“In this opinion piece Harold Clifford argues warnings that many juniors would go extinct were overblown.
Toronto -
Last year saw the worst slump in some three decades for gold and gold mining shares, prompting many “Chicken Littles” to declare that the sky really was falling this time. These panic-driven predictions revolved around the idea that the gold-price bull market was over; that gold miners would be in dire straits for many years to come and; that junior miners at the exploration stage were about to disappear on masse. I term these predictions “panic-driven” because they were right-brained, or born of emotions and flights of fancy rather than known facts and common sense. Emotions often run rampant in the depths of an extended bear market, such as that suffered by junior gold stock investors/speculators in 2013. And it is exactly during such times that a majority of “players” throw in the towel as their stocks appear to be free-falling into a seeming abyss, while the contrarian minority seizes upon the extraordinary opportunities always on offer near the bottom. Such bear markets have occurred now and then for generations, and they reliably end in terminal capitulation.
As renowned junior resources investor Rick Rule reminds us: “Bull markets are born of bear markets” … it has ever been thus, and Amen to that!
The disconcerting thing that happened in early 2013 was that once one widely-read pundit declared that a third of the junior miners listed on the TSX Venture Exchange would disappear in 2013, a lot of other disheartened observers were quick to chime in with their own similarly dire prognostications for a mass slaughter of the junior sector. The headline of a Financial Post article last July warned: “Hundreds of struggling junior miners face delisting in crisis that could choke off project pipeline for majors.”
It was pure hogwash of course, a message born of emotions unrelated to reality. It is precisely because the junior exploration sector is such a stalwart project pipeline for the world’s established gold miners that the sector’s participants – competent and otherwise – will persist. Not a third, nor a quarter, nor even a twentieth of junior mining issues became extinct in 2013, nor will they in 2014 or in any other year if history is a reliable guide.
UK-based fund manager Sam Hutchins, who has plied the depths of the junior mining markets with unqualified success for much of his professional career, put it best, I think, when he commented that “Junior exploration companies can survive on the smell of an oily rag and can wait until the market turns again. They just don’t go bust. They just move down and do nothing, sometimes for years.”
The majority of the small number of junior mining companies that were delisted from the TSX Venture Exchange in 2013 did so because of mergers, acquisitions or graduations to the more senior TSX Exchange. The number of companies delisted for failure to maintain exchange requirements or because they couldn’t afford to keep the lights burning was miniscule.
While it must be said that many junior mining stocks are sorely lacking in terms of “obviously” valuable assets, and in the opinion of some uninitiated observers should therefore meet the guillotine, I believe that it is important to remember that most such juniors represent, collectively, the hopes and dreams of a long list of geologists, entrepreneurs/promoters and financiers who, for the most part, are simply chasing their own elusive dream. Alas, it is a very long shot, this business of grass roots exploration, and who are we to say that these adventurers should not persist? After all, most of the world’s great mineral discoveries have been born of exactly such persistence by individuals with a tight grasp on a dream and a rock hammer.
Notwithstanding predictions of the demise of hundreds of mining juniors by numerous pundits during the depths of the bear market, many more participants in this often treacherous market sector understand full well that hope does indeed spring eternal in the business that will outlive us all. The gold sector led all others in early 2014, with the junior golds as represented by the GDXJ having risen 55% between December 23, 2013 and mid-February of this year while the HUI Gold Big Index of major miners in New York gained a still impressive 30% during the same period; suddenly we are seeing financings completed with increasing ease for this unique investment category.
Contrarians have enjoyed a taste of vindication in 2014, and are doubtless poised to achieve extraordinary capital gains if and when the junior golds enter an all-out bull phase. It may well have already begun…
Harold Clifford’s forty-year span in the investment business has focused primarily on the Natural Resources sectors, and included Director of Mining ..."
