DENVER, CO — As we have been patiently waiting over the summer months and into early fall for the next up wave to take hold, a few juniors have performed well. Why is this, when most other juniors have suffered due to lack of trading volume or interest in the market?
The juniors who have performed well, exceptionally well I may add over the past 4 months, are those that have either made a discovery, or those that have had an offer to be bought out due to an earlier discovery. What this tells us, is that no matter how (good or bad) conditions in the general market may be for the junior mining sector; those companies that make a discovery will perform very well.
The reason for this is simple, the mining sector is becoming increasing desperate to find new reserves, and any company that can find an economic deposit of significance will see a great rise in their share price. New discoveries are needed because the major producers are not replacing their mined reserves. In order to replace reserves, since the majors are so poor at making their own discoveries, they have to look to the juniors for those discoveries and buy them. Juniors who make significant discoveries are phenomenally profitable, an opinion shared by John Bridge, senior gold analyst at J.P. Morgan Chase and Co.
The Wall Street Journal quoted him saying:
"If you are lucky enough to buy into an exploration company that makes a discovery, you can effectively buy your own auto teller machine. Some of these things are just phenomenally profitable".
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Look at the table below at companies that have had a significant discovery in the past few years. The table shows the share price two months before discovery and the highest share price hit in the market after discovery. Virginia Gold has subsequently been bought out by Goldcorp and Viceroy has a lucrative buyout from Yamana Gold that is currently pending. Shareholders of these stocks are giddy!
| Company Name | Stock price prior to discovery | Stock price after discovery |
| Aurelian Resources | US$0.75 | US$28.50 |
| Silvercorp Metals | C$1.50 | C$20.50 |
| Virginia Gold | C$1.55 | C$16.50 |
| Viceroy Exp. | C$2.50 | C$11.00 |
So how can you as an investor take part in these kinds of profits as new discoveries are made in the next few years? The hunt for new deposits is only going to get more heated moving forward, so there will be more companies like the ones listed in the table above.
The best way to make sure you get in on such profitable situations is to buy a cross section of the best juniors. As a newsletter writer of junior mining stocks the past six years I have had 11 out of 64 of my recommendations make a return of 1000% or more. I was fortunate enough to have two of the companies on the table above in my recommendations. I only recommend 20 companies at any given time. Viceroy Exploration I first recommended at C$0.80 only three and a half years earlier. Silvercorp Metals I recommended in May of 2005 at C$1.76 which saw its share price explode to over $20.00 in the following 12 months! No one has a crystal ball to foretell who is going to actually make the discoveries, but odds go in your favor if you put money on a cross section of the best companies you can find. For most investors who are not geologically educated, this can be very challenging. Many unsuspecting investors can lose a great deal of money by not knowing what they are doing and getting fleeced by the piles of marketing hype that yearn for your attention.
It is best for most investors to find a good newsletter writer(s) that specializes in junior mining stocks. Good writers will go and visit the sites of the companies they recommend offering investors the better companies for your consideration. After doing your own due diligence, spread some money over a cross-section of these junior mining companies and watch them closely. In a bull market, this formula seems to be the best way to achieve spectacular gains for the average investor.
Another way of catching some of the upside potential on a new discovery is to watch closely when good news is announced by a company and quickly buy shares before the information gets out to a wider audience. I know several investors who have employed this strategy very well. They may not get the returns of 1000% or better doing this, but they have made 100-600% gains at times using this approach.
The key is to always watch the market closely and be able to quickly discern a really great news release and buy shares. Typically the stock price is already running, but you get in before the run is over. This is not for every investor, but can work for investors who stay abreast of the market on a daily basis.
A good example of this would have been Virginia Gold from our table. After making several key announcements that reflected a major discovery, the stock began to rise from the C$1.35 level and moved up to the $2.00 level. Over the next seven months the stock continued to move higher hitting C$8.21. There were plenty of opportunities to get onboard for a 100 to 300 percent return during that seven month period. The stock then went on to much higher levels as Goldcorp tendered their buyout offer.
Your chances of taking part in the discovery phase of the current exploration boom worldwide for the metals will greatly increase if you employ the above strategies.
The major points I want to make in summary of this discussion is twofold:
- A serious amount of money is going to go into the ground exploring for new economic deposits of gold, silver, platinum, palladium, uranium, and other base metals. This process will be going on for many years before the supply/demand imbalance that looms over the world reaches anything close to equilibrium. That is because it takes 5 to 7 years to bring a new discovery into production. Any junior exploration company that makes a big discovery during this time will be an automatic takeover target by a major who is suffering to replenish reserves.
- Investors can make enormous returns by wisely investing a portion of their portfolio in this sector and monitoring it closely.
All in all, I am of the opinion that one of the greatest investment opportunities of a lifetime is now upon us. Those who are active in owning the precious metals and the mining shares in the next five years will see spectacular gains they can't even imagine.
For those of you who are still sitting on the sidelines and have not taken a position, what exactly are you waiting for?
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