)

TM.v / Tumi Resources : $0.71 Change +0.03 / + 4.41%

 

- -

**Here's a little detail on this one:

I came across this company earlier this month when I was in Capetown for the Indaba.

I liked the story, and thought it was dramatically undervalued, having fallen from over

$4.50 in 2006, to under $0.40 when I bought it. I jumped on the story, and bought

over 100,000 shares at $0.38, so yesterday's move made me over $10,000 on just

this one position. I see it rising to $1.00 or higher, but might just awaiting pullbacks

if one wants to buy.

 

Some of you may have seen the thread on GEI, started when the stock was near $0.42.

My holdings in the other big winners of the day were much smaller than this.

 

How do I trade these positions?

See: the Noise Trader thread, and the CORE Portfolio thread

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