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.

Work Done - Golden Predator

Golden Predator - The Long Valley

In my book, Gold $3000 | Silver $60 I spend some time looking at junior gold and silver companies which rocketed during the last precious metals rally only to fall back to earth when that rally ended.

I use Golden Predator (V.GPY) as an example.

At the end of 2008 Golden Predator traded at a low of $0.88. As the rally took hold it headed skyward and, by October 2010 was trading in excess of $10.00 a share. At which point the shares headed downwards and, by 2014, were trading around $0.10 a share where they stayed stuck until 2016 when they began to show some signs of life.

As I write, GPY is having a good day and has traded as high as $0.435.

Other than as an illustration of the importance of entry points and the volatility of junior mining shares, Golden Predator is also a textbook case of a company severely underrated in the carnage of the junior resource sector.

From 2008 to the present day, GPY has raised and spend millions of dollars exploring its 3 Aces gold project, bulk sampling that project, building a full processing plant to extract the gold from the bulk sample and, near Dawson City, preparing to recommission the past-producing Brewery Creek mine.

In short, Golden Predator is much further advanced now than it was in 2010.

As it has progressed, GPY has attracted the attention of very savvy investors including Eric Sprott, Rob McEwen of McEwen Mining Inc., Pat DiCapo (Power One Capital Markets) and CIBC Private Wealth. These are investors who are knowledgable about the gold mining business and serious about due diligence.

I've interviewed CEO Janet Sheriff a number of times for motherlodetv.net (most recently for an article which appeared August 7, 2019) and a couple of years ago followed Chairman Bill Sheriff over a cliff to look at visible gold at the Three Aces project. They understand the exploration business but, perhaps more importantly, they understand that producing gold is the main priority.

Producing gold is exactly what Golden Predator does with its bulk sampling program and what it will do as it recommissions Brewery Creek.

Back in 2010 Golden Predator was a $10.00 stock with no real prospect of producing gold in the relatively near (say five years) term. Now it is a $0.38 cent stock which is producing gold from its bulk sampling and getting ready to reprocess 10 million tons of rock at an existing facility with a low CAPEX and excellent explorations prospects.

So, what the Hell happened?

There are lots of reasons why stocks crash but really only one reason why they stay crashed: investors bailed on the junior resource market when the precious metals rally ended at the end of 2011 and they have not come back.

The thesis of Gold $3000 | Silver $60 is that the rise in gold and silver prices during a prolonged rally will draw investor attention back to the companies in that sector. First into the larger producers and royalty holders and ETFs, then mid-tier producers and then junior gold and silver explorers and developers. It is not an overnight process and there is every chance that the junior sector, while firming, will remain ignored by investors until there is a "triggering" event. While it is hard to say what that trigger will be, there is every reason to believe that when it happens junior gold and silver companies will do very well indeed.

Right now GPY has a market cap of a bit over 60 million dollars. If we are looking at an extended gold and silver rally, that value is likely to be significantly re-rated over the next 12 to 18 months.

However, where a company like Golden Predator can soar is when it is able to give the market news the market wants to hear when the market wants to hear it. I suspect that the rally will be in full spate just as Golden Predator is able to announce the first gold pour at Brewery Creek. And, as Sheriff pointed out in our most recent interview, the geologists are beginning to understand the structure of the 3 Aces project which will likely mean more successful drill and trench results.

If this rally is at all like the 2008-2011 rally, companies like Golden Predator could easily become 10x or even 15x their current price. However, this time, those prices will reflect actual value.