Junior Market Mayhem. What's Gone Wrong?
2019 started off not to bad for the junior mining sector. A lot of the smaller players were looking poised to rally on optimism of higher gold prices. Sure enough gold prices did rally this year hitting the $1,500 USD range. In other currencies like here in Canada the price of gold hit historic highs. The juniors on the other hand have hit historic lows. Volumes of most have all but dried up and pretty near any shareholder who bought into any plays during the mid year with antisipation of a reward is out of luck and out of money.
So investors are wondering what's the real cause of this stagnant money loosing market. To begin with I think there is just a lack of interest in the sector as a whole. Investors over the last couple years were chasing pot stocks to record levels like they did tech stocks 20 years ago. Now the pot stocks sector has fallen to lows never thought possible, a lot of those folks who bought and didn't cash out have been all but been wiped out. I remember getting a news newsletter talking about Invictus MD GENE which was suppose to be a well managed pot company with top growth potential, etc. The stock at that time was $1.50 and some cents and went to around $2.50 at the time. Today I see that stock is 12 cents. This is just one example of the many pot companies that will probably end up going bust and taking millions of shareholders money with them. To put it plainly in english, there is not a lot of speculation money left out there.
Another factor I think that plays an important part in the junior sector is the lack of new discoveries. There hasn't been anything new or exciting to get the crowds rallied up like years ago. Another factor along this line is investors aren't satisfied with drill results like before. They don't seem to be content with grams per ton any more. They all want ounces per ton it seems.
Commodity prices too in general are in the dumps. Most base metals are dismal at best. The hype and excitement around lithium and cobalt has seemed to dissappear. Talk of a global recession doesn't help juniors either who are on the hunt for copper or zinc.
Another issue I see that is hurting the juniors is the lack of transperancy and lack of news with some of the companies. These issue a bunch of stock, take the money, drill a few holes, don't bother promoting the stock in any way and after the stock sinks in price they roll back the stock, issue more new paper and its the old wash, rinse and repeat and investors are just plain sick and tired of being put through the wringer and are really looking hard for other places to park their money.
Now I'm not saying ALL juniors are that way but there are some out there that have little to offer and management likes to treat their stock and company like a personal ATM machine. This sad reality is that it just takes a couple of these companies to make a bad name for the entire sector. There are good quality plays still out there that are run by top notch people that have great potential once this market turns around.
Another problem with the juniors in my opinion is that there is just too many junior companies out there. There is just too many players fighting over too few dollars and so many of these juniors go into the field under capitalized and thus need to issue more stock to raise more money and then dilute the shareholder value some more repeating this same old cycle over and over again and the ordinary investors have had enough of it.
Market shorting of stock. No sooner does news come out and a stock rallies a bit and in move the short postions ready to hammer the life out of it. Is it any wonder that the average investor is starting to just throw in the towel on these stocks. It seems that market regulators turn a blind eye to this kind of behavior but in a lot of cases the management of these companies seem to do little to intervene and seem to allow brokerage firms and others to get away with it. I have yet to read of any CEO taking the regulators to task on this issue. Most just like to blame the market for their stocks poor performance.
Another problem the juniors face is the government and the multi levels of government. Things like getting permits and approvals in a timely fashion. Having to spend dollars and time with local governments and other stake holders like first nations and special interest groups. Small juniors dump thousands of dollars and tons of time just to get approvals to go out and explore. Because of this alone, a lot of potential investors will take their money else where. It's the old "why bother" attitude that comes into play. There is a risk factor that comes into play even before a project starts.
So how is the best way to play the metals sectors? The large cap miners have done well this year and many are down from their highs. These larger miners especially the gold miners should do well especially if there is a global slowdown or recession as a lot are talking. Another way is to just buy the physical metal itself. You won't see the multi bagger gains like you might with some juniors but in the end you'll still have something tanglible to hold on to. As you see by the chart below in 2019 everyone who held gold has seen double digit returns in the past year. Not bad concidering you'll get zero at the bank if your looking for security and don't like risk. For the sake of curiousity, investing in the S&P 500 the average annualized total return for the over the past 90 years is 9.8 percent so you can see physical gold is a good hold.
So in the end, what's going to fix this situation with junior mining companies? Firstly, and these are just my opions but someone needs to come up with a discovery that grabs the attention of the investing public. I'm talking another Voisy's Bay, another Lac da Gras diamond find, another Galore Creek. Second, maybe a few mid cap players come in and buy out a few of these juniors who have proven goods. Third, more accountablity from management teams with more work project updates. Fourth, more timely lab returns on assay results so investors aren't waiting months for these results.
These are just a few of the issues plaguing the junior sector these days. A person could go and on for days trying to figure out the best way to turn things around. I for one am hoping that the sector turns around. The world still needs resources and the only way it's going to get these resources and keep an inventory of these resources is from junior miners who are active in exploration.
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