Junior Mining Stocks: A New Bull Market On Steroids

Apparently that imbecilic Goldman Sachs commodities analyst, Jeff Currie, was on CNBC’s Power Lunch urging viewers to short gold.  He’s been wrong since his initial $800 target on gold he set about 2 years ago.   In fact, using Currie as a contrarian indicator for buying gold has become possibly more reliable that the legendary “Cramer” and “Gartman” contrarian indicators.

What you won’t hear discussed on CNBC, or Bloomberg or Fox Biz for that matter, is the powerful move that’s being made in the mining stocks, especially the junior mining stocks. Since hitting a low of 100 on January 19, the HUI is index is up 94% as I write this.  If the SPX or Dow went up 94% in 2 1/2 months, Maria Bartiromo and Liz Clayman would be doing naked cartwheels on tv.

GDXJ 1yrThe junior miners as represented by the GDXJ ETF since January 19th is also up 94%.  But the GDXJ is not a true junior mining stock index.  Many exploration stocks are up 300-400% YTD.  And they are still substantially below the highs they reached in 2010 and early 2011.  I pointed out earlier this year that the HUI index doubled from late October 2008 to December 31, 2008 – and then it more than doubled again over the next 2 1/2 years.  I suggested that not only could it do that again, but this time around the move would be even more more powerful and produce an even bigger rate or return ultimately.

Why?  Over the last 4 1/2 years the valuation of mining stock sector relative to price of goldHUI reached its lowest point in history.  I don’t time to dig up the graphs illustrating this that have been published recently, but the HUI graph on the right somewhat demonstrates this point.  The HUI index closed on April 7 at 186 with gold around $1230.   As the graph shows, the HUI hit 186 in early 2003 with gold at $350.  In other words, in the early years of the emerging secular gold bull market, in relation to the price of gold the larger cap mining stocks were valued at nearly 3 1/2 times greater than their current level of valuation.

The beat down in the junior miners over the last four-plus years was even worse.  Many of them with proved gold/silver in the ground were trading at valuations below the amount of cash they held on their balance sheet.   The good quality exploration juniors had become insanely cheap.

The current trading action in the miners, especially the juniors, reminds me of the 2002-2003 period, when the sector was largely ignored by the entire market other than a contingent of crazy “goldbugs.”  Back then – like now – stocks would take turns jumping up 20-30% in one day, often on no event news.   I likened the action to that of watching popcorn pop:  you didn’t know when an individual kernel might pop but you knew that at some point almost all of them would.

The market action currently is quite similar to back then.  The juniors have been beaten down to the point at which no one except hardcore precious metals participants are GDXJweeklybuying them and idiots like Jeff Currie are running around advising everyone to short the sector.  The graph of GDXJ on the left (click to enlarge)shows how minor the recent move has been relative to the upside potential.  The move in the juniors has barely started. We have a stock in our fund that was up 37% yesterday on no news (Almaden Minerals).  It’s up another 17% today.  I spoke to management, who attributed the action to a U.S.-based newsletter but noted that the stock is playing “catch up” to comparable companies with $200-million market caps.  AAU’s market cap even with today’s move is still around $85 million.

I will be explaining to the subscribers of my Mining Stock Journal in the upcoming issue (next Wed or Thurs) why AAU is worth at least as much as its comparable companies.  I’ll also be presenting another mining stock that has moved up almost 500% from its 52 week low and is still 300-400% undervalued just in the context of the current prices of mining-stock-journal-bannergold/silver. This company has a hidden asset that is not even contemplated by the market right now.  In the current issue I presented a junior gold stock that has been almost completely ignored by investors.  This particular stock is one of the best risk/return ideas I’ve come across in 15 years of focusing on this sector.  You can subscribe to the Mining Stock Journal by clicking on the graphic to the right or by clicking here:   Mining Stock Journal.

 

10 thoughts on “Junior Mining Stocks: A New Bull Market On Steroids

  1. … Maria Bartiromo and Liz Clayman would be doing naked cartwheels on tv.

    Some years ago, ok. But not interested any more.

  2. Dave … I think one of the big things that has the FED spooked is the potential for a Lehman Bros. type event in Europe … maybe not 1 specific Lehman type event, but possibly more likely; several mini Lehman like events

    When you weigh the potential scale of the problems surfacing in Europe, the Middle East, Japan, & China; I don’t think it’d be a stretch not to include a potential risk forecast for 1 or more mini Lehman/Bear Stern events to occur in Europe during 2016/2017.

    1. Deutsche Bank, Credit Suisse, Banco Santander…but also several banks in the U.S. starting with BOK Financial, Morgan Stanley, Bank of America

  3. With the US manufacturing sector data now showing a confirmed “profits recession” it appears more & more people are begining to realize that the recent FED HAWK talk was all about mis-direction … in actuality; the FED is currently trapped by the data; the US GDP/Profits data is BAD and is technically currently in recession.

    So not only is the FED battling global risks, they also have a genuine manufacturing/profits recession at home in the USA on their hands.

  4. From Reggie Middleton;

    There’s already an entire den of Bears in the EU area. It’s not guaranteed, but its’s as close to guaranteed as you can get. You see, this is math thing. The ECB just doesn’t have the firepower to bail out its banking system en masse. There’s just not enough money, and if you print it too aggressively you cause worse ailments elsewhere in the ecosystem. Just look at the leveraged asset base of the top 5 banks in just Germany, Italy, Spain and France – the ECB doesn’t stand a chance. Even if they did, they’ve exhausted most measures already. They have already pushed rates way negative, twice. They buy every bogus asset and their uncle. they give cheap loans out of every orifice, LTRO, TLTRO – and despite all of this the banking system is still teetering. The banks are (rightfully so) starting to distrust each other, and that is WITH the ECB guarantees and printing. This distrust is what led to the liquidity crises of Lehman and Bear, and WaMu and Countrywide.

  5. Looks like the italian banks may be the first EU banks to go en-mass this cycle;

    (FT.COM) Italy is rushing to cobble together an industry-led rescue to address mounting concerns over the solidity of a banking sector whose woes pose a risk to the wider eurozone economy. Finance minister Pier Carlo Padoan has called a meeting in Rome on Monday with executives from Italy’s largest financial institutions …

    http://www.ft.com/cms/s/0/f3bb18d0-fefe-11e5-ac98-3c15a1aa2e62.html

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