David Galland, Casey Research
the downturn in the precious metals markets making even the most
stalwart investors question their instincts; it's good to have some
advice from the field about what is really going on out there. Here
today David Galland, of Casey Research (publishers of Casey's
offers some insights into the current state of the precious metal...
and what to look for in the companies that mine it.
have just returned from my bi-monthly pilgrimage to Vancouver, known
by many as the Mecca of Mining – or at least to the junior mining
exploration sector – to check in on our research team there and to
reacquaint myself with the buzz in this hotbed of hot stocks.
I were pushed to name one impression over all others gained during my
trip, it would be the general state of gloom hanging over the place.
Were I a writer of the genre of Cormac McCarthy, I might try to
describe the mood thus...
"He arrived to a dark sky and
laid down on the cold cement and felt the wet of it soak through the
back of his suit. He wanted to call a cab but wanted more to sleep
here and now."
This, of course, is a far cry from the
Vancouver vibe in frothy times, when the deal flow is humming and the
investors are biting at every new stock like trout at live bait. In
those happier days, the community of junior mining "professionals,"
a term I use loosely, are a positively effervescent lot. With their
fine Italian leather shoes, shiny suits and attentively coiffed
hairdos, they positively bubble over with the money they are making
by selling large handfuls of the freshly printed paper that is mostly
the stock of their trade.
But with a damp fog enveloping the
sector since last August, the streets of the town are quiet, the
conversations subdued. One sure sign of how dire the outlook is, is
that I was asked four or five times, "So, what do you think about
(For those of you new to the Vancouver
market, it may be helpful to think about it like one of those
multi-colored, multi-cartridge pens most often found in close
proximity to members of the local high school chess club. When red is
the color of the day, then red it is. But when that falls from favor,
a quick click and you are writing in green or perhaps turquoise. In
the Vancouver market, when mining is out of favor, the promoters go
"click" and just like that, their unwanted mining shells become
While I don’t sense that things have
gotten quite that bad, there is no question that they are bad. But
bad is a relative term, because it is in a market like this that the
smartest speculators plant the seeds of fortune.
topic, a couple of further observations...
It’s a buyers
My many conversations over the past two days have been punctuated by
tales of well-known promoter types being unable to close financings,
even small ones. Translation: if you are going to invest at this
point, be selective, try wherever possible to get into private
placements where you can get a share and a warrant... and be firm on
the terms you will require in exchange for your money. The mining
promoters need you a lot more than you need them.
practical level, when a mining promoter tells you that you better
hurry up and get your money in because a deal is going to close, be
skeptical. If you like the management, and you like the project,
tell him that you are only investing in deals with a two-year
warrant on good terms.
Make sure your portfolio is made up only of quality companies that
are well cashed up and able to deliver on their aspirations. A
number of "wannabe" companies are running out of cash and will
either have trouble finding that cash or be forced to offer terms
that will be significantly dilutive to existing shareholders.
Watch the cost
side of the equation. On
companies that are in the feasibility phase, look hard at the
potential for bad news on the capital expenditure front. Few things
will send a stock down harder than the revelation that the mine they
had expected to bring in for $400 million will now cost upwards of
for the opportunity, the Wall of Worry about the sector now looms so
high, it is almost as if we have been pushed back to the "Stealth"
phase, the phase where no one wants to hear about the Canadian junior
exploration stocks. That spells opportunity, because when there are
only sellers and few buyers, the only direction a stock can go is up...
once the dust settles. But only for the quality companies; the paper
tigers are doomed.
bottom line: Keeping your eyes firmly fixed on the prize and today’s
soft markets means you can get positioned into great companies at
deep discounts from where they should be trading. And certainly will
be trading, when the broader market understands that the commodities
bull market is very much intact and that if you want to buy into the
sector, you invariably will have to do it on a Canadian exchange.
is managing director of Casey Research, publishers of Doug Casey’s
International Speculator, now in it’s 28th
year. New subscribers are invited to try a subscription for three
full months with the security of a 100% money-back satisfaction
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