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Major comeback; Positive results had been ignored last autumn

Peter Koven, Financial Post Published: Wednesday, June 10, 2009

The junior gold sector is back, and nobody knows it better than Richard Warke.

Mr. Warke's company, Ventana Gold Corp. (VEN/ TSX), had some really bad luck: it began trading on the Toronto Stock Exchange in November, when the world appeared to be falling apart. Despite some positive early drill results from the company's La Bodega property in Colombia, a junior gold company was the last thing any investor wanted to hear about at that point in time.

"We opened at a dollar and promptly dropped to 30¢," Mr. Warke, the chief executive, said in an interview. Within days, Ventana shares plummeted all the way down to 4¢.

When the market was in meltdown mode, a junior mining company could announce spectacular drill results and it just didn't matter. Investors decided that their projects would never get financed and were liquidating their positions.

But the turn in market sentiment, along with a stellar gold price, has got Bay Street responding to positive results again. That has cleared the way for a major comeback among the junior golds that are sitting on something substantial.

Leading the way is Vancouver-based Ventana, which has gone on a big run because of drill data from its La Mascota gold discovery. La Mascota even drew the attention of Vancouver mining maven Ross Beaty, who bought a 16.9% stake in the company. Ventana has grown into a $380-million company in a matter of days.

"The drill results are proving La Mascota has the potential to host a serious high-grade gold deposit. So it's pretty exciting," Mr Warke said.

Many other junior golds are also trading around their highest levels in months (if not ever), including Rubicon Minerals Corp. (RMX/TSX), San Gold Corp. (SGR/VEN), Lake Shore Gold Corp. (LSG/ TSX), Kirkland Lake Gold Inc. (KGI/TSX), Detour Gold Corp. (DGC/TSX) and Osisko Mining Corp. (OSK/TSX).

"It's tied to the fact that I think people are starting to see beyond the credit crisis," said David Adamson, Rubicon's chief executive. "And there were a small group of us that cashed up in that period. I think for those juniors that have good assets and have cash, there is a growing audience."

However, it remains a very small group -- cash is still incredibly hard to come by for junior companies, and investors have almost zero interest in early-stage projects (Ventana being one notable exception). But for the juniors that have projects that are well-financed and are either in production or likely to be in the future, the enthusiasm is back.

While funds are putting cash back into the junior gold sector, they are also being selective about where it goes. Details like resource potential and political risk actually matter again, which was not always the case in the heady days of 2004 to early 2008.

"There are frankly very few quality stories that have the potential to be mines. Because there's been a Darwinian culling of companies," Mr. Adamson said.

Rubicon has received plenty of interest in recent weeks, as the company's Phoenix gold project in Ontario's Red Lake gold district gets more promising each time the company releases drill data.

"With $66-million in the till right now, it allows us to move forward aggressively. And I think that helps investors get over the risk, because they know their company can deliver it to the next step," Mr. Adamson said.

pkoven@nationalpost.com