A Look Back At Things
When you look back through history, it becomes very apparent that junior mining stocks fluctuate between extreme boom and bust cycles. In a group, they can double in price before dropping 70% …. then double, or triple, or even quadruple again, only to crash 90%. Boom, bust, repeat.
Below you will see the historical returns during three separate boom cycles for both juniors and producers. These are actual results. When you accept the fact that markets move in cycles, it is apparent that we will see these types of returns again.
1979-1980 was a well-known gold climb with staggering performance at the time. Many of the gold stocks during this period became 10-baggers (gains of 1000% or more). Our tables, while uncomprehensive, very accurately demonstrate the returns on several gold stocks.
The Quintessential Bull Market: 1979-1980
One of the greatest gold bull cycles occurred during the 1970s, peaked in at new frantic heights in 1979 and 1980. Gold topped off at $850 per ounce on January 21st 1980; thus representing a increase of 276% since the beginning on 1979. (The price was only $226 per ounce on the last trading day of 1978).
Below are examples of gold producer stock prices during this era. Along with the fantastic returns, you may notice gold stocks didn’t peak until nine months after gold did.
Returns of Producers in 1979-1980 Mania
|Campbell Lake Mines||$28.25||$94.75||235.4%|
|Giant Yellowknife Mines||$11.13||$39.00||250.4%|
Today, a stock that is bought at $26.05 could reach $101.46 if it followed the average return of 289.5% show above.
It is useful to remember our data measures the top of a companies return. Most investors don’t manage to sell at the very top. However, if you managed to sell at even 75% of the rise, that is still a gain of 217.1.
Here is an example of how a number of successful juniors preformed during the same period, along with an indication of which month their stock peaked in.
Returns of Juniors in 1979-1980 Mania
|Carolin Mines||$3.10||$57.00||Oct. 80||1,738.7%|
|Mosquito Creek Gold||$0.70||$7.50||Oct. 80||971.4%|
|Northair Mines||$3.00||$10.00||Oct. 80||233.3%|
|Silver Standard||$0.58||$2.51||Mar. 80||332.8%|
|Lincoln Resources||$0.78||$20.00||Oct. 80||2,464.1%|
|Imperial Metals||$0.36||$1.95||Mar. 80||441.7%|
|Anglo-Bomarc Mines||$1.80||$6.85||Oct. 80||280.6%|
|Avino Mines||0.33||5.5||Dec. 80||1,566.7%|
|Copper Lake||$0.08||$10.50||Sep. 80||13,025.0%|
|David Minerals||$1.15||$21.00||Oct. 80||1,726.1%|
|Eagle River Mines||$0.19||$6.80||Dec. 80||3,478.9%|
|Meston Lake Resources||$0.80||$10.50||Oct. 80||1,212.5%|
|Silverado Mines||$0.26||$10.63||Oct. 80||3,988.5%|
|Wharf Resources||$0.33||$9.50||Nov. 80||2,778.8%|
If you had purchased a well diversified portfolio of the top-performing gold juniors before 1979, in just two years your investment could have increased 23 times. And if you sold at 80% of the peak, that is a return of over 1850%.
A junior priced at $0.50 today following the average gain from this boom would sell for $12 at the top. Therefore, if you sold at the 80% mark you would receive a price of $9.75. Imagine then, if you had bought just one matching the likes of Copper Lake’s greater than 100-bagger (gains of 10 000% or more) run.
Let’s say you have a portfolio of $10 000 in Gold juniors and they yield the same returns described above. If the next boom cycle matches that of 1979-1980, your portfolio would be worth about $195 000 at 80% of the climb, or $241 370 at the top.
Now this does require you to sell to realize profits. In the subsequent bust cycles many of the same successful juniors vanish to dust. Investors who did not sell, lost their entire investments.
You have to play the cycle.
Some people will try to tell you 1979-1980 gains only happened once, but that just isn’t true…
The Hemlo Rally of 1981-1983
It is not common knowledge, but there have been several gold bull cycles since the 1979-1980 period.
During the Hemlo Rally of 1981-1983, gold was flat, but a rally was ignited by something else. Discovery.
Once upon a time, exploration was primarily done by teams working for the major producers. However, with the lagging gold price overhead costs needed to be cut and many experienced geologists were let go in an effort slash exploration budgets. From here many of these geologists used their knowledge of high-potential mineral targets they had explored while working with the majors to form their own companies to go after these targets.
The result was a run of stupendous discoveries in mid-1982, beginning with the Golden Giant deposit discovered by Golden Sceptre and Goliath Gold in the Hemlo area of eastern Canada. That summer gold prices rallied and lasted until the following May. As can be seen below, for such a short period, very impressive results ensued.
|Returns of Producers Related to Hemlo Rally of 1981-1983|
|Campbell Red Lake||$16.63||$41.25||May 83||148.0%|
|Teck Corp Class B||$17.00||$21.88||Jun. 81||28.7%|
On average, gold producers returned over 70% on investors’ money. While not as spectacular as 1979-1980, this was a period of only 12 months. It was not uncommon for a gold stock at $20 to soar to $34.50 by next year simply because it was significantly close to a discovery area.
It was the Juniors however, that brought the best returns once again.
|Returns of Juniors Related to Hemlo Rally of 1981-1983|
|Corona Resources||$1.10||$61.00||May 83||5,445.5%|
|Golden Sceptre||$0.40||$31.00||May 83||7,650.0%|
|Goliath Gold||$0.45||$32.00||Mar 83||7,011.1%|
|Bel-Air Resources||$0.81||$1.60||Jan. 83||97.5%|
|Interlake Development||$2.10||$6.40||Mar. 83||204.8%|
The juniors that had a direct interest in the Hemlo area exceeded an incredible 4000% return.
Take note that this occurred without the gold stock industry as a whole participating. Even when the industry is flat, this shows how a major discovery can lead to enormous gains.
To state this another way, we have evidence that humongous returns are possible without a mania. There are numerous examples of this in the past ten years.
By May 1983, approximately one year later, gold prices eased back down, reminding us one must sell before the cycle ends in order to capitalize on these gains.
The Roaring ’90s
At the start of the ‘90s, many juniors exploration companies had gained the “intellectual capital” they needed from the majors. The resulting discoveries in the mid-1990s set off one of the strongest bull markets in the current generation.
Discoveries were made by companies including Arequipa, Diamet, and Diamon Fields. This also happens to be the time of the infamous Bre-X Scandal.
By the summer of ’96 yet another bull cycle had been triggered by these discoveries and a company selling for $20 per share might have little more than a few drill holes.
The table below, with some of the well know companies of the era, demonstrates the strength of this bull cycle. The average producers more than tripled investors’ money, once again over a relatively short period. This time the cycle would last two years.
|Returns of Producers in Mid-1990s Bull Market|
|Kinross Gold||$5.00||$14.62||Feb. 96||192.4%|
|American Barrick||$28.13||$44.25||Feb. 96||57.3%|
|Placer Dome||$26.50||$41.37||Feb. 96||56.1%|
And here are some of the amazing returns seen by the Juniors during at this time. All you need to do is buy low and have the discipline to sell during a frenzy.
|Returns of Juniors in Mid-1990s Bull Market|
|Golden Star||$6.00||$27.50||Oct. 96||358.3%|
|Samex Mining||$1.00||$7.20||May 96||620.0%|
|Pacific Amber||$0.21||$9.40||Aug. 96||4,376.2%|
|Valerie Gold||$1.50||$28.90||May 96||1,826.7%|
|Bema Gold||$2.00||$12.75||Aug. 96||537.5%|
|Arizona Star||$0.50||$15.95||Aug. 96||3,090.0%|
|Cream Minerals||$0.30||$9.45||May 96||3,050.0%|
|Francisco Gold||$1.00||$34.50||Mar. 97||3,350.0%|
|Oliver Gold||$0.40||$6.80||Oct. 96||1,600.0%|
As you can see, the average of these junior stocks exceeded what the juniors did in the 1979-1980 “granddaddy” cycle.
That $0.50 stock today could reach upwards of $19.86. Your portfolio of $10 000 could grow up to $397 000. If you sell at 80%, that is a gain of $309 000.
Gold Stocks and Depression
Some of you may dismiss all of this convinced that the Great Deflation still lies ahead. Okay, but don’t assume gold stocks can’t do well in this environment.
Just look at the two largest producers in the US and Canada during the Great Depression. A period that in the 1930s saw significant price deflation.
|Returns of Producers
During the Great Depression
Over four years, in a time of turmoil and strife, gold producers handed investors five or six times their money. Even if deflation takes over, gold equity investors still thrive.
So gold investments pay off if I can follow the cycles, but how do I tell the next 10-baggers from the 100-baggers?
Promising Juniors Today
Right now, there are thousands of junior mining companies you could invest in. With the recent rebound in gold and metals in general, investors are slowing flocking back to the precious metals space. Educated investors, like yourselves, now know that these kinds of investments run in cycles. We have seen the bottom of this bear market and the time to invest in junior gold companies is now.
The best place to start, is by actively evaluating companies and projects to see which ones have real merit. However, we have gone to the liberty of picking out a few companies we believe could be big winners in the next cycle. When evaluating companies of this nature we look at a few key things to determine which companies we would invest in.
How is the management; do they have a proven track record? A good management team can be the difference between a share in a successful mining company or having a worthless stock certificate. A good management team will ensure a company survives in bad times and thrives in good times.
How does their property look? Does the property have historical workings, records, and detailed data? A grassroots project will always cost untold amounts of dollars and years of exploration before yielding results. A property with extensive historic workings has already proven fruitful in the past and provides valuable insight into finding resources today.
Is there establish infrastructure? Can the property be easily accessed? Is there water near by? What about power? All of these factors effect the bottom-line cost if a project was to go into production.
How qualified are the people in key roles? Has the company hired a renowned geologist or a fresh graduate? A project needs people who are knowledgeable and have the understanding to utilize new and cutting edge technology to its fullest to save time and money.
What is the geopolitical risk? Is the company working in an area with an unstable or corrupt government? A multi-million oz deposit may not be feasible if a governing body imposes punitive restrictions or taxes.
We have weighed these questions against junior gold stocks today and below are just a few companies we think have real merit, and could take off in this current bull market.
#1) American CuMo Mining Corp. (TSX.V: MLY)
American CuMo owns not only the largest molybdenum deposit in the world, but it also has recently optioned a major gold project. Both CuMo and Calida Gold are located in Idaho. CuMo is not only the largest molybdenum deposit, its potentially the lowest cost primary producer of molybdenum targeting a production cost of under $1 per pound molybdenum. Current economic analysis shows CuMo with an after-tax net present value in excess of $50/share. The recent announcement on ore sorting (January 2017) should result in substantial improvements to the 2015 valuation.
Calida is a gold-copper-silver deposit with historic drilling (1980) and a potential target in excess of 3 million ounces of gold. In November 2016, the company signed a deal with a group of Chinese investors that will supply funding to the projects of $200 million over a period of 30 months. The funds will be used to advance Calida and CuMo to feasibility and beyond.
#2) Nexus Gold Corp. (TSX.V: NXS)
Nexus Gold is developing the Walker Ridge Gold Project in Nevada, the fourth largest gold producing region in the world, as well as two projects in Burkina Faso, West Africa. Also, they have spent a million dollars in development work on their Nevada project since 2012, including the first-ever drill hole that returned both gold and silver mineralization in the lower plate host rocks. The Niangouela gold concession in West Africa is located on the Boromo Greenstone Belt, same as the Company’s Bouboulou Gold Concession. The company has delineated a 1km quartz vein strike with samples as high as 2,950 g/t gold.
#3) Ximen Mining Corp (TSX.V: XIM)
Ximen Mining Corp, a very active company, has spent millions acquiring, assembling, and advancing its 100% owned Brett Gold Project. One of the largest gold bearing epithermal systems in southern British Columbia, The Brett Gold Project is similar in geology to the multimillion ounce gold producing Republic District in Washington, just across the border where Kinross operates the Buckhorn mine.