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The Mystique Behind Junior Miners
Source: Michael Ballanger 08/04/2023
Michael Ballanger of GGM Advisory Inc. takes a look at the current state of junior mining stocks to tell…
Source: Michael Ballanger 08/04/2023
Michael Ballanger of GGM Advisory Inc. takes a look at the current state of junior mining stocks to tell you where he believes it is all headed.
The figure of Mother Goose is the imaginary author of a collection of French fairy tales and, later, of English nursery rhymes. It has been said that her claim to fame was described as “spinning fantastic tales that enraptured children,” such as “Sleeping Beauty” and “Little Red Riding Hood.”
What made me think of that beloved old lady was the sheer volume of work that was dedicated to producing some of the most memorable and adored bedtime stories told to children the world over. It is reminiscent of my years as a junior stock peddler (as opposed to the preferred “wealth advisor” used by industry “professionals” today) sitting in a bar listening to the old-timers spin yarns about how the Hollinger Mine was discovered or how much money Friedland made on Diamondfields or what Ken Dark did to conceal the riches of the Kidd Creek discovery. The business of junior exploration and development absolutely thrives on “yarn-spinning” because if the lore surrounding the sector was ever allowed to devolve into reality, not one penny would be raised for exploration.
Mother Goose Wannabes
The men and women that have grown to become “legends” in the world of mine-finding and mine-building (which are two distinctly different vocations) always tell tales that infer either great intuition or great perseverance but never refer to the presence of great luck in the discovery process. However, if the truth were ever revealed, one would know that luck is an integral factor in all world-class discoveries.
Take Chuck Fipke, the prospector that is credited as the founder of the Canadian diamond industry, which, prior to his Lac de Gras discovery in 1991, was non-existent. If there is one story of prospecting that comes dangerously close to involving hard work, tenacity, and guts, it is the story of how he panned for indicator minerals from the gravel pits of Alberta and Saskatchewan, tracing their movements for thousands of miles to the Northwest Territories before doing a deal with BHP Minerals on the strength of “a single grain of chrome diopside,” as the story would go.
The only presence of luck was that a BHP executive named Hugo Dummett actually believed the stories Fipke was telling, and that was what led to the launch of a billion-dollar industry in Canada.
The present condition of the junior mining space is blatantly pathetic. The yarns that the Mother Goose wannabes have been telling are now falling on deaf ears as the last bastion of the resource space to have any success — lithium — has seen funding dry up, and many of the high flyers sell off over the summer months.
Alas, there are other stories that are spun in bars, boardrooms, and brothels that denote other spectacular yarns told by junior mining company reps that always, without fail, point to the wealth created by others as a reason for owning their stock.
Whether it is their proximity to another property where wealth-creating mineral deposits have been found or having the investor relations rep who got lucky on their “team,” nowhere in the world of exploration financing is there a company without a “pitch” and without the fairy tales told by the promoters derived from the luck bestowed upon the original finders, there would be no junior exploration market whatsoever.
The present condition of the junior mining space is blatantly pathetic. The yarns that the Mother Goose wannabes have been telling are now falling on deaf ears as the last bastion of the resource space to have any success — lithium — has seen funding dry up, and many of the high flyers sell off over the summer months.
What surprises (and frightens) me is that truly outstanding stories of invention and execution are being thrown under the bus largely because the flow of capital has been diverted back to non-mining, non-exploration crapshoots like “Artificial Intelligence” SPAC deals that are nothing more than hollow promises of becoming the next NVIDIA.
Hollow or not, the 2023 market for speculation is no different today than it was in 1963 when the Lobby Bar at Toronto’s Royal York Hotel was filled with stories of a new discovery in Timmins that had “mill rock right up on surface!” (“Mill rock” was core that was so juicy that it could be sent straight to the mill without the need for processing.) Money gravitates toward action, and with interest rates now paying a decent yield for depositors and stocks trading at cloud-level valuations, the person pitching the story had better have a tailwind behind them, or they are going to be left behind.
Patriot Battery Metals
The last major discovery that lit up the airwaves and blogs, and social media chatlines was the Corvette discovery by Patriot Battery Metals Inc. (PMET:CA) in northern Quebec in June 2022, with the stock at CA$0.22.
Over the next twelve months, the stock moved to CA$17.25 as the hype and yarn-spinning drove the entire lithium space into a frenzy. The fear of missing out, known as “FOMO” went into overdrive with investment bankers offering their firstborn children to get lead broker status on any of their financings.
The fact that they are in the boonies of northern Quebec, largely devoid of any serious infrastructure yet capitalized at CA$1.8 billion (until this week), meant very little to the deal-makers clamoring to be part of the celebration.
However, the market proved that it can be a cruel mistress as the stock plunged 18.8% in the past week and is down nearly 30% since June.
Banking System Bullish for Silver?
The “Be Long or Be Wrong” mentality of the past year has now been severely crimped by the existence of a new narrative that is actually an old narrative, and that is the “What Have You Done For Me Lately?” narrative that assailed crypto in early 2022 and cannabis in 2019. The glitz and grandeur that breeds market stampedes have a finite shelf life, and while I must confess that “there ain’t no fever like gold fever!” as I drift into the golden years of sexagenarian bliss, I prefer predictability over excitement and dopamine over adrenaline.
There are many like me that long for the “old days” of rumor-driven tape action in the junior miners, but since they have opened up online gambling and localized casinos, what used to be line-ups at Woodbine Racetrack and the local penny-miner brokerage firms are now secretaries walking up and down the sidewalks with sandwich boards begging for customers. What drives me batty these days are the silver promoters that are constantly trying to find another reason to own a metal that is definitely not rare, nor is it in anything vaguely resembling a shortage situation. This week I ran across a banner that spoke of the impending crash in the U.S. banking system, and while I happen to agree with their thesis in principle, I was scratching my head as to how on earth a crashing banking system will be bullish for silver.
This week I ran across a banner that spoke of the impending crash in the U.S. banking system, and while I happen to agree with their thesis in principle, I was scratching my head as to how on earth a crashing banking system will be bullish for silver.
If the banks crash and are shut down, anybody with a silver farthing will be a seller, not a buyer, in order to pay for food and shelter.
It occurs to me that we have had banking crises as recently as last May with the collapse of Silicon Valley Bank and First Republic Bank until the geniuses in Washington and at the Fed came up with the “Bank Term Funding Program” that bailed them out once again. Silver did nothing all through the March-June period because the safe haven that silver (and gold) were meant to be turned out to be the government’s willingness to commit taxpayer funds to protect the banks at the expense of the average citizen whose cost of living is skyrocketing.
Why own silver when the Fed “has our backs”?
So the trail of bread crumbs that the pitchmen try to leave is that the failing banks lead to exploding silver prices leading to higher share prices for silver producers and greater demand for the shares of companies looking for silver. Ergo, failing banks lead to the junior explorer finding silver, thus enriching shareholders, and we all live happily ever after. That is why the younger generation of traders and investors are turned off at the prospect of owning a junior explorer, notwithstanding the difficulty in finding and permitting a new discovery IF you are lucky enough to finance it.
So the trail of bread crumbs that the pitchmen try to leave is that the failing banks lead to exploding silver prices leading to higher share prices for silver producers and greater demand for the shares of companies looking for silver. Ergo, failing banks lead to the junior explorer finding silver, thus enriching shareholders, and we all live happily ever after.
What the junior resource sector needs is to see a well-pitched deal actually deliver on its promises setting the bar very high for its junior mining brethren. The grassroots explorers that are actually able to raise money are today those teams of explorations that have demonstrated an uncanny ability to find deposits and move them to the point of pre-feasibility and sale. I will not mention names, but there are a few of these teams that have incorporated the science of finding deposits with the necessity of navigating the corporate finance minefield that can many times derail a deal through unnecessary dilution and/or mission “creep.”
They have multiple discoveries and asset sales (takeovers) on their C.V.s because they have discovered the “secret sauce” of wealth creation through the public markets. Sadly, it is the message carried by these champions of junior mining that is camouflaged by the skullduggery and shenanigans of the rest of the lot that have forced the new generational wave of investors to greener and truer pastures.
Energy
After a spectacular move in the Energy Select Sector SPDR Fund (XLE:NYSEARC) ETF this week.
I exited a derivative position in the XLE:US with a double in sixty days as the energy stocks are now approaching overbought status.
I look to reacquire the positions in the usually-dicey August-October period when drawdowns are frequent and opportunities abound.
Copper
I am looking to exit the Global X Copper Miners ETF (COPX:NYSE) derivative positions into strength again next week with a view to reacquiring in the August-October period.
Gold/Silver
A couple of weeks ago, I posted a chart showing the formidable resistance in the SPDR Gold Shares ETF (GLD:NYSE) at US$184.00, and sure enough, it hit exactly US$184 and then reversed to the downside, flipping the MACD into a “sell signal” and the MFI back to neutral from a “BUY.”
I wrote then that the US$174-176 accumulation zone would be an ideal reload point, so with the 100-dma and the 50-dma both violated with the recent decline, the 200-dma is now at US$175.33, smack dab in the middle of the accumulation zone. I recognize that with the failing banking system and the BRICS meeting later this month, I could possibly create a few ripples, but I’m good with the US$174-176 zone as a target while I keep my money in a mattress.
I know that the sarcasm in my writing may be annoying to many in the pro-gold, pro-silver camp but understand this: There is nary a living soul that has paid the price more than I for believing in the arrival of the Day of Reckoning for gold and silver disciples. The hundreds of thousands of dollars lost on “failed breakouts,” “timely interventions,” and “lousy drill results” are easily matched by the opportunity cost of avoiding the technology sector or even owning a few shares of Apple last October as opposed to a few hundred thousand shares of Foo-Foo Mines trading for pennies back then and even fewer pennies today.
If one is bullish on gold and believes that the timing is right, I buy only those companies with a 43101-compliant gold resource north of a million ounces or a producer. When the GLD:US hits the accumulation zone, that is when I will start shopping.
The sector needs the underlying commodities to move first — as oil did back in late May when it plunged to US$66/bbl. — before the equities will respond with fortitude. The days of getting all of the inputs right and all of the outcomes wrong are over for this long-term trader that cut his aging teeth on the mega-discoveries of the 1980s and 1990s.
Nobody is going to chase a junior gold (or silver) miner unless the rest of the world is chasing a SENIOR gold (or silver) miner. I got rewarded in the XLE:US because I got the underlying commodity right. None of the oil and gas stocks in the ETF were any “cheaper” with oil at US$66 than they are today with oil at US$82, but it took the commodity’s price move to juice the equities — and THAT is how I am trading the gold and silver miners.
If one is bullish on gold and believes that the timing is right, I buy only those companies with a 43101-compliant gold resource north of a million ounces or a producer. When the GLD:US hits the accumulation zone, that is when I will start shopping.
Being in the “dead money quicksand” is not a space I wish to occupy because it has an imprint of my backside all over it.
No more.
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Important Disclosures:
- Michael Ballanger: I determined which companies would be included in this article based on my research and understanding of the sector.
- Statements and opinions expressed are the opinions of the author and not of Streetwise Reports or its officers. The author is wholly responsible for the validity of the statements. The author was not paid by Streetwise Reports for this article. Streetwise Reports was not paid by the author to publish or syndicate this article. Streetwise Reports requires contributing authors to disclose any shareholdings in, or economic relationships with, companies that they write about. Streetwise Reports relies upon the authors to accurately provide this information and Streetwise Reports has no means of verifying its accuracy.
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Michael Ballanger Disclosures
This letter makes no guarantee or warranty on the accuracy or completeness of the data provided. Nothing contained herein is intended or shall be deemed to be investment advice, implied or otherwise. This letter represents my views and replicates trades that I am making but nothing more than that. Always consult your registered advisor to assist you with your investments. I accept no liability for any loss arising from the use of the data contained on this letter. Options and junior mining stocks contain a high level of risk that may result in the loss of part or all invested capital and therefore are suitable for experienced and professional investors and traders only. One should be familiar with the risks involved in junior mining and options trading and we recommend consulting a financial adviser if you feel you do not understand the risks involved.
( Companies Mentioned: PMET:CA,
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