Mining Stock “Crocodiles”
Since April 2011 (for Silver) and November of the same year (for Gold), the resource sector, notably precious metals and uranium, have endured a cyclical bear market which has taken them substantially o? their highs. Adding insult to injury, the long-running stair-step decline virtually eviscerated the TSX-V, plunging it by some estimates into record low territory.
by David H. Smith
Mining Survivors are like drought-stricken African Crocodiles
Hundreds of mining companies have gone out of business or become financial zombies lacking enough cash to file financial reports. Others pathetically try to raise private placements at a few cents/share in order to fund a drill hole (or pay management’s salary). But there are dozens, if not scores of producers, streamers, and yes, some exploration stories, who are resting quietly, like crocodiles in an African stream bed that’s been shrunken to a few deep pools by an extended drought.
These wily survivors are preserving energy and resources, with only their eyes above water – waiting for the fall rains and a change in investor sentiment. And like crocodiles, the mining stocks themselves can erupt without warning, leaping upwards at a stunning pace.
Contrarians who go against the investment herd and their own emotions can acquire meaningful positions in ready-to-rebound outfits. Companies on the brink are like wildebeests and zebras who’ve come to the financial well to drink. Investors failing to act will have to watch others make a profit from explosive (and hopefully enduring) moves, as the changing seasons carry mining stocks up and out of reach at anything approaching a reasonable price.
A strong case can be made that with a little research, the odds of choosing companies positioned to ride the gold, silver and uranium markets as the secular bull run reasserts itself are – believe it or not- much better than they have been at any time during the last generation. Think about it. If a miner has survived the 2008 melt-down, is active today and has shown it can produce at anything close to breakeven with current prices, you are probably looking at a “contender.” Further, has a producer or explorer under review grown proven/probable reserves, or even its measured/indicated resource?
If it has controlled its fully deleted shares (FD) and carries low debt, your “selector button” may light up. And if a quick technical take on the daily/weekly charts shows an upturn from last fall or this spring lows, which isn’t breaking on the downside, your inclination could become a profitable one.
But no matter how good the story, don’t even think about “backing up the truck” with everything but your lunch money. Instead, force yourself to buy several tranches (portions). If you fear the stock could get away, use a limit price just above the market to purchase one quarter to one third of what you want. Then place an order(s) lower at “(price) or Better, Good ‘til Cancelled (GTC)”.
Backing and filling action into late summer/early fall is highly probable –a tendency exacerbated on the downside by a broad correction or a full-blown market collapse. This would improve the odds you’ll get a second or third portion at a satisfactory price. Save the remaining earmarked money in case a “dumber than dirt” price comes your way. Something close to this has already taken place for me. For example, I’ve added to positions in Alexco Resource (AXR.TO/AXU) at $0.27; Prophecy Development (PCY.TO/PRPCF) and U308 Corp (UWE.TSE/UWEFF) at $0.03 each; and Osisko Gold Royalties Ltd. (OR.TO/OKSKF) on a retreat to its issue price at around US$12.
The Biggest Risk to Gold and Silver Core Position Holders
It is fully understandable how demoralized even the most ardent gold and silver bugs have become, as they’ve endured perhaps the most painful draw downs to be seen in mining sector stocks for the last 30 – 40 years. Even if you have sold and bought back quality companies at successively lower levels to raise capital and lower your average position price – as I have done – the natural inclination will be to get out whenever “breakeven” levels on your holdings come into view.
But before selling whole hog into a strong rise, or layering out too aggressively on the upside, stop and ask yourself, “What am I trying to accomplish next? Do I want to be out at $26 dollar silver and $1,500 (or $1,350) gold? Do I still believe new all-time nominal highs are in store?” If your opinion is the latter, then selling too much beforehand means having only a small position le? to capture that big payday that took years to develop.
An old market saw says that “the bigger the base, the greater the upside case.” This grinding lower-into-bottoming action in the resource sector has taken longer and moved lower than just about any of us imagined. If we want to avoid what David Morgan at The Morgan Report refers to as “being worn out or scared out” we need to approach things with a rational plan. “Prepping” before the inevitable fireworks get started may be boring. But it could help you latch onto a prize company before another investment “crocodile” beats you to it. Consider mega-basketball star and business personality Michael Jordon’s comment.
Disclaimer: David H. Smith is Senior Analyst for http://www.Silver-Investor.com and a regular contributor to moneymetals.com For the last 15 years, he’s investigated precious metals mines and exploration sites in Argentina, Chile, Bolivia, Mexico, China, Canada, and the U.S. He shares his findings and investment perspective with readers, media listeners, and audiences at North American investment conferences. This writer owns shares in the companies mentioned in this report.
David Morgan is a precious metals aficionado armed with degrees in finance and economics as well as engineering, he created the Silver-Investor.com website and originated The Morgan Report, a monthly that covers economic news, overall financial health of the global economy, currency problems, and the key reasons for investing in precious metals.
As publisher of The Morgan Report, he has appeared on CNBC, Fox Business, and BNN in Canada. He has been interviewed by The Wall Street Journal, Futures Magazine, The Gold Report and numerous other publications. If there is only one thing to teach you about this silver bull market it is this… 90% of the move comes in the last 10% of the time! Where will you be when this happens?
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