This one comes in to us from Louis James at Casey International Speculator, and it’s all about gold exploration and mining stocks — mostly small ones, it appears (it is called Speculator, after all), so perhaps we can consider this as a potential shopping list for contrarian and mostly hated small gold stocks.
Which is about as contrarian as you get these days — there are commodities that have done much worse than gold, including both oil and iron ore, but junior gold stocks are where most of the “animal spirits” of speculative natural resources investors are born… and there aren’t many of those folks around right now. They’re either licking their wounds after the last six months of “buying opportunities” blew up in their faces, at least for now, or they’ve moved on to other areas of exciting speculation like the small early-stage tech and biotech stocks.
So perhaps it’s now time to look at these little guys? I left my crystal ball in my other trousers, but I can at least dig through the tease from Mr. James and tell you what stocks he likes…
This sums up the gist of his big picture argument about the bear market in gold stocks pretty well:
“Here’s one thing I learned about bear markets.
“Mainstream investors generally view them as bad, but what they really are is gigantic filters: they separate the good from the bad, the jewels from the junk.
“The current bear market in gold stocks has been very effective in doing that—which means right now we’re looking at a gourmet selection of well-run companies with proven, high-grade assets to pick from.”
Of course, that won’t mean anything if gold spends the next five years going down to $500 an ounce — but if you have any certainty about where gold will be in five years you’re a wiser soothsayer than I am, I just allocate a bit to gold and to other commodity-type stocks and make sure not to let big “bets” about commodity price moves take over a large portion of my portfolio.
He starts off, as so many of these teaser pitches do, with a “freebie” … he says that his “Vertical Candidate #1” is Pretium Resources (PVG in both Canada and the US), which has the rich Brucejack project in Canada. That’s not terribly small — it’s got a market cap of about $600 million and it’s trading at about book value. He says he still thinks it’s undervalued because it’s such a “monster-sized, super-high-grade gold deposit.” Future valuation obviously depends on gold prices, as with any gold miner, but they have a lot of fans — including a large Chinese gold miner, which bought in to own about 10% of the company back in January at prices pretty close to where the shares now trade (they paid C$6.30, it’s C$6.75 now).
Pretium is up pretty nicely today so far and is doing much better than the average miner, but over the last six months or so it has been trading roughly in line with the group — so perhaps if it’s markedly better than the average gold stock, and all gold stocks are being sold off, that’s your “relative value” opportunity. The latest quarterly report came out a couple weeks ago, you can see