Perversity in the Junior Market

I have been following Victoria Gold (V.VIT) for at least eight years. I have visited their Yukon site twice and spent a fair bit of time talking to CEO John McConnell. I know the company and its prospects well.

On September 17 Victoria Gold poured its first gold a month ahead of schedule and right on budget.

First Gold Pour at Victoria Gold's Eagle Mine Yukon

On September 12 Victoria Gold closed at $0.64. You would think that with the completion of the mine and the first gold pour the share price would go up. You would be wrong. On the 17th it traded at $0.61, on the 18th it closed at $0.56 and today it is trading at $0.52.

What happened?

I have no idea and I very much doubt anyone has. It could have been a single large investor taking profits on shares bought years ago in 2014 for $0.09 or it might have been people who were tired of holding shares they bought for $0.74 in 2017. Plus the price of gold is off a bit. And, obviously, the market's appetite for VIT shares is temporarily sated.

However, I suspect the biggest reason for what I am pretty sure will be a short term drop in the share price is that when it poured its first gold, Victoria went from being an exploration development company to an operating gold miner. What that does is change the way in which a company is evaluated and it places limits on the company's "blue sky" potential.

In my book, Gold $3000 | Silver $60 I talk about how different sorts of companies will respond in the coming precious metals rally. There is no doubt in my mind that V.VIT will do brilliantly and I suspect it will trade on up to $1.50. (Although it may consolidate its outstanding shares and/or be taken private by its dominant shareholder Orion Mine Finance.) However, as a producer, while the shares will be rerated they will be closely tied to the price of gold and the performance of the mine.

If the gold price doubles the chances are excellent that VIT will, at least, double right along with it. But the 10X or 25X returns in a serious gold rally will be coming from companies which are pure explorers.

Hence the seeming perversity of the junior market. The wild, and profitable, gyrations of junior explorers reflect the far greater uncertainty as to their project's value. A solid, producing, proven mine like VIT's has effectively eliminated that uncertainty and with it the speculative frenzy junior explorers can attract towards the last third of a major precious metals rally.

Right now, in my view, especially with the sell-off, Victoria is a buying opportunity. Tripling your money is never a bad thing.

But if the rally gets going, it might be a good idea to look down the road to McConnell's wife, Tara Christie's, early-stage exploration company, Banyan Gold ( V.BYN). Same part of the Yukon, just down the road from the Victoria Gold mine and same VP Exploration - Paul Gray. But Banyan is trading at $0.055. In a major precious metals rally, one good drill hole and Banyan could easily hit $1.00. And, at the moment, there is virtually no downside risk.