OPINION: Junior extinction greatly exaggerated

In this opinion piece Harold Clifford argues warnings that many juniors would go extinct were overblown.

Toronto -

Last year saw the worst slump in some three decades for gold and gold mining shares, prompting many “Chicken Littles” to declare that the sky really was falling this time. These panic-driven predictions revolved around the idea that the gold-price bull market was over; that gold miners would be in dire straits for many years to come and; that junior miners at the exploration stage were about to disappear on masse. I term these predictions “panic-driven” because they were right-brained, or born of emotions and flights of fancy rather than known facts and common sense. Emotions often run rampant in the depths of an extended bear market, such as that suffered by junior gold stock investors/speculators in 2013. And it is exactly during such times that a majority of “players” throw in the towel as their stocks appear to be free-falling into a seeming abyss, while the contrarian minority seizes upon the extraordinary opportunities always on offer near the bottom. Such bear markets have occurred now and then for generations, and they reliably end in terminal capitulation.

As renowned junior resources investor Rick Rule reminds us: “Bull markets are born of bear markets” … it has ever been thus, and Amen to that!

The disconcerting thing that happened in early 2013 was that once one widely-read pundit declared that a third of the junior miners listed on the TSX Venture Exchange would disappear in 2013, a lot of other disheartened observers were quick to chime in with their own similarly dire prognostications for a mass slaughter of the junior sector. The headline of a Financial Post article last July warned: “Hundreds of struggling junior miners face delisting in crisis that could choke off project pipeline for majors.”

It was pure hogwash of course, a message born of emotions unrelated to reality. It is precisely because the junior exploration sector is such a stalwart project pipeline for the world’s established gold miners that the sector’s participants – competent and otherwise – will persist. Not a third, nor a quarter, nor even a twentieth of junior mining issues became extinct in 2013, nor will they in 2014 or in any other year if history is a reliable guide.

UK-based fund manager Sam Hutchins, who has plied the depths of the junior mining markets with unqualified success for much of his professional career, put it best, I think, when he commented that “Junior exploration companies can survive on the smell of an oily rag and can wait until the market turns again. They just don’t go bust. They just move down and do nothing, sometimes for years.”

http://www.mineweb.com/mineweb/content/en/mineweb-fast-news?oid=238283&sn=Detail

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I agree, juniors don't die ....what does die are those dreams of the early investors who took all of the risk for the much expected 5 to 10-bagger potential, only to see the expected upside diminish with serial dilutions, to the point that the dreams of those onboard early, morph into the lowered expectation of merely hoping to possibly break even by some unexpected rally in the price of gold to $2,000, or an awesome step-out hole...but alas, at this stage only the financiers and johhny-come- latelies ( who can afford a very large position at such suppressed prices) , stand a chance to make even a modest return on their investment....it's too bad that when a junior is taken over (or a large position is taken ) , that the minimum fair acqusition price is not at least equal to the original drilling expenditures on the property... the question now becomes, since my unrealized loss is now greater than 50%, do I throw in the towel and admit defeat, or hold onto my position as a continued reminder of the folly of my original investment , having succumbed to the error of being infatuated with the potential of the property, rather than seeing clearly the motives of managment (or mismangement) .

Cheers, Luker