Great Investments

It's been a tough period for mining juniors. Many investors have "thrown in the towel" on juniors as they've moved lower month after month, trying the patience of even the most patient long-term investors.

Gold, silver, and the XAU/HUI mining stock indices all hit a bottom on May 1. Many juniors have moved off their lows since then, coming off deeply oversold levels. Is the worst over for mining juniors? We think there's pretty good evidence that it is, or at least that the bottom is very close...

In recent years, May has marked an important turning point for the sector, with tops in May 2001 and 2002, bottoms in May 2004 and 2005, and the last major top in May 2006. If this month marks the bottom of this painful correction within this long-term mining bull market, we expect a powerful reversal higher to commence soon.


In this May 1 article, based on technical analysis, Alf Field said that "there is a strong probability that the correction in the gold market from the $1033 peak of 17 March 2008 is complete." So far, the May 1st low has held, making this call look pretty good.


This May 8 article by Troy Schwensen of The Global Speculator (posted publicly May 13) has some interesting technical analysis of gold, silver, and the XAU index. The closing comments provide a good description of what's been happening in the junior mining sector over the past couple of years:

As the gold sector presently looks to find a low and begin yet another climb up to new highs, many have been left wondering what on earth happened to the junior sector over the last 12-18 months. The lack luster performance of the juniors was reminiscent of the 2001/02 rally in the gold sector, where only the majors had any meaningful movement. Interestingly enough, 2001/02 was also a period of significant market uncertainty as the Dow Jones lost over 30% in the wake of the Technology bubble bursting. What followed in 2003/04 was a powerful display in the junior sector which made some impressive gains as the general market found some stability and investor confidence returned. Whilst 2007/08 has certainly been very different in many respects to 2001/02, the mood of the markets has been very similar and investor sentiment has consequently been poor. It is my belief that we may see a repeat of 2003/04 in 2008/09 as many of the loose sellers in these mining juniors have been cleared out, leaving the shares in primarily tighter hands. This clean out has been necessary when you consider the vast number of placements that occurred in the period of 2004-2007 leading up to the shake out. Valuations are attractive yet again and the stage is set for an explosive move. Where 2003 - 2006 saw most junior gold mining companies participate in the upward move, I get the feeling it will be primarily the quality companies that will be the beneficiaries this time around. That is, the entities which have substance and therefore a demonstrable exposure to higher metal prices going forward. Having been burned by many mining juniors over the last 18 months, I just can't see investors blindly investing with the same bravado they did previously. This makes prudent due diligence essential if you want to isolate the most appropriate candidates to buy.

Is the bottom in for mining juniors? We believe it is, at least for some of the best quality juniors, and we think long-term investors in these juniors will be very well rewarded for their patience in coming months/years.