The Finest Junior Gold Stocks
by Dr. Richard S. Appel
October 22/05
– I first invested in gold stocks in1972. During the ensuing three
plus decades I limited my purchases to those companies that ranged from
somewhat to wildly speculative. Whenever I was actively involved in this
market, gold was typically either in a Bull Market or in a substantial
upward correction within a Bear Market. In either case, I believed that
all gold mining companies would appreciate in price greater than gold
itself, with the higher gold prices that I foresaw.
My reason for targeting these typically small companies was simple. It
was due to my now time tested and proven belief that the better enterprises
within this group would most profit from an important rise in gold.
Initially, it seemed obvious that the major and secondary producing companies
would directly benefit from a higher price for the noble metal. This would
result because they would sell their gold ore at increasingly higher prices
which would bestow them with greater profits. However, I believed that
an exploration company that either acquired or was on the path towards
defining a important ore body would attract far greater attention. It
would arouse the imagination of investors! This in turn would bring the
necessary buying that could drive its share price higher, and greater
reward its shareholders than would the well-known, established companies.
Thus my search began for those few companies that would help me not only
prove my theory, but would also reward me for my foresight.
During the 1970's there were few junior gold exploration companies from
which to choose. Importantly, most of the best exploration geologists
were firmly entrenched in the employ of a major or a secondary producing
company. This left a paltry few to even consider working with a junior
company that was financed on a shoestring. Further, there was limited
information available about these small stocks, and the overall ability
of their management teams left much to be desired. These conditions progressively
and dramatically improved from the late1980's through the 1990's, and
set the stage for the great mineral exploration investor opportunity that
is available today.
When gold’s first great Bull Market ended in1980, worldwide gold
exploration began to decline. It became so drastically curtailed that
by the mid-late1980's, the major mining companies began to reduce their
geological staffs. This resulted for the first time in the availability
of numerous geologists to the junior market. Many were individuals who
were instrumental in earlier major gold or other mineral discoveries.
These professionals were in search of employment and some found themselves
in the director’s seats of some small, little-known companies.
After the late 1980's, the number of resource companies and the availability
of exceptional geologists continued to escalate. Between 1993 and 1996,
gold experienced a major price rise. However, subsequent to gold posting
its $420 peak in1996, the damaging and seemingly interminable decline
that ensued witnessed even greater lay-offs among the gold producers.
When the smoke cleared, and after gold probed its $255 double bottom low
in 2001, a large number of seasoned, successful exploration geologists
had shifted positions. They were fired from the major companies for which
they may have been employed for decades, and were manning the helms of
various junior companies.
The two-decade Bear Market in gold was accompanied by similar declining
markets in the various base and other precious metals. This factor forced
numerous extraordinary geologists from the world’s major mining
companies to seek new forms of employment. The end result was the first
availability of many extremely competent explorers, with expertise across
the mineral spectrum, to the junior mining industry.
After 1996, an additional contingent of the world’s best mining
people found their way into junior companies. This time, however, it was
due to their belief that they could transfer their abilities, for which
they made billions of dollars for their former employers, to their new
companies. They envisioned their ability to directly and greatly benefit
from any success in their new roles. Instead of making a maximum of a
few hundred thousand dollars a year as employees of a Barrick, a Newmont,
or a Placer Dome, they could make fortunes for themselves and their shareholders,
if they again did what they did best and made a new mine.
I LEARNED THE HARD WAY, FROM EXPERIENCE
In my determination to ferret out the junior gold companies that offered
the greatest profit potential I learned many lessons. It was a costly
learning process! I found how enormously difficult it was to find competent
and straightforward management teams. It was easy enough to learn of companies
that had great “stories”. However, I found that it was extraordinarily
difficult to find those that had a great likelihood of actually delivering
the goods.
Through my encounters I met more than a few individuals and groups that
“talked the talk”, only to later find that they had other
agendas. They were more interested in talking up their companies in order
to sell their stock to investors, rather than being devoted to finding
a mine. After learning much from these and other experiences, and having
left much of my investment capital behind, I began to better understand
this potentially highly profitable but pitfall-ridden industry. I learned
what to look for in a junior mining company that would increase my chances
for success, while allowing me to avoid many of the dangers.
The first and most important lesson that I learned was that the people
running these companies are the most important factors for success. While
there are thousands of geologists involved in the industry only a small
handful, possibly a few percent, will ever make a mine. And, it is not
unusual for one individual to be instrumental in numerous discoveries
that lead to mines. I believe that this is because certain exploration
geologists have, for lack of a better term, a sixth sense. They seem to
intuitively understand the processes that nature goes through in creating
and depositing an ore body. Further, they have the ability to recognize
the confluence of geological and other conditions that indicate the existence
of such a potential, that will be overlooked by lesser geologists.
Next on my list is the ability to raise capital to fund their advancement.
If a company cannot raise sufficient working capital it has little chance
for success! They may have an outstanding project. Yet, it will languish
if they cannot finance the necessary work to move it forward in its development.
Promotion is a dirty word to many people! However, in this industry it
is truly a necessary evil. This is not to suggest that either unethical
or illegal dissemination of information should be condoned. I am referring
to professionally designed “market awareness” programs. It
is unfortunate, but in order for a company’s share price to attain
a sufficiently high price commensurate with the value of its projects,
the public must know its attributes. We as investors cannot intuitively
sense whether a company is overvalued or is working on a great project.
We must first be made aware of its existence, and then learn the details
of its assets to recognize its potential.
In this industry it doesn’t follow that a company’s share
price must reflect its underlying value! There are far too many stocks
for even the most dedicated and driven analyst or investor to follow.
This creates a condition where many companies are overlooked and undervalued.
For this reason, I believe that it is mandatory for a company to contact
investors and get the word out. In this fashion buying will enter its
market and hopefully move its price to a fair value.
If a market awareness program is properly performed it may allow the company
to execute an equity financing at a higher price than would otherwise
be the case. The result will be less stock dilution, where fewer shares
will have to be issued. This in turn will render the existing ones more
valuable.
The final major factor that separates the finest potential junior exploration
companies from their competition are their projects. I am discussing this
last because these will typically be acquired by the industry’s
best management teams. When a major gold producer desires to joint-venture
one of their projects with a junior it will consider those that possess
the finest people. Similarly, the best projects typically find their way
into the hands of the groups that have the greatest likelihood for advancing
them towards production.
I have attempted to detail the factors that a junior mining company must
possess in order to have the greatest possibility for achieving success.
I must stress that the people leading these companies are far and away
their most important attributes!
Not only are the finest management teams the most likely to make a mine,
but they will also attract the best projects as well as the financing
necessary to move them towards their goal. In this industry as in most,
the people are indeed everything!
The great difficulty, and near impossible task for the novice, is separating
the best from the rest. I use the factors described above and my experience
whenever I search for junior companies to feature in Financial Insights.
Hopefully, I have helped the reader to better approach this market and
to be fortunate enough to gain similar success as I have.
I publish Financial
Insights. It is a monthly newsletter in which I discuss gold, the
financial markets, as well as various junior resource stocks that I believe
offer great price appreciation potential.
Please visit my website www.financialinsights.org where you will be able to view previous issues of Financial Insights, as well as the companies that I am presently following. You will also be able to learn about me and about a special subscription offer.
CAVEAT
I expect to have positions in many of the stocks that I discuss in these
letters, and I will always disclose them to you. In essence, I will be
putting my money where my mouth is! However, if this troubles you please
avoid those that I own! I will attempt wherever possible, to offer stocks
that I believe will allow my subscribers to participate without unduly
affecting the stock price. It is my desire for my subscribers to purchase
their stock as cheaply as possible. I would also suggest to beginning
purchasers of these stocks, the following: always place limit orders when
making purchases. If you don't, you run the risk of paying too much because
you may inadvertently and unnecessarily raise the price. It may take a
little patience, but in the long run you will save yourself a significant
sum of money. In order to have a chance for success in this market, you
must spread your risk among several companies. To that end, you should
divide your available risk money into equal increments. These are all
speculations! Never invest any money in these stocks that you could not
afford to lose all of.
Please call the companies regularly. They are controlling your investments.
FINANCIAL INSIGHTS is written and published by Dr. Richard Appel and
is made available for informational purposes only. Dr. Appel pledges to
disclose if he directly or indirectly has a position in any of the securities
mentioned. He will make every effort to obtain information from sources
believed to be reliable, but its accuracy and completeness cannot be guaranteed.
Dr. Appel encourages your letters and emails, but cannot respond personally.
Be assured that all letters will be read and considered for response in
future letters. It is in your best interest to contact any company in
which you consider investing, regarding their financial statements and
corporate information. Further, you should thoroughly research and consult
with a professional investment advisor before making any equity investments.
Use of any information contained herein is at the risk of the reader without
responsibility on our part. Past performance does not guarantee future
results. Dr. Appel does not purport to offer personalized investment advice
and is not a registered investment advisor. The information herein may
contain forward-looking information within the meaning of Section 27A
of the Securities Act of 1933 and Section 21E of the Securities Exchange
Act of 1934. In accordance with the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995, the statements contained herein
that look forward in time, which include everything other than historical
information, involve risks and uncertainties that may affect the company’s
actual results of operations. © 2004 by Dr. Richard S. Appel. All
rights are reserved. Parts of the above may be reproduced in context,
for inclusion in other publications if the publisher's name and address
are also included for credit.
