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Tracking Junior Miners - Why Are they Underperforming?

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Excellent interview with Rob McEwen.

 

'Legendary mining executive Rob McEwen has been associated with the resource industry for 29 years. Currently Chairman and CEO of U.S. Gold Corporation (UXG) and Lexam Explorations, he was the founder and former Chairman and CEO of Goldcorp Inc. (GG).'

 

'RM: Yes, I believe that by the end of 2010, we’ll be seeing $2,000 gold, and before the gold cycle is out, it will go up and touch $5,000, and that will be the end of the mania phase.'

 

http://seekingalpha.com/article/92344-inte...t-shining-again

 

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Thought i'd post this up here as the most relevant thread.

 

Analysts are claiming that several Aim miners appear to be undervalued, as they tumble to new lows. In some cases, the brokers say, some miners could soon become takeover targets.

 

"It has almost been a bear market for Aim since last summer - some miners have fallen horrifically. Some have halved in value," he said. "You can see many of the junior miners need to raise cash, so why invest in a company that needs to raise cash to explore? There is also an aversion to risk, and Aim miners are quite high-risk."

 

The article goes on to highlight an number of oversold opportunities.

 

http://www.telegraph.co.uk/money/main.jhtm...cxmktrep126.xml

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MONTHLY CHART of CDNX/ proxy for Junior miners

 

The 48mo.MA gave way recently, around CDNX-2500, and that led to a sharp drop.

 

Next, the 76mo.MA*, near CDNX-2000 should be able to provide some support

aa1cx6.gif

 

I like the way that volume has dried up on this drop. Previously, that has helped to signal a bottom

 

*(same as 330wk.MA, which comes up around CDNX-2100)

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Interview with Frank Barbera on Seeking Alpha

 

extract:--

Maybe we’ll see junior mining stocks springboard off of a bottom here in the weeks ahead with real relative strength and the renewed buying interest that has been absent over the last three to four years.

 

What I think we can do is recognize it if and when it happens. We need to be on the lookout for a big improvement in volume in the juniors, a nice kickoff with good breadth and high volume in the seniors.

 

It’s not impossible that the mining stocks could launch into a strong uptrend and end up being a safe haven place within a bear market. Right now it’s a little bit too soon to make that call.

_________________________

 

http://seekingalpha.com/article/92863-fran...-all-time-highs

 

 

Look for an up move with volume picking up on the CDNX.

 

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aa0dt9.gif

 

Long Term chart for Newmont (NEM)

aa1rm4.gif

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Avocet Mining has eliminated it's entire gold collar hedge position and has made an exceptional gain of $24.8 million.

 

Avocet are now fully exposed to the spot gold price.

 

 

Certainly shows confidence.

 

 

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Thought this guy's ideas on how to deal with junior resource volatility was interesting. Have copied the ideas below from the documents you can download from his website

 

Mercenary Geologist

 

I am looking only for stocks that have a strong chance of a double within 12 months. It’s not that hard to find them. Look at the average Venture Exchange junior: It will have a double or more within any given 52 week period. Many of the high and low share prices correlate with high and low trading volumes. Junior explorers have periods of major activity then periods of dormancy and therefore their share prices fluctuate, often wildly. This is often because of the 6-12 month cycle of equity financing, exploration drilling, assay results, geological interpretation, and resource estimation in the junior resource sector. What I call the “yo-yo effect” leads to many buying and selling opportunities.

 

I religiously sell one-half of my position when the stock doubles in price plus brokerage fees. It’s probably the only religious thing I do. Because of my busy travel schedule, often in remote parts of the Earth, and the resulting periods when I am incommunicado, I have open orders to sell for all the stocks in my portfolio and these orders are renewed on a monthly basis.

So I sell half, take all my money off the table, then play the rest of my position with a zero cost basis to maximize profits. I am now playing with someone else’s money—maybe even your money. I also have a disciplined approach to this next trading phase with programmed selling on the uptick, again with open orders. I commonly sell in 25 to 50 cent intervals depending on my perceived upside potential of the issuer. This potential is once again based on analysis of share structure, people, and flagship property.

I developed this profit taking philosophy after the post Bre-X bear market of 1997-2000. As stocks fell and continued to slowly go south for three years until there was absolutely no junior resource market left, I discovered how mentally difficult it was to sell as my positions lost value. I kept thinking: XYZ.V will rally, it’s hit bottom, but XYZ.V never did and neither did ABC.V or SHT.V or FUC.V. They just went bankrupt, got delisted, and became shells for the inevitable reincarnations which came along in 2003 and 2004 as the next boom commenced. Here’s a quote from the King report today: “As we keep warning, most money is lost buying all the way down in a secular bear market”. So now I sell progressively on the uptick whenever a surging stock allows.

However, this philosophy has a major drawback. I never seem to stay around for the big kill. I don’t get many five or ten baggers. I always say I’ll keep 10,000 shares for the Big Bonanza. But then I need cash to hit the next 10 or 20 cent no-brainer so I sell my high flyer. After all it’s easier for a stock to double from 20 to 40 cents than $3 to $6. Here are two examples of stocks I bought for pennies and sold out too soon in the last two-three years: Aquiline Resources, sold at $1.50, it went to over $12; Aranka Gold, sold at $2.50, it went to $4.50. But here is one where my philosophy worked beautifully: Gateway Gold which hit an all-time high in late 2003 at $5.14. I sold most of my position on the uptick from $1.50 to $4.79. Gateway is now a 25 cent stock and I‘ve recently bought back in. I think it was famous financier J. Paul Getty who said he made a fortune selling too soon.

So that’s the gist of my investing philosophy. It’s an infallible way to make money in a bull market. Buy a stock, sell half when it doubles, take that money and go buy another stock which has a strong chance of a doubling in 12 months or less. Keep doing that and watch your profits and tax burden soar.

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Why investing is not for the brave

 

- Courage can be an admirable trait. But bravery has little place when making rational investment decisions, says Merryn Somerset Webb. Buying property isn't brave. Nor is buying bank stocks or junior miners. The word to describe those actions is 'stupid'.

 

To read why, click here: Why investing is not for the brave

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Why investing is not for the brave

 

- Courage can be an admirable trait. But bravery has little place when making rational investment decisions, says Merryn Somerset Webb. Buying property isn't brave. Nor is buying bank stocks or junior miners. The word to describe those actions is 'stupid'.

 

To read why, click here: Why investing is not for the brave

 

Well, I'm an idiot then. Any junior recommendations Dr Bubb?

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Why investing is not for the brave

 

- Courage can be an admirable trait. But bravery has little place when making rational investment decisions, says Merryn Somerset Webb. Buying property isn't brave. Nor is buying bank stocks or junior miners. The word to describe those actions is 'stupid'.

 

To read why, click here: Why investing is not for the brave

 

Been thinking about this as merryn has something intersting views IMO. However this is not so insightful in my opinion, unless she said the same thing about juniors 12 months ago.

 

I also think with the benefit of hindsight it is foolish to invest in juniors presently or over the past 12-24 months.

 

Edit: Or option (B) I have my back up because they have bitten me on the arse also

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Been thinking about this as merryn has something intersting views IMO. However this is not so insightful in my opinion, unless she said the same thing about juniors 12 months ago.

 

I also think with the benefit of hindsight it is foolish to invest in juniors presently or over the past 12-24 months.

 

Edit: Or option (B) I have my back up because they have bitten me on the arse also

 

Agree completely, I was a bit surprised on reading it by her.

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Hamilton not at his best in last post.

 

Moriarty puts it all in a lanuage dimwits like me can understand:

 

http://www.321gold.com/editorials/moriarty...arty092308.html

 

ATW looks tempting! It is amazing to me, all the time I have spent researching juniors, that I still come across promising stories I've not yet heard. And I'm such a sucker for these stories.

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Yeah, it's doubled since that was posted - careful

 

Yeah, I figured there would be somewhat of a correction. I've got a limit order in for .40. If it hits it hits and if not, oh well. I'm tired of being under with all my juniors.

 

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B)

Why Are Junior Miners Underperforming?, Will This Change? : chart/added

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

 

Many here and eslewhere have been deeply frustrated watching the gold price rise while their junior miners decline or stagnate. Even producers such as Capital Gold are trading at a discount to where they were when gold was $700. This company has done nothing but get into production quickly. Explorers and developers have been proper dogs, even though the underlying asset has flown. We have seen a 40% rise in gold and barely a move in juniors, in fact declines in some.

 

Why is this?

 

Were they overvalued before? I don't think so.

 

Is it because the market doesn't believe the move?

 

Is it because nobody wants to take any risk?

 

Even some senior producers have lagged.

 

Please post some suggestions as to why this has happened - and some arguments as to whether this will change or not.

 

My first suggestion is the ETF. Why take individual company risk? Why even bother doing any research when you can just buy GDX or GLD? If you want leverage, you can just trade options on said ETF. I think the ETFs have taken huge amounts of capital that would otherwise have gone into juniors - capital that pushed them higher in previous moves when the GDX didn't exist.

 

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I believe that most of the stock was being ramped up by speculators and that the prices were too high now that the price have dropped I am in the market and I believe that the juniors will start to move slowly and then gather momentum now

 

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HOOK PREDICTED THE CRASH (in CDNX), now he thinks it is almost over

 

As part of our numerous warnings concerning precious metals juniors in summer, you may remember the structural delineation of a measured move (MM) in the SPX/TSX Venture Composite Index (CDNX) suggestive of a crash all the way down to the 1300 proximity was underway due to tightening liquidity / credit conditions. And without fail, as these things have a tendency to do, the MM is now almost complete, suggestive of an alleviation in credit markets soon, which is exactly what a passage of the proposed bailout is suppose to accomplish. This is of course why stocks around the world have been attempting to be buoyant, accounting for strength witnessed in Western markets after the Gray Monday plunge as the junkies continue to speculate on another ‘credit fix’.

 

/see: http://www.financialsense.com/fsu/editoria.../2008/1013.html

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