Resource World Magazine

IN V ES TMEN T Get prepared for the junior mining turnaround THE IDEA IS TO BUY LOW AND SELL HIGH – NOW IS YOUR CHANCE by Ellsworth Dickson Junior mining stocks are so oversold – what will it take for investors to realize that there are bargains out there and start to bid up stocks again? That was the question I had in mind as I spoke with market analysts, viewed Doug Casey's webinar broadcast from his home in Argentina and attended a recent Rick Rule presentation in Vancouver, BC. During the webinar hosted by Casey Research, Rick Rule, Chairman and founder of Sprott Global Resource Investments, said, "We are in an extended sale of junior gold stocks. The bargains that I am shopping for are those that are well funded. Right now, the market is taking good companies down with the bad. I would suspect that the recovery of the higher quality companies coming out of this market will be even more spectacular than the recovery coming out of the 1998-2002 bear market." For readers interested in viewing the Casey Research webinar, it is archived at http://downturn.caseyresearch.com Doug Casey, publisher of The International Speculator, concurs: "There is going to be a bubble in gold and a super bubble in good little gold stocks." Rule reminded investors that they must buy junior gold stocks that have working capital. "If they don't have capital, they don't have a business." At Rule's Vancouver presentation, to a packed house, he noted that many juniors are down some 70%; however, he sees this as a buying opportunity for quality companies. "Be a contrarian or be a victim," he said. "Bull markets beget bear markets and bear markets beget bull markets. We are currently in a cyclical bear market with a secular bull market. This may not be pleasant, but it's normal and healthy. With the severe undervaluation of good companies, the stage is set for a truly remarkable rebound." Rule also mentioned that he favours platinum, palladium and certain uranium stocks. Sprott Inc. has stepped up to the plate. The company recently formed a joint venture with Zijin Mining Group Co. Ltd., one of the largest gold and copper producers in China, to set up an offshore global mining fund. The fund will focus mainly on investment opportunities in equities and debt instruments of precious metals producers and will be co-managed by affiliates of Sprott and Zijin. Target size of the fund is US $500 million. Zijin has agreed to contribute US $100 million while Sprott will provide initial capital of US $10 million. The fund will raise addi42 www.resourceworld.com tional commitments from other investors, primarily in China. In an interview, Louis James, Senior Metals and Mining Investment Strategist for Casey Research, said, "Looking at the ongoing bear market in junior mining stocks, even those with a good project good management and cash on hand, I would say that at times the market can be irrational. There is an old saying: 'The market can remain irrational longer than you can remain solvent.'" "The bottom line is that there is a difference between what would make sense by the numbers and what actually happens," said James. "Investors are not always rational or doing what makes sense. It defies reason that good gold stocks can be off 50%. Once momentum kicks in, it takes a while for it to turn around." James pointed out that now is a good time to be seeking out good, but beaten-down, gold stocks because nobody can time the bottom. "It may be that we have already seen the bottom – I can't say," said James. "What I can say for sure is that there are great values out there. As a value investor, I have to be a buyer today. The important thing is to find a company that is funded to advance their project." James can't say what will specifically turn around the bear market in juniors; however, he notes that in the past an exciting new discovery can turn the tide or possibly some world-class macro event. "At the end of the day, when something is oversold, it's oversold and that in itself will turn things around," said James. "As Rick Rule says, 'the cure for low prices is low prices.'" If investors start realizing that the junior mining market is way oversold, James expects a sharp upswing in the best of the best juniors – in other words – producers with high margins or companies with real demonstrable assets and cash in the bank. "We saw this happen after the crash of 2008," said James. "The good companies came screaming back before the end of 2008. However, it will take a while for the whole junior market to come back." "You want to carry out due diligence on potential investments," said James. At Casey Research, we use what we call the "8 Ps", that is, People, Property, Paper, Politics, Push (what could move the stock), Price, Promotion and Phinance (sic)." Nolan Watson, President and CEO of Sandstorm Gold Ltd. commented on the ongoing bear market in junior mining stocks and whether or not now is a good time to be a contrarian investor. "I would say not yet, but it will be soon. The reason being is M AY 2 0 1 3

• Cover