Investors Missing the Boat on Gold and Silver Explorers

James West
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By James West
Midas Letter.com
April 29, 2011

Gold’s apparently effortless breach of the $1,500 mark, accompanied by its staunch ally silver towards $50 an ounce, marks new territory for the Age of Monetary Metals, which we have now entered. The twin frauds, the artificially high valuation of the U.S. dollar and the equally nefarious intervention by the Chinese to keep the Yuan down, are driving the world’s savers increasingly towards the only transparent (well, except for the increasingly flaccid derivatives market price manipulation) and trustworthy monetary unit. At this point, I’m embarrassed to be a human being.

What will posterity say about this era in history, where a small cadre of over-educated men and women perpetrate simultaneous scams against the rest of us to support an undeserved sense of entitlement expressed in grossly excessive lifestyles?

Where are the protests in the United States? What happened to the American spirit, that historically rose up against oppression and enslavement? In China, the fear is palpable. They’re even barring access to churches, which, unfortunately for the present regime, is the great error repeated throughout history. Steal their money, deny them a decent standard of living, sure, but deny them access to their God? A fatal error, my Chinese friends.

In America, it would appear that the obsession with microscopic partisan philosophy differences and dogma undermines any possibility of a united electorate behind issues of grave and imminent import. It’s a distraction of the highest caliber, and a perfect example of how the current model of human beings can easily occupy itself with senseless superficiality while the stage upon which they debate is incrementally consumed by termites. Completely transfixed by spectator sports, utterly mindless video games, vapid entertainers, and formulaic and insipid movies, and a hundred thousand talking heads all delivering variations on the Great Lie of the once great United States, America is doomed. 300 million puffed up roosters strutting around indignantly in what was once a resource rich land of promise but is soon to be nothing more than an abattoir from sea to shining sea. What a surprise it will be when the fences erected to keep the outsiders out turn out to be fortified by the outsiders to keep the insiders in.

And still, the financial services industry, now a juggernaut smashing the financial infrastructure of the world to smithereens under its own colossal inertia, defecates a steady stream of worthless and impoverishing investment products on the oh-so-thoroughly anesthetized and distracted American investing public. The collateralized debt obligations and securitized junk loans have been refined and retuned and now re-appear as triple A trash among the cleverly adorned offerings of Morgan Stanley, Goldman Sachs and J.P. Morgan.

Poor, poor, mainstream investors.

How horrible it must be to be an investor and not know anything about investing in the Toronto Venture Exchange (TSX Venture) and Toronto Stock Exchange’s (TSX) vast selection of gold, silver and oil explorers and producers. How impoverished must be the millions of global investors making due with single digit gains, if any, and more commonly, losses at the hands of major investment banks who load their portfolios with garbage.

It still ranks as a well kept secret, the phenomenal gains being realized by astute investors on these Canadian exchanges, where nearly 80% of the world’s natural resource investment capital is raised and directed into projects from Tasmania to Alaska.

A case in point: Newstrike Capital (TSX.V:NES, OTCBB: NWSKF.PK), a Midas Letter pick from our January 2011 edition that our subscribers picked up for $1.20 a share, announced on April 20th that one of their drills had intercepted over 230 metres (755 feet) of mineralized core on the company’s Ana Paula project in Guerrero, Mexico that graded an average of 7.5 grams per tonne of gold. The stock promptly doubled, providing those who bought at $1.20 with an immediate 100% gain, in a mere three months. That’s 400% performance annualized.

Now granted, Newstrike is the exception rather than the rule. TSX and TSX Venture stocks with major discovery potential tend to appreciate more slowly, and the intercepts encountered by their drilling programs are rarely so dramatic.

And quite frequently, the progress of share price appreciation is inhibited by the unfortunate realities associated with financing exploration activity. By the time a company who is exploring for gold and silver starts hitting the large high grade intercepts that translate into demand for the company’s shares, that company has likely issued a large number of shares to raise the money to get to that point. A good example of this is Seafield Resources Ltd. (TSX.V:SFF), whose announcement on December 2nd, 2010 of a drill intercept grading 1.29 grams per tonne over 449 metres. The stock shot up to a high of $0.77, but the company announced a financing of 30 million shares at $0.50, which effectively killed the rally. At the same time, millions upon millions of shares from previous financings flooded the market, and the stock to this day labours in the $0.30 range, despite further outstanding drill and trench results.

Fortunately, while lousy financing structures taint the share price, beneath the ground the deposit remains intact.

That being said, there is clearly some substantial mineralization present on the property, and once the insiders and early investors who are in a big hurry to dump their cheap shares have done so, it is likely the company will proceed to develop the group of deposits on their Quinchia project in Colombia. It is worthy of note that the 30 million share private placement was subscribed for by the same parties who were substantial early shareholders of Ventana Gold. (TSX:VEN), a company that delivered over 1000% performance in the space of less than one year.

There are a multitude of examples, however, of companies whose incremental share price increase in a one year time horizon demonstrate the conviction, by investors, that there is a valuable mineral deposit underlying the demand for shares.

On the TSX Venture exchange alone, more than 400 out of 1600 companies in the resource sector have doubled in value in one year or less. Imagine 25% of your investments doubling in one year! And in Canadian dollars to boot!

While the rest of the markets quiver on the brink of collapse, and investors wait with baited breath for the next financial crisis to arrive (really its still the same crisis that started in 2008 – just delayed thanks to the U.S. government counterfeiting program), wise investors are building positions in junior gold exploration companies with good exploration results, because these will be the biggest beneficiaries of investor interest when the mainstream finally realizes that the TSX and TSX Venture exchanges are the absolutely best speculative games in town.

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James West’s MidasLetter Premium Edition identifies 5 stocks on the first Sunday of each month from the TSX Venture Exchange that are expected to double within 12 to 18 months, 9 out of 10 times, or your money back. Subscribe now for $49 per month, or $499 for one year, at http://10.0.1.189:8888/midasletter_old/subscribe. 30 day instant refund period from your first subscription day if not 100% satisfied.
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James West

James West

Editor and Publisher

I employ a Capital Efficiency Model that dictates money should never be exposed for longer than is absolutely necessary to the possibility of being lost. Thus, I routinely sell half my position when a stock doubles from my entry price, and I sell stocks that lose 20%, unless there are...
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Midas Letter is provided as a source of information only, and is in no way to be construed as investment advice. James West, the author and publisher of the Midas Letter, is not authorized to provide investor advice, and provides this information only to readers who are interested in knowing what he is investing in and how he reaches such decisions.

Investing in emerging public companies involves a high degree of risk and investors in such companies could lose all their money. Always consult a duly accredited investment professional in your jurisdiction prior to making any investment decision.

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