Dyed in the wool junior speculators look to sweet exploration

Juniors: a couple newsletter writers weigh in on the type of junior their now out hunting - and buying.

Author: Kip Keen
Posted: Friday , 28 Jun 2013

HALIFAX, NS (MINEWEB) -

Indeed the currents against juniors strenghthened in recent months with the heavy fall off in gold and copper prices. Meantime the global economy sputters along. This engine sounds like an old two stroke (in case you didn't grow up in or near a fishing village, here's what an old Acadia two stroke sounds like, via YouTube video). And this comparison is being kind to the economy, which doesn't run so steadily or fix so readily.

The recent pain builds on older and still open wounds for juniors. Fields of green - financings - started to go brown back in 2011, perhaps after few years of overgrazing. The result is a vast numbers of junior shareprices at all time lows and many exploration teams that find themselves in precarious position without funds to explore. In mining and exploration, layoffs are in full swing. A geologist friend who works for an explorer reminded me what his father, also a geologist, called a good geo: one with a backup plan.

For speculators, the position is equally precarious. In that regard I was curious what diehard junior speculators are doing with their junior portfolios given such a poisonous marketplace. In recent interviews I got to Mickey Fulp, the Mercenary Geologist, and John Kaiser, of Kaiser Research, for their feedback.

It wasn't a question of whether they were looking at juniors for opportunities. You don't ask a wolf if it still likes to hunt when the flock is weak. No. You expect it to pick the most tender meat. The question was what did they find tender these days.

Both have juniors doing fairly early-stage exploration in their sights.

“You know I am screening for companies that dare to drill in this market,” Kaiser told me recently. “Because they're not getting rewarded for so called encouragement, exploration that increases the probability that you will make a big discovery.”

His logic is that now junior explorers that can afford to drill can only afford to drill their very best targets, ones they are highly optimistic about. “Because the bullet factory is shut,” Kaiser said. “When you've spent your bullets you can hang up your hat and turn out the lights in this market. So looking at companies that are drilling - that's actually a good filter because with 80 percent of the juniors below 20 cents - like everything's a bottomfish threatening to become a dead fish.”

But Kaiser is sobering about the chance of exploration failure, an outcome speculators must be willing to accept especially during a bearish market. “It's a very high risk high reward situation where you have to go in there and expect to lose everything: i.e. the stock goes down 90, 95 percent from like 10 cents.”

But still he gave a nod to the opportunity created by the broad selloff in junior equities: “The leverage on the upside is substantial.”

We've seen it recently. The best known example of late is Colorado Resources, which made a porphyry copper find in BC that sent its shares screaming up by about ten fold at one point. While it has since come down quite a bit since, its shareprice has remained elevated enough to allow Colorado management to do a strong financing. Hope in that too, no? A financing after a successful exploration program, which is how it should work.

Fulp had a similar outlook on the opportunity in early stage exploration. Indeed, he is making good on it (but no name flogging here.) He's taking profits from some advanced explorers and developers that were trading sideways this year, he said, and putting them back in other earlier stage junior names.

“I have some open orders to sell that occasionally get filled,” Fulp said. “And then what I'm doing is basically moving that cash into some new extremely undervalued stories.” Not that he is betting on good things to come for the junior market on the whole anytime soon. “This is just carnage and I don't see the end of it,” he said.

He, like Kaiser, is intent (though not exclusively) on early-ish stage explorers with active drill programs and cash. Fulp stresses high quality previously undrilled targets; Colorado Resources-type stuff that could yield an exciting discovery in a jurisdiction friendly to mining. With this in mind, you might look at drill programs meant to corroborate a nice surface sampling program (oxide gold anyone?)

He minds his selling strategy too, especially now during a down market. “So rest assured that when it (a stock) doubles from its present level or just above I'll be a seller into that market.” He adds a moment later, a warning to other wolves that may be out hunting: “And in a bear market like this I think it's even more imperative to follow those sorts of programmed sells and not get greedy.”