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Tracking Junior Miners - Why Are they Underperforming?

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Extract from Penny Sleuth article, tipping the juniors in general.:--

 

 

But as you know, institutional investors are wary of anything not in the S&P 500. So, they dive into physical gold and major producers. Our junior minors remain the only undervalued avenue for investment at that point.

 

This sets up the third phase, which is just about to start…

 

Compared to the last huge precious metals rally, this one is more of a slow and steady increase. This gives us a clearer picture of this all-important third phase, which goes something like this…

 

People outside of the institutions and Wall Street begin to realize what they’ve missed during the first two stages of the precious metals rally. They want in. Just as they did during the end of the dot-com boom in 1999 and 2000, everyone throws their money at the hottest thing, which, in this case, is precious metals.

 

So instead of continuing to invest in the already overbought mega-producers, this new crowd begins to buy up the undervalued junior miners. This is our chance.

 

-----------

 

The third phase could be quite lengthy !

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The juniors are finally moving. Let's hope this is not a dead cat bounce.

We may have to retire this thread soon!

 

 

 

It feels good to be back in the green again for the year, especially since the broader markets were down today.

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The juniors are finally moving. Let's hope this is not a dead cat bounce.

We may have to retire this thread soon!

It feels good to be back in the green again for the year, especially since the broader markets were down today.

 

INDEED, there are!

 

CDNX: 2,809.50 Change: +55.04 Open: 2,757.24 High: 2,809.50 Low: 2,757.24

Volume: 182,000 / Percent Change: +2.00% ((note: GDX was up 2.29%, SPX: -0.89%))

chart ... update

aa0lz9.gif

 

CDNX has broken through the top of its recent channel.

It could be headed into a parabolic move, towards 2,000, and maybe higher.

It's "make hay while the sun shines"

 

- -

 

Ace, It must be good to have bet on winning, and have booked a trip to Toronto.

Unfortunately, I now have a last minute hitch, and may miss my flight today (sadly.)

Fortunately, the (high) cost of the ticket is covered by a part of yesterday's trading profits.

 

- -

 

WINNERS OF THE DAY / #3

 

Is anyone reading these installment?

If they are, I will continue for a few more days (of this run) on ...

The "Noise Traders thread":

http://www.greenenergyinvestors.com/index.php?showtopic=2768

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Jim Sinclair emphasising a point:--

 

Dear Arlen,

 

I have read this as you requested. It is what I HAVE ALREADY told you!

 

The hedge funds have been short the juniors and long the majors, resulting in overpricing the major and violently under-pricing the juniors.

 

The shorts continue their campaign by selling usually near the close on relatively light volume to attempt to make many issues look bad.

 

All you need to do is look at your junior in question on a 9 or 18-minute chart and check the volume of each bar. The operation at hand will scream out at you when compared to the total volume on the day.

 

Low volume selling within minutes of the exchange closing followed by even more miniscule selling on the electronic after hours are a dead give away someone is working hard to paint a picture by NOT SELLING TO SELL VOLUME, ONLY TO MOVE PRICE.

 

They will get burned. You can count on that.

 

Any issue doing well on the ground should not be bothered at all by both legal and illegal shorts. The undervaluation with gold running towards $1650 will burn them.

 

I have been spot on regarding gold and will be spot on regarding this issue. I am open to wagers.

 

A company that has in-ground assets rising in value should love the short that gets increasingly short as that will ultimately benefit the situation. The short is pushing their luck at this point.

 

Regards,

Jim

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Jim Sinclair emphasising a point:--

 

I have read this as you requested. It is what I HAVE ALREADY told you!

The hedge funds have been short the juniors and long the majors, resulting in overpricing the major and violently under-pricing the juniors.

 

I dont buy that - it's far too risky.

But they may be shorting against warrants they hold, creating synthetic puts (cheap ones too!, since they get the wts for free)

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(as first posted on the popular new Gold-freewheeling thread, pinned on the Main board)

 

There arent many here who doubt the value of owning gold.

 

The key thing here is:

+ How do you maximise your returns on Gold and Gold shares ?

 

= = =

 

I will be doing some selling over $1,000. Indeed, I have done some light selling of some sprinting gold juniors,

and am reallocating the capital to:

 

+ Hong Kong property, and

+ Some laggards (amongst the Juniors) that I think still have great potential

 

In fact, this process means selling almost $100,000 worth of stock per week over the past 2-3 weeks,

and reallocating that capital- It is mostly leaving my stock trading account, and finding its way into

HK property. Despite this rather serious profit taking effort, the NAV of the account has been rising.

How's that for a self-replenishing piggie bank?

 

I think this effort proves that Gold and Gold share profits CAN be used to fund a property investment

programme. We are now looking for property #10. (If I mentioned this on HPC, I would be rubbished

by all the frustrated and risk-averse wannabee FTBers, who think that this is somehow immoral. The

reality is that it PROVES the effectiveness of the investment ideas that we have long been discussing

here on GEI.)

= = =

 

CONFIDENTLY BUYING JUNIORS: "Banging up to new highs, and breaking out"

 

Go and listen to Jim Puplava's discussion with Eric King / 52 mins, in on : this podcast

I cannot figure out what all the whining is about.

 

The game is working well. See chart:

 

001dc9.png

 

We went fully invested in Dec.2007, and have been riding upwards the CDNX since the 2,400 low.

(I am not actually trading the CDNX, but my Junior explorers tend to move with it) and the CDNX

is now up to 2,800-ish despite the sharp falls in SPX.

 

The break of the downtrend, as seen in the chart above, sure looks as if a new bull thrust has started.

 

Eric King says "don't go to the chatrooms". He hasnt been here! If he had, he might sound a bit less

depressive, and he could be watching his portfolio banging up to new highs- as some here are doing.

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Jim Sinclair Commentary

 

Now that the public is disheartened on the junior sector and the Geeks are high five-ing it is time for the OTC derivative of the ratio spread to blow up like everything else the Geeks have done.

- -

 

Junior gold companies set for turnaround soon, says RBC analyst

March 06, 2008, 7:30 AM by Zena Olijnyk

 

The junior gold companies - explorers and developers - haven gotten the same sparkle out of rising gold prices as the large producers, but a turnaround may be in the offing, says RBC Capital Markets analyst Michael Curran.

 

e have been extremely disappointed to see the lack of participation in the recent gold price move frm the junior gold space,?Mr. Curran says in a note to clients. While most of the larger producers hit 52-week highs in January, and again in recent days, Mr. Curran says the juniors have to look back to the spring of last year for their 52-week highs.

 

Mr. Curran sees one of two scenarios unfolding for the junior gold companies, both of which could lead to a turnaround: a gold price-driven late rally, or an increase in M&A activity. In the case of the latter scenario, the elevated valuations of the larger caps will make acquisitions of the smaller cap laggards very compelling.

 

/see: http://www.jsmineset.com/

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"Back to Ice"? Before it runs higher? Let's hope so...

 

RATIO: CDNX-to-SPX

weekly

001ib9.png

daily

003xp4.png

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mr zerb likes junior golds!

http://seekingalpha.com/article/68348-cana...ure?source=feed

Canaccord: Investors Like Juniors for Gold Exposure March 13, 2008

The shift in market sentiment towards precious metals, and gold in particular, has pushed the share prices of large cap intermediate and senior producers toward all-time highs. But with healthy returns already realized in the bigger names, some investors are looking to smaller cap junior producers and developers for their gold exposure.................................more

hmmm....................think i'll pop out and buy one!

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WEAKEST on the block (over the last 10 days)?

 

aa1rz1.gif

 

It's Juniors (CDNX) again

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CDNX (mostly Junior Miners) - I still think it is in an uptrend

 

003cs5.png

 

The daily chart still looks positive to me

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Dr B.,

 

I know I've asked a few times - any sign of a CDNX proxy around yet? If not, which junior minors do you currently favour? RGLD is taking some paperwork for me to buy (because its on NASDAQ so I have to fill in some forms...). Anything UK or European based?

 

CS

 

Yes, but there is a very imperfect correlation

 

AMBR.L........... : CYN.L............ : SVE.L.............

 

Does us a favor. Study the correlation with $CDNX, and tell us how good it is

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With S&P rallying and gold have done fairly well over the past few sessions, I was expecting more from the CDNX give the recent correlation.

 

Makes me wonder what will make it move?

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Some Good news - the takeovers have started!

 

Australian-traded Lihir to buy Equigold... for $1 billion

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The thing to note is that juniors have been trading with financial stocks, not like gold.

 

If we get Martin Armstrong's turn this weekend, then hopefully the bottom is in for juniors.

 

However, if gold and silver continue to sell off the juniors will get further hammered. It's kind of heads you lose, tails you lose.

 

In The Privateer Newsletter, Bill Buckler wrote:

 

When Buying Becomes Cheap:

As can already be seen from coast to coast inside the US, housing is falling in price. Supply is enormous

and still climbing. The same situation, in principle, applies to all areas of a credit money system economy

as credit contracts. The economic areas where prices will be falling are the areas which earlier were the

greatest recipients of credit during the upswing. Since the business cycle is always a follower of the

credit cycle, it follows that the business cycle will here too follow the present downswing of the US credit

cycle. That is why a steep US economic recession is now unavoidable, regardless of any and all

“facilities” the Bernanke Fed will try to roll forward. The real issue is CAPITAL.

 

Juniors have been a just such beneficiary of all this credit.

 

The chart below shows the CDNX vs the DJ Financials vs GOLD - you can see the CDNX peaked in Feb 2007 (Armstrong's last turn date) at exactly the same time as the financials (yellow line).

 

big3zc4.gif

 

The CDNX performed best during the period when gold and the financials were rising in tandem - in the lead up to May 2006. Let us hope we get such an occurrence again.

 

With regard to the producers and late stage development plays, we need to look at the gold to oil ratio, with oil as a proxy for mining costs. Though gold has gone up, oil has gone up by more. When gold starts out performing oil the HUI should outperform the metal:

 

82165178th2.png

 

Here is a long-term gold-oil chart.

 

The received wisdom is:

 

* Buying opportunities (for gold) when the gold-oil ratio turns up at/below 10 barrels/ounce; and

* Selling opportunities when the gold-oil ratio turns down at/above 20 barrels/ounce.

 

gold-oil_ratio_30yrs.png

 

We are around a buy-point for gold stocks according to this strategy, though the ratio has not turned up.

 

Though gold may not be rising so dramatically in dollar terms - it may even fall - we need to see it rise against other commodities.

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The thing to note is that juniors have been trading with financial stocks, not like gold.

 

If we get Martin Armstrong's turn this weekend, then hopefully the bottom is in for juniors.

 

However, if gold and silver continue to sell off the juniors will get further hammered. It's kind of heads you lose, tails you lose.

 

In The Privateer Newsletter, Bill Buckler wrote:

 

When Buying Becomes Cheap:

As can already be seen from coast to coast inside the US, housing is falling in price. Supply is enormous

and still climbing. The same situation, in principle, applies to all areas of a credit money system economy

as credit contracts. The economic areas where prices will be falling are the areas which earlier were the

greatest recipients of credit during the upswing. Since the business cycle is always a follower of the

credit cycle, it follows that the business cycle will here too follow the present downswing of the US credit

cycle. That is why a steep US economic recession is now unavoidable, regardless of any and all

“facilities” the Bernanke Fed will try to roll forward. The real issue is CAPITAL.

 

Juniors have been a just such beneficiary of all this credit.

Business needs the banks and what happens if the financial sector tightens up? I just wonder how many juniors may run into cashflow problems? Also, the mining sector have to pay the increased costs of rising commodity/energy prices just like everyone else.

 

Many may be happy to see the banks getting what they deserve, but the knock on effect to all sectors of the world economy could be disastrous when you think about it.

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Some Good news - the takeovers have started!

 

Australian-traded Lihir to buy Equigold... for $1 billion

 

I like the metrics too. Here are my figures:

US$/oz P&P - $476

US$/oz M&I - $354

US$/oz M&I&I - $270

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Hi and thanks for this contribution.

 

I too have been frustrated by the lack of movement (upwards, that is!) in the junior companies.

 

I do not have the technical expertise shown in the first article, but I have had this thought.

 

People are rushing to gold in a reactive way; that is, they want reassurrance and security in the face of the recent market turmoil.

 

What people want is something reliable; i.e actual gold. Something they can touch and see, and isn't as ephemeral as share's or their sp's.

 

The problem with the junior companies, is that they often aren't usually producing...just hoping too. They are betting on the future remaining good for gold, at precisely the time when betting on the future in the form of shares etc has apparently failed. So why would an investor, who is running from other shares, buy into these risks?

 

I believe that the gist of the original article in this series is correct, in that money will flow into the junior's when the investing population has got used to a new market outlook (probably bearish) and they feel secure that an investment in junior gold outfits will be sustainable over a longer period of time. If the market settles, and shuffles sideways or even recovers, this reactive pressure will fall away.

 

Another concern I have is this; in the same way that funds were innappropriately directed into the high risk mortgage lending market on the back of an over optimistic view, so funds could be committed to the junior gold companies, without rigorous research, in the more optimistic outlook for gold that exists now. A lot of small mines, and outfits, that were previously unprofitable, suddenly seem attractive. Just how solid are these small junior companies? For interested, but inexpert guys like me, it is hard to tell, and they remain a high risk.

 

Good fun though!

 

Gutsache.

 

 

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...I believe that the gist of the original article in this series is correct, in that money will flow into the junior's when the investing population has got used to a new market outlook (probably bearish) and they feel secure that an investment in junior gold outfits will be sustainable over a longer period of time. If the market settles, and shuffles sideways or even recovers, this reactive pressure will fall away.

 

Another concern I have is this; in the same way that funds were innappropriately directed into the high risk mortgage lending market on the back of an over optimistic view, so funds could be committed to the junior gold companies, without rigorous research, in the more optimistic outlook for gold that exists now. A lot of small mines, and outfits, that were previously unprofitable, suddenly seem attractive. Just how solid are these small junior companies? For interested, but inexpert guys like me, it is hard to tell, and they remain a high risk.

 

Thanks for the post, G. And welcome here.

 

I reckon the Juniors (and CDNX), may soon have another run to the upside to test resistance

 

001kx4.png

 

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Yes, but there is a very imperfect correlation

 

AMBR.L........... : CYN.L............ : SVE.L.............

 

Does us a favor. Study the correlation with $CDNX, and tell us how good it is

 

SVE invests in juniors (very junior - pre IPO and some on the PLUS market)

"Starvest plc is a United Kingdom-based company engaged in investments in small companies new issues and supporting of pre-initial public offering (IPO) opportunities. The Company primarily invests in the natural resource sector. As of September 30, 2007, the Company’s trade investment portfolio included Addworth plc, Agricola Resources plc, Ariana Resources plc, Belmore Resources (Holdings) plc, Beowulf Mining plc, Black Rock Oil & Gas plc, Brazilian Diamonds Limited, Carpathian Resources Limited, Concorde Oil and Gas plc, The Core Business plc, Concorde Oil and Gas plc, DTT plc, Franconia Minerals Corporation, Fundy Minerals Limited, Gippsland Limited, Greatland Gold plc, Guild Acquisitions plc, Hidefield Gold plc, India Star Energy plc, KEFI Minerals plc, Lotus Resources plc, Matisse Holdings plc, Myhome International plc, Oracle Coalfields plc, Red Rock Resources plc, Regency Mines plc, Sheba Exploration (UK) plc, St Helen’s Capital plc and Sunrise Diamonds plc."

 

"Net asset value update at 31 March 2008

 

The past three months have continued to be challenging; especially has this been so during the last month when market sentiment and small volume selling have adversely impacted the share prices of most of the companies in which Starvest is invested. The overall asset valuation has fallen to the level declared at 30 September 2006, although the tax base has increased substantially given the £1.5m tax liability for the year to 30 September 2007.

 

More importantly, the Board continues to be well satisfied with the investments currently held and has confidence that, as market conditions improve, the prices will recover. This is particularly true of the majority of investee companies with mineral exploration activities; these continue to make advances in their discoveries of minerals in high demand by emerging economies.

 

The share price discount to net asset value has widened to 45%, a level of discount not seen since the first quarter of 2007."

 

Company statistics -> http://www.starvest.co.uk/announcments.html

 

CYN invests in more mature companies and precious metals

Sector weightings, 29-Feb-08Sector (%) Prev

Resources - Equities 47.0 (3) %

Gold and Precious Metals 38.0 (1) %

Resources - Convertibles 11.0 (2) %

Fixed Interest 4.0 (4)

 

Largest holdings, 29-Feb-08

Holding(%) Rank Prev Holding (%) Rank Prev

NIDO PETROLEUM LTD 3.2 1 (4)

EUROPEAN GAS 1.8 6 (9)

NEW BRITAIN PALM OIL LTD 2.8 2 (1)

ANGLO-EASTERN PLANTATIONS 1.7 7 (8)

GOLD EAGLE MINES LTD 2.4 3 (3)

HORIZON OIL NL 1.7 8 -

GOLDCORP INC 2.3 4 (5)

KALAHARI MINERALS 1.6 9 (6)

EXTRACT RESOURCES 2.2 5 (2)

ST BARBARA 1.6 10 -

 

AMBR - Ambrian Capital plc provides corporate finance, stockbroking, commodity broking and investment management services to institutional and corporate clients active in the natural resources and new technology sectors. The core of its business is focused on investing in and providing investment banking services to companies active in the extraction of metals, minerals and oil and gas. Ambrian Partners Limited, the Company’s wholly owned corporate finance and stockbroking subsidiary, was involved in 14 capital raisings during the year ended December 31, 2006. Ambrian Partners is active in six industry sectors: mining, oil and gas, soft commodities, renewable energy, telecommunications and technology. Ambrian Commodities Limited, which was launched in March 2006, is a broker-dealer in aluminum, copper, lead, nickel and zinc, as well as precious metals (gold, silver, platinum and palladium).

 

Because of the direct gold holdings and larger mining companies CYN has held up fairly well..... SVE and AMBR have tanked.

 

Graph -> http://finance.google.com/finance?chdnp=1&...;q=LON:SVE&

If the SVE discount stays near 45% arent the shareholders better off winding up the company and asking for their money back ??

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One from Jim just for you guys:

 

Dear CIGAs,

 

I was asked today in a phone conversation today what would bring interest back to the juniors. There are a multitude of possibilities but the most apparent is the decline in gold production and reserves.

 

When a major acquires other operating companies they add reserves to their balance sheet but do not in any way impact total reserves.

 

Acquisitions have no impact on overall production, which is trending lower as demand for gold as a currency is rising.

 

The power problems in the RSA are serious and long term, adding urgency to acquisitions of valuable properties outside of the country.

 

Having some experience in exploration for resources, I can assure you that as hedge funds depress the holders of juniors; producers are all over anyone with potential deposits in a sound country.

 

Therefore on one side you have the short selling pools determined to depress interest in junior gold shares while majors, eager to increase their reserves, are interested in the properties of juniors while shielded by confidentiality agreements. This allows them to look over all the information to determine if they wish to deal.

 

If you consider that a modest (by African terms) 1,000,000 ounce deposit of gold with the market price at $900 per oz, you have a gross deposit worth $900,000,000 less gross cost of extraction and amortization of plant and equipment.

 

The hedge funds and now depressed shareholders might discount that as in the ground, but the major producers are eager for reserves and willing to pay good prices.

 

So one inviting answer is, if you discount all other rationale reason why undervaluation will attract buyers, note that as gold rises the majors are already, but will accelerate purchasing every junior with a property of one million ounces or more.

 

Competition produces better prices. This should be an inducement for any junior with very attractive properties to hold on to them at least until the Godfather makes an offer that in economic terms cannot be refused.

 

The hedge funds can scare you, but are totally irrelevant to the major producer seeking to expand reserves.

 

Regards,

Jim

 

http://www.jsmineset.com/ARhome.asp?VAfg=1...amp;T_ARID=6016

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Howard Sun on why Junior gold miners have not yet come to life:

 

http://seekingalpha.com/article/71200-why-..._bar_long_ideas

 

Summary:

 

"1. Rising production costs – it is becoming increasingly more difficult to extract gold. This increasing difficulty coupled with the high energy intensive production has made it more expensive to mine this precious metal. For junior companies, this becomes even tougher due to the lack of scale economies. In addition, the weak dollar has eroded profits for many North American companies (the US is the world’s third largest producer, next to China and South Africa). For example, Gammon Resources (GRS) saw a net loss of $44MM in Q3 of 2007 despite skyrocketing prices.

 

2. Increasing popularity of ETFs – The first gold exchange-traded fund GLD was launched in 2004. ETFs make investing in gold easy and cheap; in addition, ETFs reduce mining risks, company risks and country risks. GLD has gained immense popularity with investors; it is now the eighth largest holder of gold in the world. This popularity will only increase as investors seek more diversified investment vehicles.

 

3. Growing fear of recession and the credit crisis – Junior mining companies tend to be more volatile and more speculative than established companies. The recession has changed many investors’ psychology, and the appetite for speculation has certainly seen a dramatic reduction. As a result, investors are staying away from the more speculative junior stocks.

 

4. Majority of juniors are speculative exploration companies and are not producers themselves – Exploration companies do not produce gold, and are unlikely to benefit from the surge in gold prices. It’s important to note that a majority of junior companies on the stock exchanges are classified as exploration – they do not have the capital or the skills to produce and process the gold themselves."

 

He concludes: "The question on everyone’s mind is whether or not juniors will experience the same surge in stock prices as experienced by gold and many senior companies. I think the answer is likely to be yes. With the state of precious metals continuing to be wildly bullish, right now is the time to pick up shares of junior companies as they are tremendously undervalued. When the uptrend begins, it’s going to be over very quickly due to the low prices and relatively high volatility of these companies. The prudent investor will have a portion of their portfolio dedicated to junior companies to ensure that they’re ‘in the game’ when the time comes. Although this is a speculative play, the odds for these companies look good; and with sound analysis, you might just be able to pick the next ten-bagger."

 

 

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NO EARNINGS - a big part of the problem

 

(from Advfn's gold thread):

 

Lemain - 9 Apr'08 - 14:36 - 37790

 

It seems that people are waking up to the fact that shares are useless unless you have earnings, that all earnings are historic and to have a share portfolio with no divis is having all the risk with none of the reward. If that lesson has been learned then maybe we start the descent?

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