The resource sector is heating up with merger and acquisition activity as
I predicted only a few weeks ago in this
recent article. When the herd was ignoring our sector, I positioned my
readers ahead of the curve and called it a rare holiday bargain sale. Now the
sentiment for the junior miners is turning positive. This rally is just not
for the gold and silver miners (SIL). The uranium miners (URA) are taking off
as well as Japan looks to fast track the nuclear restart.
Now only a few weeks after a bitter tax loss selling season the resource sector
is leading the market as evidenced by the outperformance
of the TSX Venture Index over the Dow Jones Industrial Average (DIA) in
2014.
A huge influx of money has been rotating from the overvalued blue chips, social
media such as Facebook (FB) and Twitter (TWTR), banks (XLF) and real estate
sectors (XHB) into the junior mining resource stocks (GDXJ). Yes we have seen
new highs in the major indices but the large money may have already been rotating
for weeks into the undervalued junior gold and silver miners . Bull markets
end on the average once every three years. Smart money may be selling bonds
and intangible stocks for hard assets in the form of commodities and mining
stocks. This chart below shows that the Venture Dow Ratio is breaking out above
the 200 day for the first time in three years. Look for a bullish golden crossover
of the 10 and 40 week moving average for a confirmation of the bottom.
Goldcorp (GG) is launching a hostile takeover for Osisko Mining (OTCPK:OSKFF)
for $2.6 billion. Goldcorp is going after Malartic low grade-bulk tonnage Malartic
Gold Mine. If Goldcorp is buying a low grade, high production asset then they
probably think gold prices are headed significantly higher unlike the pundits
on the TV. As the sentiment turns positive for gold look for the junior miners
to continue to outperform. This may be the end of a long correction from $1900
in gold and $50 in silver. Look for a steady uptrend as the smart money in
China and India has used this rare correction in the metals to load up on gold
and silver at a discount price.
As
I told you in this recent article, smart money may be entering the uranium
miners for several weeks as well. Remember keep a close eye on the sector
bellwethers such as Areva (OTCPK:ARVCF) and Cameco (CCJ). Areva has outperformed
in 2013 and I indicated Cameco should play catch up soon in 2014.
Now Cameco is making a bullish golden crossover and technical breakout. China,
India and The Middle East are all regions with increasing energy demand because
of improving living standards. Cameco says annual uranium consumption will
rise 30% over the next 8 years. Don't be surprised
if Cameco or Areva or Rio makes moves in the junior uranium mining sector
as they did in 2011 for the Roughrider Deposit in the high grade uranium Athabasca
Basin district. Major discoveries are currently being made there. These are
early stage explorers which means there are always risks as they continue to
develop and advance these discoveries which may still be at least 7-10 years
away from production. One should also keep a close eye on the emerging producers
in the U.S. and the advanced projects in South America, Canada and Australia
which should be picked up on a pullback.
Japan turning nuclear reactors back on, the expiration of the Russian HEU
Agreement and the mothballing of uranium production all over the world due
to record low spot prices could be the fuel for an explosive price spike and
a major upturn in acquisitions of high quality assets in the hands of junior
uranium miners.
Disclosure: Long Uranium Sector
