Aurcana Silver Corp V.AUN.H

Juniors Are Due for a Major 2008 Run

[Greenstake]

2007 Numbers Reveal That Juniors Are Due for a Major 2008 Run

By David J. DesLauriers 27 Dec 2007 at 12:38 AM GMT-05:00 TORONTO (ResourceInvestor.com) -- With 2007 drawing to a close, your correspondent thought that it would be a good idea to review the performance of relevant resource and general indices to examine how they’ve fared over the last 12 months, and see what that could mean for the junior market in 2008. Our findings, having looked at some of these numbers, are very telling. While the major indices were all up, and the commodities were all up, the junior index was down. Indeed, year to date, the TSX is up 6% having at one point been up more than twice that. The HUI is up 20% having been much higher (and lower) year-to-date. In terms of relevant underlying commodities, gold is up 30% and near its highs, and oil is up 42%, also right near its highs for the year. Despite all of this, two proxies for the junior resource market, which is the primary concern of readers of this website, demonstrate that the smaller players did not have such a good time in 2007, displaying vapid performance across the board. The TSX Venture exchange is down 10% year to date, and the Sprott Precious Metals Fund, which is a good proxy for juniors, is down 20%. The reality is that in the case of the Venture exchange it is the larger more known players that are included in the index, so that the decline does not properly reflect even half of what one would have felt if one were invested purely in juniors. This is illustrated by the Sprott Precious Metals fund (and no doubt other precious metals funds), but even these have cash on the books, larger companies included, and physical holdings of the commodities themselves. These no doubt dragged the fund up, and it is quite possible that the average loss on juniors within the Sprott portfolio was 40% or 50%. To us what this says is that with the commodities themselves having performed wonderfully in 2007 and with the larger commodity producers and developers having, to a smaller degree, performed on the back of those underlying upward moves – that the juniors for no apparent reason were very much left out in the cold. We have seen this before in this cycle – more than once. Barring outside macro factors which are the only potential challenge to history repeating itself, the juniors are due for a major run next year. It happens this way every time, and every time we see a doubling, at least, in the names that have been forsaken. In the quality junior names, we oft experience quadrupling. Our major fear is the outside factors and drive towards havens of liquidity and blue chip ‘quality’ names. If, because 2008 is an election year in the US, the bubble does not burst with all of the derivative driven financial shenanigans that have been transpiring in the US, then the juniors will rise multi-fold. If investors run for the exits, the juniors may languish further. We are simple gentlemen and would not deign to proffer a definitive macro view to the retail public – but it comes down to this: If you believe that the bubble is not ready to bust, go long juniors – they are overdue for their turn and will provide multi-bagger returns, even if you blindly throw a dart at the board. If on the other hand you believe that macro mayhem is around the corner, given the real estate and mortgage paper bubbles that are looming and that have garnered so much attention recently, continue to liquidate.