There was a time not very long ago when hard work, honest execution,
determination and honor contributed to financial security. In special cases,
extraordinary application of those four practices resulted in financial
windfall, as in the case of the visionary entrepreneurs from Benjamin
Franklin to James Watt to Henry Ford to Bill Gates and Steve Jobs.
In the 1980–2000 era, enormous fortunes were also created by those men and
women daring enough to use funds from private investors to allow them to
carry out and complete geological theories resulting in massive discoveries,
be it in oil and gas or minerals. The early investors in many of Murray
Pezim's (a Toronto-born butcher turned Vancouver mining promoter) deals lost
heavily but those that stayed with him were made ridiculously wealthy with
the Hemlo and Eskay Creek gold discoveries of the 1980s. Robert Friedland's
Galactic Resources filed for bankruptcy in 1992 but investors loyal to
Friedland in 1994 wound up owning Diamondfields and by 1997, it was taken out
by Inco for $4.3 billion after the Voisey's Bay nickel discovery.
Now, the biggest discovery I was ever involved with as a corporate finance
executive was the Mountain Province discovery of 1995 where 3.76 ct/t was
considered "$1,000 (per tonne) rock!" and I was rewarded by a jump
from $0.39 (where we funded it) to the ultimate peak $9.75/share. Today, with
zinc at $1.36/lb. after literally decades in the $0.50s and $0.60s, the
value-per-tonne of a 10% grade intercept is noteworthy and similarly, with
gold at $1,260/ounce versus $300–400/ounce where it resided for most of the
1990s, a 6 g/t intercept is a big deal because most of the deposits are lucky
to carry sufficient scale and continuity in order to qualify as economic.
However, today, unlike the 1980–2000 period, massive intercepts are
treated as "leper colony" events and are a clarion call to
"SELL! SELL! SELL!" because there is absolutely no marginal buyer
cognizant of the long-term accretive powers of a major discovery (which add
more reserves to inventory) that will go to his/her board of directors with a
scrap of Bloomberg Terminal ticker tape pitching it on the basis of being
"good for our company."
To wit, look at the past thirty days where these results were reported:
June 27th: Fremont
Gold Ltd. (FRE:TSX.V) Gold Drills 25.9m @ 4.66 g/t Au at Gold Bar
Project, Nevada
Stock spikes to $0.22 in March on speculation and to $0.18 the day of the
announcement; four trading days later the stock trades down to $0.12.
June 26th: Tinka
Resources Ltd. (TK:TSX.V; TLD:FSE; TKRFF:OTCPK) drills 10.4 meters
grading 44.0% zinc in new discovery of exceptional zinc grade at Ayawilca
Stock trades 2.7 million shares immediately after the announcement and
then sells back down to within pennies of its recently completed $0.485/unit
private placement.
June 28th: American
Pacific Mining Corp. (USGD:CSE;USGDF:OTCPK) Drills 16 g/t Gold over 1.5
Meters at Tuscarora
Stock opens immediately after the NR at $0.215 then sells down to $0.18
and closes $0.19 on 670,250 volume.
This latter company is included because it is a company actively covered
by Bob Moriarty of 321gold.com and it really shows you just how rotten
sentiment is when even one of his sponsors can't catch a bid.
Conditions such as these are symptomatic of market bottoms where
gargantuan amounts of fear have replaced smidgeons of greed in setting the
tone for reactions to positive exploration news. This condition is diametrically
opposite to what we encounter in the overall stock market where negative news
are greeted with a persistent "Buy the dip" mentality, the product
of incessant, predictable interventions by government-policy-directed trading
desks of the major banks. Retail investors have been trained in a Pavlovian
sequence of behavior modification resulting in well engrained neural
responses to stocks and gold fed and fueled by the MSM and championed by the
bank-sponsored cable networks led by CNBC.
Adding insult to injury, the new generation of investors led by the
Generation X, Generation Y (echo-boomers) and Millennials, with the prior two
setting the standard for and handing down the investing baton to the latter.
Take the Generation Y group, born between 1970 and 1990. They are now
considerably larger than their Gen X predecessors (the "baby-bust
generation") but they are now between 18 and 38 and represent the vast
majority of new investors AND investment managers. Furthermore, they have
grown up during a period of financial entitlement, where government bailouts
protect stocks at the risk of immense moral hazard, the nature of which is
being felt and witnessed by subdued attitudes toward risk and elevated
expectations toward reward. They forge ahead as a thundering herd of
demographic chaos, buying companies with zero earnings and enormous debt
(Tesla?), gravitating toward the technology sector due to their considerable
familiarity with its products, and pushing prices and valuations to the
absolute extreme of any and all valuation metrics with full expectations of
winning. And guess what? Since the 2007–2008 GFC, that strategy has been 100%
effective because by aligning themselves as a voting bloc of investment
consensus, they are able to control downside reactions and manage upside
probes through Twitter and Facebook, text messaging and email. And, of
course, with the full support of the U.S. Fed, the BoJ, the BoC and the ECB.
So in trying to come to grips with my dismally performing junior mining
portfolio of explorers and developers, I have reached the stage where I am
finally contemplating capitulation and surrender. I am a hair's breadth away
from throwing in the proverbial bloodstained towel and avoiding the gold and
silver sectors in the interest of capital preservation and survival. Now,
having said that, I would also remind you of a similar notion communicated
(with high anxiety and largely incoherent phrasing) through this publication
in the fall of 2015 with gold threatening to once again move below the $1,000/ounce
level. What immediately followed was a rally off the lows and the 2015–2016
returns from bottom to top were as follows:
December 1, 2015 to Sept 1 2016
Senior gold miners: up 108.74%
TSX Venture exchange: up 51.68%
Silver: up 34.73%
Gold: up 23.79%
S&P 500 (stocks): up 5.88%
Needless to say, a rip-roaring advance by all measures…
In today's missive, I began with how and why sentiment for junior
exploration issues has become so jaded and I finish with an illustration of
how sentiment for junior explorcos can be the ultimate buy signal when used
as a contrarian indicator. In the summer of 1999 with gold at $250 and the
TSX Venture under 1,000; in Oct 2008 with gold at $681 and the TSXV at 686;
in 2015 with gold at $1,045 and the TSX.V at 479, sentiment was identical to
where we are today. The chart posted above shows you EXACTLY what happened
afterwards and for the next nine months after the lows of December 2015, gold
and silver and gold and silver stocks (senior, juniors and explorcos)
MASSIVELY outperformed the U.S. stock market.
Are we truly there now? Well, if the newly expanded capacity of my liquor
cabinet and medicine chests are any type of indicator, then we are there, in
spades. If my inability to locate my trusty Fido and my significant other
since late June are any indication, then we here, at the bottom. Finally, if
the number of trashed quote monitors, Larry Kudlow dartboards, and Jim Cramer
voodoo dolls are any indication, welcome to the world of limitless opportunity
and soon-to-become riches by investing in precious metals and their equity
space counterparts.
Pass the moonshine…
