Cheap Miner Stocks Bring Opportunity And Frustration

Written by Gerardo Del Real
Posted July 2, 2018 at 12:45AM

The past several months have been busy ones. Multiple site visits, a conference, and vetting of new ideas.

Gold looks weak and breached critical technical support of $1,257. A move down to the $1,214 level and maybe even the $1,100s does not seem out of the question.

I would welcome that, as we need a final breakdown that allows it the energy it needs to come out of this massive base building exercise it’s been in for years.

The good news is the longer the base, the longer the bull market that follows it.

The bad news is that does nothing in the near term for our precious metals positions. With the summer doldrums here, I expect a summer of drilling that either delivers and keeps enough interest to keep positions afloat or a market with light liquidity that slowly and surely eats away at share prices until fall.

The other bit of good news is that M&A is picking up and demonstrating the deep disconnect between the price the market assigns to a company and what potential suitors that are active in the space see.

In March, Hecla announced it would be acquiring all the outstanding shares of Klondex at a 59% premium.

There was also the unsolicited bid for Nevsun by Lundin Mining and Euro Sun Mining.

The companies bid a 31% premium to the prior day’s closing price and Nevsun told them to take a hike.

On June 17, 2018, South32 agreed to acquire Arizona Mining for $1.3 billion for the 83% of the company it didn’t already own.

The offer presented a 50% premium to the previous Friday’s close.

The deal adds a flagship silver-lead-zinc project in the U.S. and the company said it will remain on the M&A hunt as deal making returns to the sector.

On June 21, 2018, Orion Mine Finance announced it was acquiring Dalradian Resources (TSX: DNA) in an all-cash deal at a 62% premium to the prior day’s closing price.

What’s interesting is that Orion is a private equity group.

The main takeaway and a point I’ve attempted to drive home all year is that this is still a tough market for juniors.

It’s cheap relative to the underlying commodity prices.

Nobody cares, especially in summer, but you have to be in position for when that changes.

Neither Arizona Mining, or Klondex, or Dalradian did anything different from one day to the next to earn that extra 50-60%.

The work was done beforehand. Discovering and developing good assets in a responsible way.

There are many companies doing things right that will be re-rated aggressively in a better market.

The exploration companies without anchor assets will have to deliver with the drill bit and be in a better market but, if successful, those actually provide more leverage.

There are several examples of valuations that are laughable unless you own them and then the laugh turns to frustration.

The only way the frustration turns to joy is to buy when it’s cheap and sell later. That takes patience and, in a tough market, it can seem like an eternity.

I hope my Canadian friends had a happy Canada Day and happy Fourth to everyone here in the U.S.

Go fire up the grill, yell at your local congressperson, protest something, or just enjoy the day, but whatever you do, be thankful you get to do it.

To your wealth,


Gerardo Del Real
Editor, Junior Mining Monthly and Junior Mining Trader.

For the past decade, Gerardo Del Real has worked behind-the-scenes providing research, due diligence and advice to large institutional players, fund managers, newsletter writers and some of the most active high net worth investors in the resource space. Now, he is bringing his extensive experience to the public through Outsider Club, Junior Mining Monthly, and Junior Mining Trader. For more about Gerardo, check out his editor page.

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