Deja Vu in World of Junior Mining
Precious metals expert Michael Ballanger takes a look at the markets and homes in on one company in particular.
Déjà vu: “A feeling of already having experienced the present situation”: “tedious familiarity”
Before I begin, let it be known that I am fully aware of all the snickering and whispering that goes on whenever I proceed to recount one of my “stories” from years gone by. My barber says it reminds him of granddad sitting around the fireplace with a tumbler of Scotch, an old Montreal Canadiens toque cocked atilt on his balding pate, ruddy cheeks glistening in the glow of a four-sip buzz, as he takes complete delight in telling the story of the one-eyed, three-legged, no-tailed stray dog that went by the name of “Lucky.” Amidst all of the groans that surely reverberate throughout the halls of the Ballanger blogosphere, yet another nostalgia blast this way comes.
Between 1993 and 1996, I assisted a little junior exploration company called Mountain Province Mining Inc. (now Mountain Province Diamonds Inc.) in raising much-needed exploration funding for its diamond-hunting efforts in Canada’s Northwest Territories. Due to the volatility of the diamond space in that period and due to the seasonality window for drilling, the shares traded between CA$0.38 and $0.70 over a two-year time frame right up until drilling started in February of 1995. By the time the drilling program started, my customers were completely fed up with what had become a grueling exercise in Chinese water torture with every rally to $0.70 getting sold despite a booming diamond sector and relatively good indicator mineral analysis from the field. It was so bad that I was almost hiding under tables when people I knew entered restaurants notwithstanding the vast assortment of fake-nose-and-moustache accessories I carried in my briefcase.
In early March of 1995, I was trying to shepherd three young kids out of the Suburban into the local grocery store (with great difficulty) when my 15-lb. Motorola cell phone began ringing and since you needed a crowbar to lift the contraption and a hammer to activate the “TALK” button, I was laboring mightily as I tried desperately to avoid losing hold of my precocious two-year-old daughter who decided that she would rather pet a large and very menacing German Shepherd rather than be seated in the shopping cart.
I was finally able to answer at which point the voice of one of the early promoters of the deal boomed out of the speaker “We have KIMBERLITE!” (the host rock for diamond deposits in the NWT) and expecting that my poor customers would finally be rewarded and my fake nose collection thrown into the fireplace, I waited with bated breath and unbridled anticipation for the Monday morning opening of trading. The shares had closed at $0.65 the prior Friday and since every other diamond explorer had seen huge advances after announcing a kimberlite discovery, I was horrified when it opened lower and closed out the session at a 20% loss. It seemed that investors were no longer falling for the “old kimberlite game” and had instead determined that kimberlite alone was not enough to kindle the flames of greed amongst the junior mining speculators. They were demanding proof of diamonds so three weeks later when the company announced the recovery of diamonds in the sample, the shares finally spiked out and through $1.00 only to fade again back into the low $0.70s until that fateful day when the first decent sample came back and blew the doors off the market with grades exceeding 3.0 carats/tonne (unheard of at the time) sending the stock straight north for most of 1995 and 1996 peaking at $9.75 in late 1996.
As I look back upon that period, I cannot tell you how many times my knees buckled after taking verbal abuse from customers and competitors but the worst part of it was the group that sold all of their stock at breakeven or modest profits that could only mumble incoherently something about “I shudda listened to you instead of my <Insert guilty party>.” As I reflect back upon that experience, I recall constantly revisiting the geochemical and geophysical data in order to reinforce my conviction in the potential for a major discovery. I learned a valuable lesson in that experience: it is infinitely better to stick to one’s convictions and leave the short-term “noise” in the waste bin.
Moving right along in the category of “tedious familiarity,” amidst a cavalcade of emails and texts and voice calls, I wore myself out this week trying to explain why my favorite junior developer, Getchell Gold Corp. (GTCH:CSE; GGLDF:OTCQB), could possibly trade at a USD$32.8-million-dollar (undiluted) market cap when drill results reported this week were nothing short of “world class.”
Now, it is imperative that this not be misconstrued as “book-pumping” exercise (even though it probably is) because the point I am trying to make is simply this: I am thoroughly disgusted with the state of current financial markets and their inability to allow “true price discovery” to manifest itself in literally every market I follow. We just went through yet another record-setting option expiry Friday and once again, everybody got it totally wrong. There we no crashes; there were no “silver to $50!”; there was calm and resolve and adherence to order as has been the continuous directive of the global central bank brethren since the Dawn of Debasement in 1971.
However, despite being inundated with “a feeling of having already experienced the present situation,” it was a thoroughly rewarding week as gold and the gold miner ETFs experienced minor pullbacks into the strong USD environment. Indeed, after such a torrid advance off the early November raid, it is important to remember that gold was up over $200 from the August lows at $1,678 before succumbing to profit-taking. The Junior Miner ETF (GDXJ:US) tacked on over 30% in five weeks so while that déjà vu sense of aggressive price-capping looms large, the junior gold producers have had a blistering run, which bodes well for the junior developers for a year-end run.
One of the biggest selling opportunities of the last year was the one commodity that absolutely dominates the current inflation narrative and that commodity is crude oil. Through most of the summer months, the blogosphere was bombarded with the “underinvestment” and “supply shock” excuses for the inevitable $100-150/bbl. price for West Texas Intermediate Crude taking the junior oils on a 1970s-style spike along with the Energy Select SPDR ETF that saw the RSI for crude stay above 70 (overbought) for the entire month of October.
What puts a few tremors into the outlook for 2022 is that at the point where Fed tapering goes into full regalia, they might be doing so in an environment of declining energy costs, which might be function of reduced (or eliminated) stimulus cheques along with further Asian weakness and the Chinese try to cool out their Ponzi-fied real estate and capital markets.
One way or the other, investors should feel great solace in their precious metals holdings. They have been treated like roadkill for most of 2021 and have only stuck their heads above the low-lying cloud cover so once the current overbought condition abates, I see a possibility for new all-time highs early in 2022 with a remote possibility of a December pop getting it done.
As the title of this missive would imply, current conditions for the metals and the miners is reminiscent of December 2015, albeit the period of 2011-2015 was notoriously worse than the period of August 2020-October 2021. The current degree of valuation compression for the mining sector represent one of the truly extraordinary buying opportunities for investors seeking rational measures of operating performance and upside potential.
In sum, “Buy ‘em”…
Originally published Nov. 19, 2021.
Originally trained during the inflationary 1970s, Michael Ballanger is a graduate of Saint Louis University where he earned a Bachelor of Science in finance and a Bachelor of Art in marketing before completing post-graduate work at the Wharton School of Finance. With more than 30 years of experience as a junior mining and exploration specialist, as well as a solid background in corporate finance, Ballanger’s adherence to the concept of “Hard Assets” allows him to focus the practice on selecting opportunities in the global resource sector with emphasis on the precious metals exploration and development sector. Ballanger takes great pleasure in visiting mineral properties around the globe in the never-ending hunt for early-stage opportunities.
1) Michael J. Ballanger: I, or members of my immediate household or family, own securities of the following companies mentioned in this article: Getchell Gold. My company has a financial relationship with the following companies referred to in this article: Getchell Gold. I determined which companies would be included in this article based on my research and understanding of the sector. Additional disclosures are below.
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Michael Ballanger Disclaimer
This article makes no guarantee or warranty on the accuracy or completeness of the data provided. Nothing contained herein is intended or shall be deemed to be investment advice, implied or otherwise. This letter represents my views and replicates trades that I am making but nothing more than that.
Always consult your registered advisor to assist you with your investments. I accept no liability for any loss arising from the use of the data contained on this letter. Options and junior mining stocks contain a high level of risk that may result in the loss of part or all invested capital and therefore are suitable for experienced and professional investors and traders only. One should be familiar with the risks involved in junior mining and options trading and we recommend consulting a financial adviser if you feel you do not understand the risks involved.