“Buy them when nobody wants them”  Bernard Baruch                                        

……The cyclical price action of the markets brings many exceptionally undervalued stocks into an exceptionally attractive buying range. From time to time certain precious metals stocks can be found selling at price that have proven to be excellent buying opportunities. The most successful investors make their investments after severe declines in those stocks while pessimism is still running high. .                                                                                                                                                                                                         

      Can there be value in “Junior” Gold stocks selling from $5 down to .05 cents? Yes and often!

There certainly can be value; we are asked that same question all the time. If a gold exploration stock is selling at merely pennies, investors ask as to “how can there be any value in that stock? “The answer is that there can be and has been for many years exceptional value in many stocks selling for $5 or less to an even “nickel” or less. Hundreds of juniors have been at pennies and moved up ten and thirty times even and recently. You must to do the analysis. Many exploration companies and “juniors” are still exceptionally undervalued based on the value of what they own in mineral reserves and resources as well as their earnings potential with further exploration successes.

Moreover, one can also find many companies including juniors with large cash positions. Suffice it to say, it depends on what a precious metals company owns, where its projects are located or can find efficiently….and if the company has sufficient cash to continue operations until it find a senior partner and be bought out.

And again we should also mention that the major banks and brokerages do not want a bull market in gold or the commodities markets to occur. History shows that when there is a bull market in commodities such as gold at the same time you generally cannot have a bull market in the industrial stocks such as the Dow Jones Industrials and S&P 500 stocks. That drastically limits brokerage profits and supports the reluctance of admitting a bull market in gold is occurring.

But why are Juniors so overlooked despite being so undervalued? Key point? They require in-depth analysis as to what they have in their resources and reserves.

1–Let’s start with the fact that there is very limited research coverage or sponsorship for “juniors” and very little comprehensive research for most exploration companies. Research coverage is seriously needed but is rare.

Fact: Banks and brokerages generally do not cover a company(s) on a research basis if there is not going to be adequate brokerage commissions or corporate finance income generated.

If there is not research available on a mining company, most investors generally will not invest in it. They may trade in it short term, but they won’t invest in it on a longer term basis.

2-The decline in the amount of bank and brokerage research coverage has been ongoing for thirty years and continues. For brokerages and banks, the financing of research departments and hiring analysts for small capitalization companies is generally not profitable……and usually expensive.

Following their excessive and overvalued price highs in 2011 most gold and mining exploration stocks saw declines of 70% to 90% and more from their market highs. This was a result of no research, little if no market maker support and weakness in the gold bullion price. Yet many have come roaring back and many more will return up in price with a vengeance.

3-Despite the fact that a company is undervalued may not be sufficient reason to attract brokerage and bank research. Moreover, many banks and brokerage houses will not permit their brokers to invest in stocks that are selling at low prices from pennies to those selling under five dollars-the fact that a stock(s) is undervalued is rarely taken into consideration at all.

4-In the past, market makers (called specialists) working at the brokerage houses would hold in their trading accounts small to large “inventories” of specific stocks that their brokerage houses followed with comprehensive research reports updated regularly. They would “make markets” with ongoing and continuous “bids and offers” for those specific stocks and often did so in large volume. Most importantly, they would buy and hold in their “inventory type accounts” their assigned stocks during declines which did provide solid price support. Today that has disappeared with the near zero spreads between the bids and the offers.

Also at the same time that their brokerage firms’ clients would be investing in those stocks, there would be regular research updates coming from the brokerages research departments…again there is very little research today! Keep in mind that comprehensive research reports create investor interest in a company.

Many exploration stocks have just recently completed extensive drilling programs that in some cases indicate substantial reserves and excellent potential for expanding their resources and reserves. In our view, in today’s metals market numerous exploration and mining companies are still being overlooked and are exceptionally undervalued on a historical valuation basis. Key? Do your research first..

The bottoming formation in the mining stocks has been ongoing for the past six years, since 2013 many have already moved up in price, many will follow in this positive market… and soon.Is there a large volume of undervalued shares for “bottom fishers” to invest in?  We doubt it-to say the least! And if you have found an exceptionally undervalued company, it is often better to keep it to yourself…say nothing, just buy it and wait. You don’t need competition when bidding.  C’est tout.

*Further thoughts on Juniors will be coming*

Finding precious metals in sufficient quantity is extremely challenging but there are important points that should be understood and taken into consideration. We are going to have several further articles that will mention what we look for in the small cap juniors….and other precious metals companies as well.