The Gap Widens
There are growing signs of a recovery in the junior resource market, even though the sentiment remains generally negative. The Toronto Venture Index, an indicator of junior resource sentiment, is up nearly 15% from the low point of last December. However, that index is only about 8% ahead of the year-ago level.
While the overall market is showing signs of a recovery, the gap between the haves and the have-nots continues to widen: Good quality companies are getting funding and increasing in value while many companies continue to struggle for survival.
As we’ve said a number of times, the junior resource market has split into two distinct markets. Companies with low quality projects and no cash are still finding it extremely difficult to raise funding. With no cash and no news, they continue to wither away.
Those few companies with good projects and good management are finding cash fairly readily. About 20 of the companies that we follow in Resource Opportunities have now raised in excess of $250 million so far this year. Those companies have generated impressive gains in share price. Based on these movements, we will be releasing a fully updated portfolio ranking for our paid subscribers early next week.
There is an enormous amount of money available for resource companies. But, the investors holding that money are extremely selective. They recognize that the resource industry is highly cyclical, and the time to invest is when the industry is generally out of favor. But, they aren’t willing to bet on a vague promise from a geological team that a new discovery will be made next month.
The appropriate strategy at this time is to take a longer term perspective. Look for genuine value and for management teams that can execute sensible business plans to create shareholder value. That means, generally, looking at companies with advanced stage projects which are headed toward production. Earlier stage projects can also be attractive, if a discovery has been made and there is evidence that the deposit can have both size and grade.
Investors who are waiting for a broad market recovery may still have a long wait. Those who take the time to search out good companies stand to make the big gains that accrue to those who invest at the bottom of the market.