Stockhouse Ticker Trax is published to subscribers every Monday (annual cost only $99). We focus on best-in-class high growth small companies trading on the TSX and TSX.V between 5 cents and $3 with a market cap below $300 million.
Equity Analyst Danny Deadlock has 30 years of experience speculating on Canadian penny stocks and targets capital gain opportunities and diversification in metals and minerals exploration, energy, and technology.
For the experienced investor, Ticker Trax provides an extra set of eyes and ears (idea generation) and for those learning to invest in micro cap stocks, we provide stock picks and market education.
Subscribers receive; (1) new research (stock picks) weeks in advance of being featured on this weekend column (2) exclusive access to our list of junior gold exploration companies (critical for peer valuation), (3) exclusive access to our list of Cash Rich micro cap companies (our Virtual Vulture Fund) which contains 80 companies with almost $3 Billion.
Both tables are updated monthly.
Weekend readers likely know that for the past few years I have tracked the valuations on a basket of junior gold exploration stocks and I use this to benchmark fair value within the sector. The basket currently includes 45 TSX and TSX Venture penny stocks (micro caps) with a minimum 1 million gold ounces (as per a 43-101 report).
As many Canadian brokerages and financiers were telling investors in the spring and summer of 2011 that fair value was still in the range of $100 per gold ounce, I was noticing a serious breakdown that had fair value pegged closer to $45 per ounce.
To view a bigger verions of this chart, please click on the link
:https://stockhouse.com/media/tickertrax/goldvaluechart-oct13.jpg
It took a while for reality to set in but eventually this lead to broad based destruction across the industry and the TSX Venture in particular - which has now fallen 60% from its 2011 high and about 30% over the past year.
Of the 45 Juniors Included in that $17 valuation, 28 trade below the average.
Geographic risk affects the valuation but (low) grade is definitely hurting these companies. If they have a producing mine then grade is more tolerable, but for pure exploration companies, grade is a predominant theme.
A few examples (approximations on ounces and grade):
1) Batero Gold Corp. (TSX: V.BAT, Stock Forum) in Colombia has 6 million ounces near 0.4 g/t with approx. $16 million in the bank. The gold is valued near $0.
2) Sunward Resources Ltd. (TSX: V.SWD, Stock Forum) in Colombia has 11 million ounces near 0.5 g/t with approx. $25 million in the bank. The gold is valued near $1/oz
.
3) Victoria Gold Corp. (TSX: V.VIT, Stock Forum) in the Yukon has 6 million ounces near 0.7 g/t with approx. $30 million in the bank. The gold is valued near $1.50
.
4) Volta Resources Inc. (TSX: T.VTR, Stock Forum) in Africa has 6 million ounces near 1.0 g/t with approx. $10 million in the bank. The gold is valued near $4/oz
.
5) Asanko Gold Inc. (TSX: T.AKG, Stock Forum) in Africa has 5 million ounces near 1 g/t with approx. $185 million in the bank. The gold is valued near $6/oz.
6) PMI Gold Corp. (TSX: T.PMV, Stock Forum) in Africa has 2.5 million ounces near 2.3 g/t with approx. $100 million in the bank. The gold is valued near $9/oz
Junior mining and exploration across the board has been decimated and you will see in this chart that commodities are being treated by fund managers like they have the plague.
Note: The above table has been floating around the Internet this past week and apparently originates from Bank of America (an October survey of Global Fund Managers). I have been unable to independently verify this data but assume (hope) it has not been fabricated. Anything pulled from the public domain should obviously be viewed with caution.
To view a bigger version of the chart, please click on the link:
https://stockhouse.com/media/tickertrax/fund-positions-oct13.jpg
From a contrarian perspective this may be the best time to buy junior gold stocks – although these are the same investors who have tried (unsuccessfully) to catch a falling fridge over the past year. And for the majority of investors, few are willing to dip their toe in the water until they see the rest of the herd take the plunge.
My personal approach this year with junior exploration has been to focus on companies with huge bank accounts trading near or below cash value. It is a conservative approach that has resulted in capital preservation or marginal gains (in the majority of cases).
In addition to the strong balance sheets, the companies with strong underlying fundamentals (valued at zero by the market) will typically be the first to produce strong gains on a recovery. It just takes some patience.
________________________________________________
_________________________________________________________________
Disclosure: N/A
_______________________________________________________________________