scott wright of zeal intelligence says the junior mining shares that survive could produce large returns in the years ahead:

Junior resource stocks are currently experiencing a serious crisis of confidence. Investors in this segment of the markets are trading these stocks as though the commodities bull is over. But it is not. And for a little perspective, just compare commodities prices today to what they were the last time the CDNX was trading at these levels.

The average prices of gold, silver, oil, copper, uranium, and corn are 153%, 174%, 81%, 152%, 304%, and 58% higher respectively in 2009 versus 2003! With commodities prices so much higher today, even after the sharp corrections of 2008, how is it possible that the juniors can be so depressed?

There is no better way to explain this disconnect than inactivity on the part of retail investment. The CDNX’s devastating selloff sent nearly all junior resource stock investors running for the hills. And they’ve been real slow to return. But it is hard to blame them with $4 out of every $5 gone. In fact because of this, it is likely that most junior investors that got burned in this crash are gone for good.

But with commodities and most of the larger commodities stocks finding their footing and leading the markets higher in this post-panic recovery period, the juniors will eventually follow. And it will likely take a whole new class of investors to drive the CDNX materially higher.

The face of this sector will be radically different than it was a couple years ago. This junior malaise is not only shaking out the investors, but it will also shake out many of the juniors. With stock prices for many of these companies so low, most juniors have been unable to raise sufficient-enough capital to advance and market their projects.

This creates a huge structural problem! A faltering junior market will have lasting effects that will permeate throughout the entire commodities markets. As mentioned earlier junior E&D activity is a critical component in growing the supply chains of secular commodities bulls. Many of the incoming mines and oilfields were discovered and developed by juniors before they were bought by the seniors, or these projects grew the juniors into larger companies themselves.

Without junior contributions future supplies will be tighter, thus causing prices to be even higher. Ultimately this is bullish for the future of commodities and the longevity of the greater bull, but it has exposed a big interim problem. The entire junior industry is on life support and is in desperate need of a monetary transfusion.

Now eventually capital will flood back into the junior markets, but how far back will these little companies lag before the leverage investors command finally takes hold? There is no denying the fact that juniors are risky, which is why investors need to be rewarded for taking the risks inherent in junior speculation. But until confidence returns to the junior realm, this positive leverage will not materialize.

What kind of catalyst will there need to be to bring back junior excitement? Will it be another prolonged run-up in commodities prices, some larger investors pouring capital into this sector, or more mainstream exposure? It will likely be a combination of these factors among many, and only time will tell exactly when this will happen. But when the juniors do catch a bid, their gains will be fast and furious.

With an 80% decline from the top and only a slight recovery so far from the bottom, the CDNX has a long way to go before it returns to pre-panic levels. And the new generation of junior investors should see legendary gains in the coming years. Just to get back to 2000, about where the stock panic took hold of the CDNX, this index would need to rise another 69% from today’s levels (a 192% gain from the bottom). And to return to its high the CDNX would need a 184% run from today’s levels (a 392% rally from the bottom).

http://news.goldseek.com/Zealllc/1252080574.php