Stockhouse Ticker Trax is equity specific research (Canadian listed and market cap < $300 million) published every Monday to paid subscribers. Our free Friday column may feature companies previously featured to paid subscribers (with a minimum one month delay) or discuss topics of interest to the general investment community and relevant to overall portfolio management.
With today’s dramatic collapse in the price of gold (almost $70 per ounce), the old saying “another nail in the coffin” might apply to junior resource stocks (and investors). However, the sad reality is that we are running out of nails.
For these poor companies and the beaten down shareholders who have been thrown the concrete life preserver, I am not sure much more can go wrong (aside from bankruptcy or incredible shareholder dilution).
As I noted last weekend, none of this makes a lot of sense when you consider the fundamentals that “should” be supporting gold.
However, if you are a gold “bear” you have just been vindicated (for now).
Last weekend’s comment section at the bottom of my report was a good sounding board for many investors so this weekend...have at it ! I know there will be a lot of people that just feel like venting.
If you feel like flogging your own stock picks, that is also welcome. Just keep the comments on topic and constructive – otherwise I have them removed so we have something productive and not full of spam and flamers.
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DESTRUCTION OF INVESTOR CONFIDENCE
Capitulation: the point at which investors sell on heavy volume, often signalling a near term bottom.
A large majority of speculators (both retail and professional) threw in the towel this past year while others have been dipping their toe back into the water recently (picking away at higher quality juniors that are trading near lows).
Imagine what today’s dramatic commodity selloff has done to (what’s left) of investor confidence. Metals and energy stocks are important strands in the fibre that holds investors together in the TSX and TSX venture.
Those strands have been severely tested the past year (or two) but today a few tore completely away and for many, what was left of investor confidence was completely shattered.
That destruction of confidence spills over to every other micro and small cap company on the Canadian stock exchanges.
To signal a bottom we often look for a capitulation. We have been looking for that the past year but there has been no clear sign.
Instead it has been a long drawn out process – a “slow” death per se.
Do we still need a capitulation? Or is there anyone left to capitulate with these small companies? I’m not sure anyone knows.
This beating in gold April 12th will be the equivalent of a capitulation for many investors who are tired of watching their portfolio erode.
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A quick note on VIT featured last weekend
https://stockhouse.com/opinion/ticker-trax/april/5/six-million-gold-ounces-in-canada-worth-$5-oz-!-st
Victoria Gold (TSX: V.VIT, Stock Forum; 19.5 cents)
www.vitgoldcorp.com
I was fortunate with my report timing on Victoria Gold as Monday the company announced a very important approval from the Yukon government. This resulted in a move to 23 cents and a gain of 30%.
Now thanks to this meltdown in gold today, that momentum has quickly died and the stock is back trading sub 20 cents.
The next news we will be looking for is a quartz mining license from the Department of Energy & Mines. In theory this should arrive within 60 days and would be the last permit required before construction could begin.
The following year we would need to see a water permit but the last major hurdle to cross in terms of establishing valuation, is financing. The stock moves with the price of gold (which is why today was so painful) but this commodity volatility also hurts when a company is trying to finance mine construction.
It is very difficult to accurately forecast cash flow when the underlying commodity is bouncing all over the map. This is not an issue that becomes a “deal breaker” but it explains why you see such wild swings in the share price.
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Disclosure: Danny Deadlock owns 125,000 shares of Victoria Gold (TSX: V.VIT).
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