Down Days

Gold off $32, silver down $0.34...

Gold and silver stocks falling.

Yikes!

What happened to the rally?

In the early days of a rally there is always the question of whether the rally is real and sustainable. Is it a rally or is it a "blip"?

While Gold $3000 | Silver $60 takes as its premise that there is a rally underway, I might have got the exact timing wrong. Which does not, in fact, matter.

Whether we are at the beginning of a precious metals rally or whether that rally is a few months off, the fact is that gold and silver are going to be re-rated in the relatively near future. Buying into the junior explorers and developers at the current relatively low prices simply prepares an investor for that re-rating. The precise timing might be interesting at the margins, but the core premise of the book - that extraordinary returns will be achieved by early investment in gold and silver juniors - is unchanged.

If you look at the 15 year gold price above you'll see that on the way up there were plenty of down days. For traders those are opportunities, for those of us who are not in and out of the market every fifteen minutes, down days are noise.

In fact, it is reasonable to ask if the rally has actually begun to be reflected in the junior market at all. The TSX-V is something of an indicator for the juniors and it is still lying on the bottom:

Historically, once a precious metals rally is underway, the TSX-V shakes itself off and heads upwards. But it usually takes a while for the metals rally to translate into advancing share prices for junior explorers and developers.

Of course, individual companies may beat the market because of discoveries, news, marketing and increased investor awareness. Paying attention to the companies which are getting attention is worthwhile. However, trying to time the market on a day to day basis is not likely to be worth the effort. Saving $0.02 on a $0.15 share looks important but, if that share goes to $1.00 the important thing will be owning it in the first place.

Beginnings

Gold is hovering around $1547 as I write. Up $21 or 1.9% on the day.

Silver has a run and is trading at $19.27. Up $1.09 or 5.97% on the day.

The excitement was palpable and traffic surged to the point that CEO.CA shut down at one point during the day.

Some of the stocks I follow did very well with BHS up 25% and GPLY up 9%.



V.BHS     $0.15      +25%
V.GPLY   $0.24      +9%
V.GPY     $0.425    +3.6%
V.VIT      $0.63      -3.08%
T.MOZ    $1.43      +3.62%
V.WGO   $1.11      +0.91%
V.ATC     $0.23      -2.13%
V.ABN    $0.14      +3.57%
V.ECR     $0.20      +2.56%

However, this is barely the beginning of the long term rally which Gold $3000 | Silver $60 is predicated upon.

The fact is that there are a lot of people who have been holding junior resource stocks through the long bottom which extends back to the last rally. For many of these people, a short term rally in junior resource stocks is the liquidity event they have been praying for.

There are also plenty of investors who will want to trim their positions in particular companies or take profits. People were buying and financing BHS at $0.075. The opportunity to take a double on at least part of their position would have been tempting today.

The beginning of a rally means that a lot of investors with very little experience with or exposure to junior resource stocks will take a look at the market. As metals prices rise, those investors will become more inclined to pull the trigger on a few interesting juniors. It is a slow process and there will be fits and starts.

As I point out in Gold $3000 | Silver $60, typically, the big gains in junior resource companies come in the last third of the rally.

Right now we are barely into the first third and there are undervalued juniors all over.

We'll know the rally is gaining traction when we see daily increases in the price of gold and silver. Once that starts to happen, junior companies will start gaining investor interest and their shares will, in my view, rise far faster than the metals they are exploring and developing.

Exit Strategy - Cartier Resources

I've interviewed Philippe Cloutier CEO of Cartier Resources (V.ECR) nearly a dozen times for motherlodetv.net. Most recently on June 10 (link).

Cartier's flagship project is the old Chimo Mine in Quebec. This was a past-producing mine with a deep shaft and working at many levels. It was closed when the price of gold made it uneconomic. There was plenty of mineralized rock left in the old mine. Quebec is an excellent mining jurisdiction and permitting "brownfield" sites is a straightforward process.

Cartier drill tested the old mine and actually drilled beneath the mine to prove up additional mineralization. But Cartier also drilled step-outs from the old shaft.

The strategy was to discover sufficient new mineralization that the old mine would become attractive to a senior mining company with the capital to de-water the old shaft and the ability to extend the old workings into the new mineralization Cartier was discovering.

Cloutier wanted to increase shareholder value by expanding the areas of mineralization, but he was in no rush to declare a 43-101 compliant resource. Instead, the company drilled and created a significant data set that experienced geos under non-disclosure agreements could evaluate for the companies they represented.

Cartier did not want to develop the mine itself - although that always remains an option - rather it wanted a senior miner to buy the mine outright or create a joint venture.

Up until the beginning of the current gold and silver rally the market was unsympathetic to Cloutier's vision. (Fortunately, he had backing from several major backers including Agnico Eagle with a 17% stake in the company and JP Morgan UK with 8.3% - see corporate presentation.)

Recently, since June, V.ECR has gone from $0.11 to today's price of $0.20.

Knowing Cloutier he is, no doubt, delighted by the move but he is aiming much higher.

In my book Gold $3000 | Silver $60 I look at what happened to companies like Cartier in the 2008-2011 rally. As that rally peaked it was not uncommon for advanced juniors to see 500 to 2000% price jumps.

Cloutier has an exit strategy and plenty of interest from senior and mid-tier miners who would like to get a working gold mine for a CAPEX of 30 to 50 million dollars rather than 300 to 500 million.

We are in the very early stages of the rally and smart junior investors are going to be looking for companies which are undervalued, have near 43-101 reported resources and have a solid exit strategy to provide a return to shareholders. There are not that many of those sorts of juniors out there.

In Gold $3000, part of my investment thesis is that many juniors have been so undervalued by the market that they have virtually no downside. Even after nearly doubling in three months, Cartier Resources is firmly in that category. And, in my view will stay in that category right up to $0.75.

Worth a look (Yahoo Finance ECR) Company Website