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Message: Investing in Juniors ...
Let's face it, we invest in the juniors for one reason: to make lots of money. We don't invest in juniors to preserve wealth, or to make small returns to pay for our next vacation - we invest in juniors to change the way we live. That's because juniors offer us a leverage that no other vehicle can offer. In this letter, it's a leverage on precious metals prices - in particular, gold.
When you are buying a junior miner, you are getting physical gold at significantly deep discounts. Many of the gold juniors have production costs of less than $600/oz. That means with gold prices at $1600, they're making $1000 for every ounce they pull out - which is a phenomenal profit margin for any sector (over $17 million at a price of $1.15 earlier in the year.
They have also continually drilled great results that demonstrate a broad and deep gold-copper system. This year alone, they have drilled: 135 metres of 1.00g/t gold equivalent, 453.2 metres averaging 1.01 g/t gold equivalent, and just recently intersected 161 metres of 1.28 g/t gold-equivalent ( target="_blank">Tanzanian Royalty, a company led by world famous James Sinclair has been hit. His stock hit a low of $3.37 recently, down from its high of $7.55 per share. That's a 55% loss on a company that just raised $30 million at a price of $5.70 in August. As a result, the company had to go as far as issuing a press release stating that there was no particular event other than a technical market situation that can explain the recent trading action in the Company's shares.
They have also continually drilled great results that demonstrate a broad and deep gold-copper system. This year alone, they have drilled: 135 metres of 1.00g/t gold equivalent, 453.2 metres averaging 1.01 g/t gold equivalent, and just recently intersected 161 metres of 1.28 g/t gold-equivalent ( target="_blank">Tanzanian Royalty, a company led by world famous James Sinclair has been hit. His stock hit a low of $3.37 recently, down from its high of $7.55 per share. That's a 55% loss on a company that just raised $30 million at a price of $5.70 in August. As a result, the company had to go as far as issuing a press release stating that there was no particular event other than a technical market situation that can explain the recent trading action in the Company's shares.
If you are going to speculate in a crazy market like this, you have to speculate in companies that have money in the bank to weather the most immediate risks.
Back in 2008, companies without cash were left in the dust. Those with cash and compelling projects trading at less than cash valuations reaped serious rewards for shareholders that were willing to take the risk and hold on - shareholders who understood that fundamentals would eventually triumph over market volatility.
Back in 2008, companies without cash were left in the dust. Those with cash and compelling projects trading at less than cash valuations reaped serious rewards for shareholders that were willing to take the risk and hold on - shareholders who understood that fundamentals would eventually triumph over market volatility.
In today's volatile market, you are fighting against traders - not investors or speculators. These traders will do anything and everything to get their fix. They are willing to buy anything if the media tells them it's good, and they are willing to sell when the media tells them it's bad. They are willing to take losses, as long as everyone else is. They get their information from the market - from what the media tells them. They are the mob. That is their destruction. But that is also our time to take advantage of their downfalls.
The greatest time to be an investor is when everyone is so disgusted in the market that they are willing to sell anything for less than what it's really worth. I am beginning to see a lot of companies trading at far less than they are worth with insanely low valuations. While this is still nowhere near as bad as the lows of March 2009, there are many sound companies that are getting close.
The key is to take advantage of the arbitrage that today's volatility has presented. While companies with a drill shot potential can reap rewards, you don't need to take that type of risk in this environment. There are so many battered companies - as I just presented - with great fundamentals and the cash to back it up. Some of these miners have strong positive cash flow, while others have strong resources and amazing drill results to back up their assets. The majority of the big, safe, and consistent money comes from finding great value during times of uncertainty.
Remember that dramatic volatile swings will lead the market to lower lows, but also higher highs. While it's hard to see the bottom in this environment, I would be taking advantage of the dips but also keeping enough cash aside for if the worst happens.
If you can be patient while having an iron stomach, then you may be able to change your lifestyle with the juniors.
Don't Forget History
Don't Forget History
Remember what happened to the TSX Venture - an exchange dominated by mining and resource plays - when things began their rebound? It was the strongest performing exchange (
As Good as Cash
As Good as Cash
Last year, I mentioned that gold had become as good as cash ( target="_blank">The Banks Are In from February:
JP Morgan Chase (NYSE: JPM), one of the largest banks in the US, said it will accept physical gold as collateral for certain transactions. That means a hedge fund wanting to borrow money for a short period can put up gold as collateral and use the borrowings to invest elsewhere. That means gold is as good as cash.
The central bank of Russia, a regular buyer from its own domestic market, continued its long-term program of gold accumulation in August by adding 118,000 troy ounces to its reserves, which now stand at 27.161 million ounces, according to figures from the International Monetary Fund.
Russia's holdings were up more than 7% since the start of 2011.
Thailand continued to boost its reserves, lifting them 300,000 ounces to 4.4 million ounces, a step up from its January holdings of 3.2 million ounces.
The Bolivian central bank lifted reserves by 225,000 ounces to 1.361 million ounces. Tajikistan and Greece also reported minor additions to their bullion holdings, the IMF data show.
According to GFMS, a leading precious metals research consultant, net central bank gold purchases are expected to total at least 336 metric tons this year, equal to around $20 billion based on recent prices.
The annual expected total estimated by GFMS is more than four times the 77 tons recorded last year.
There is a reason why central banks and countries around the world are hoarding their gold. I suggest anyone who missed the Letter
Given the fact that gold-stocks represent well below the 1% of all global pension fund assets, imagine what will happen when these funds begin to shift even a small portion of their assets into gold stocks...
Until next week,
Ivan Lo
Equedia Weekly
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