Last week's Maven Letter had a series of short articles summing up the major themes I'm seeing in the mining markets today. Most of those notes are included below.
The Letter then continued with Part I of a complete portfolio review focused on identifying tax loss buying opportunities. Yes, you read that right: in my view, the selling focus this time of year is backwards and instead investors should be looking for stocks to buy.
Buys can either be fundamental value bets that are available at 52-week lows right now or can be seasonal trades - stocks that are cheap now but that will offer leverage to the mining sector's reliable Jan-Feb run. The buys in the second category are trades: prepare to sell in February after locking in 20 to 30%.
Enough chatter: on to the goods! As always, if you enjoy these Maven Monday articles consider subscribing to The Maven Letter here.
From The Maven Letter: November 15, 2017...
Busy Busy Days
It’s hard to explain how busy things are right now.
For one, it seems strange that business would be so busy when the markets are so boring. And yes, on the whole the mining sector is just chugging along. But zoom in and you see that overall pace comes from a list of small deals moving ahead – raising money, releasing results, and finalizing deals.
And those deals don’t have the luxury of choosing when exactly to make their moves. In a big picture sense, they believe we are in the early days of a new bull market and so are getting going. Zoomed in, ‘getting going’ requires a multitude of steps that happen when they happen.
I was talking with a company this morning that is raising money to drill its VMS target in Saskatchewan. Is right now the best time to be raising money? Perhaps not, but after spending the last year cleaning up the structure, installing new management, completing an initial drill program and expanding the resource, and doing a whack of geophysics and groundwork to delineate new targets, right now is when they need money.
Another company that I met with yesterday inked a deal way back in June to buy an advanced-stage copper-zinc asset in BC. A deal seems like a deal but in reality it’s taken until now to complete the technical report and then line up the stream and equity components. That means they too are raising money right now. When you’ve been working for five months to close a deal you don’t care if it might be a bit easier to raise money in six weeks – you just get it done.
And on it goes. Another interesting meeting this week was with a copper-focused project generator in BC that has been building its portfolio privately for several years and is now going public. That process got underway early in the summer but after endless hours with lawyers and bankers and investors, the trading debut is now finally nigh.
One takeaway from all of this is: it takes longer to get things done that we investors want to think. Exploration is almost the easy part of the game. The hard, time-consuming parts are closing deals, raising money, getting permits, organizing historic data, mapping, analyzing geophysics, staking ground, assessing opportunities, and earning social license.
Most of this work flies under the radar, the market only hearing about the end result of each effort. But efforts they are.
And they are very much underway right now. As efforts come close to fruition my phone rings, as my role comes when the story is about ready to be told. My phone has been ringing and I have been running from meeting to meeting for the last two weeks, returning to my desk in the evenings to sort through all the information gathered.
Identifying solid opportunities amidst it all is not easy. This is a weak time of year in the markets for exploration and mining equities. I certainly hold to my outlook that things will improve in January and February, as they reliably do, but it’s still hard to predict how stocks will perform until then. Will the market care about a deal finally closing, about a new company coming to trade, about a successful financing that fuels further exploration?
Tough to know. All you can do is trust your fundamental outlook - on gold, base metals, the overall markets, interest rates, and the like - and then make a bet.
Gold Well Grounded But Getting Overshadowed
Using lines of argument similar to those I’ve outlined here, folks at the recent Metals Investor Forum generally agreed that gold has good fundamental support.
The obvious question is: if there is so much fundamental support, why isn’t gold going higher right now?
The answer is that gold is getting overshadowed.
If you can invest in FANG and confidently collect strong returns plus dividends, if you can buy cryptocurrencies and multiply your wealth overnight, if you can invest in the ballooning industry of legal marijuana, why would you invest in gold? It’s a very real question. These strong sectors are stealing investment dollars that otherwise could well have gone into gold.
Do we need the US markets to turn down and the Bitcoin bubble to burst and weed stocks to flame out for gold to go? No…but one of those would help!
In all seriousness, these forces are acting as headwinds for gold. But they will not last forever. The US bull market will end, either gradually or suddenly. Bitcoin is a bubble and thus will too end, though I have no idea when. Marijuana is the most legitimate value opportunity of them all, I think, since it is a new sector opening up for investment, but in time its excitement will also abate.
As I’ve said before, there is a gaping risk and opportunity disparity between the US markets and the mining sector right now. When cracks start to appear in the bull market, worried investors will rotate into gold, igniting the exciting phase of the bull market.
In the meantime, fundamental support is keeping the yellow metal strong enough to support lots of exploration, deals, development, and mining.
The Whole Spectrum
Another interesting point that I noted at the conference in New Orleans and was reinforced last weekend is that engaged investors are looking for opportunity across the spectrum, from initial exploration to building, even operating, a mine.
Recent market success for stocks like Novo (TSXV: NVO), GT Gold (TSXV: GTT), and Garibaldi (TSXV: GGI) show that investors are very keen on new discoveries (not that GGI is a discovery, but I’ll leave that for today). The bear market ended almost two years ago, which means explorers have had just enough time to get organized, raise money, and start testing the projects.
In other words, work has been underway long enough that we’ve reached the stage where discoveries can start happening. Investors are keenly aware and want to be on board when the next discovery takes off.
But discoveries are by no means the only kind of play getting attention. Ask a group of investors what stocks they like best and these days half of the answers will be advanced assets. Below are some of the stories that keep cropping up:
The argument: Stibnite is a large, advanced asset setting itself up as an acquisition target in this gold market. Low risk. Current status in the ‘boring’ phase (mid-feasibility and mid-permitting) means stock is inexpensive.
The argument: Sterling is a permitted project with easy proven metallurgy and low costs. And Corvus Gold (TSXV: KOR) recently got a bunch of love for results from Mother Lode, which is a small claim package internal to NM’s ground. Once NM gets permits to drill its northern ground, odds are good it will hit the same gold. Then it will have both: the advanced deposits at Sterling and a new discovery in the north.
The argument: Montagne d’Or is a large, advanced gold asset with strong in-country support that is available for a deal. The Allegiant spinout will have a very nice portfolio of projects in Nevada that are ready to drill.
The argument: Integra is inexpensive in terms of enterprise value per ounce relative to peers, but resource count will soon grow significantly when Florida Mountain resource is added. Then exploration will get underway. Proven team.
What these stories have in common is a lower risk profile than explorers because of a defined valuation backstop, in the form of defined resources, access to capital, and demonstrated mineability. Those factors mean stories like this provide guaranteed leverage when the market gets going.
We are still in the early days of this mining bull market and that means there are lower risk ways to invest. Those will evaporate when the market gets going, but right now they are the talk of the town.
Time to Buy, Not Sell
The other theme of note from the weekend event is one I have been discussing for two weeks already: that these last months of the year are a time to buy, not to sell.
As I’ve said, the foundation of successful investing is to buy low and sell high. With that in mind, selling in November and December – arguably the weakest time of year for exploration and mining stocks – is a bad idea.
If you took down a big gain this year and want a tax loss credit to claim against it (and somehow don’t have any remaining from the bear market!) the time for tax loss selling is September. As the fall strong season peaks, look at your portfolio. Stocks that are not fulfilling your investment thesis, stocks that just haven’t managed to make it happen – sell them then. Take the loss, but lose less.
By mid-November, prices have slid and it’s time to look for buys. So many successful mining sector investors buy half a dozen good quality stocks between mid-November and end of December and sell them again in February or March, after riding the seasonal wave.
In her letter, Resource Maven explains what she is buying and selling, and why. Maven has bought into several of the markets best - performing stocks well ahead of the curve. She regularly identifies exciting new exploration opportunities and manages the inherent risk by selling some into speculative gains. And the mine builder and operator stocks that form the basis of the portfolio give strong, ongoing leverage to the rising prices of gold and silver. She has your precious metal bases covered.
Thank you so much for this excellent Maven letter. Your market analysis and logic is again exceptional. Your insights, knowledge and feel have given me a wonderful couple of hours. I am now planning my activity. I look forward to seeing you tonight on the Virtual Metals forum, I am pleased that you start first as I am a morning not a night person.
I hope you and your family stay well.
BTW - I really enjoy reading your newsletter - very comprehensive and you do an excellent job of integrating a macro perspective into your analysis.