More or “other” Points of interest
1-Investors in mining stocks must understand this key fact, particularly in the junior mining sector; we do not have a stock market that is efficient and reflective of proper valuations. Today, values, drill results, projects, management additions and other fundamentals that would be generally market moving factors, receive little if no attention or reaction from the market. It is a market that is not efficient or “pas efficase” in French. Rapid reaction to important results is infrequent and when it does occur, it is slow and frustrating. But on the positive side, it gives investors the time to gradually accumulate shares that may be undervalued and not having to “chase” stocks and pay up.

2-Just as important, one must keep in mind that the price of gold bullion is and has been manipulated down in price. The recent movement down was initiated, precipitated and set in motion by “paper sales” in the commodities markets. The required redemption of the “GLD” ETF into cash was the normal result from the “set in motion” paper trades in the gold commodities pit. It was a “set up.” The world’s central banks cannot withstand gold bullion moving up in price as they sell their bonds at 2% and report that inflation is a mere 1%. When “they” monitor prices, they should be required to bring “seeing eye dogs” with them so they can see why intelligent people question the veracity of their numbers. To be frank, intelligent people do not believe the government’s inflation numbers.

3-While most mining stocks are languishing at or near multi-year price lows, value oriented investors should be actively analyzing the mid cap and juniors that have been thrown away by frustrated shareholders. The brutal bear market in mining has created “a just get me out of this stock” sellers’ mentality that may have created incredible buying opportunities for value oriented buyers. But one must put in the time to do the required analysis. As the former editor of the “International Gold Digest” Stu Shinbien has said many times over the years, “look through the ashes of the fallen angel stocks” for some often incredibly undervalued stocks.

4-In the mining stocks , we have seen even greater than normal bear market weakness due to few true “market makers” that in the past maintained some stability in the stocks’ prices. We have written articles that appeared on www.thebulland bear.com that focused upon the disappearance of market makers. For the most part, the market makers (also referred to as “specialists”) are now gone. Many have left the brokerage business while others have become day traders who do not actually contribute to the support or stability of any stocks, thus daily support is very limited.

Learn to live with the excessive downside volatility and take advantage of the extra extreme downside prices to accumulate the shares of the companies that you find undervalued. The old expression was that “only liars and specialists (market makers) buy at bottoms.” So today we all have the opportunity to accumulate undervalued stocks at bottoms.

5-Greater volatility is ever present. Naturally, Gold bullion’s price decline is a major contributor to the far greater than normal weakness of the mining shares. Of note is the fact that generally the gold stocks are selling at prices far below their normal price differential from the gold bullion itself. Where the stocks would finish making their price bottoms in the past, they now often suffer through further 20% or more downside declines.

That painful price decline should reverse with the movement of gold bullion to higher price levels. We expect that the bullion will soon start to grind its way back up. In our opinion, gold stocks offer far more upside profit potential in percentage than the gold itself.

6-For example, suppose that an investor owns $100,000 in mining stocks. Generally over the next 18 months, if the bullion and other influences behave as we expect, it should be worth $300,000 or more again. Ridiculous? Not at all. If you look at the price highs of several years ago of many junior mining companies that have proven reserves and resources, you can find many if not most that are now selling at 25% of what they were selling at and yet, they have continued to add to their assets during the bear market.

Because they were once selling at their previous price highs does not mean that they will return to their old price highs, but if the fundamental values are there, attention is merited.

7-Valuations for many of the small cap juniors are so low on historical basis that if we pick properly, the opportunity for exceptional capital gains occurs throughout today’s prices. We base the valuations upon in ground resources and reserves, cash positions, insider ownership and buying, projects’ potential et al. Historically, reasonably accessible gold resources in the ground would be given a value of between $30 to $150 per ounce. Today, one can find companies with reserves and resources valued at under $10 per ounce. In our view, that is extraordinary undervaluation.

8-Today many funds and pensions have insufficient positions in gold and gold related shares. And finding and handling pure bullion can be difficult. We feel that some institutions may have to position mining stocks in order to have what may be necessary representations in gold. In other words, the funds will have to invest in mining companies shares as a proxy for gold bullion.

9-Insider buying by officers and directors in the Canadian mining stocks is one of the few sectors where insider buying is very heavy; it has been so for the last several months. We are now seeing a ten to one buys to sells. While this is a very reasonable gauge for value, it is not an accurate gauge for timing. We consider it to be a long term value indicator. Yet today, for the large industrials such as the S&P 500 stocks, insider buying is at a very low rate and selling is very heavy.

10-As most mining stocks are now dramatically down in price, we feel that reviewing holdings and if one finds that the fundamentals for a company(s) are solid, dollar cost averaging might be considered. We have found that over years, the most successful investors reinvest when undervalued stocks are selling at or near their price lows. Over the years, we also have noticed that only about 2% to 5% of investors will reinvest when stocks are making and finishing their price lows; but that is just human nature.

Conclusion: Do your homework and be vigilant.