The Investment Case for Junior Mining Companies
Source: Eric Hommelberg, goldseek.com (5/6/08)
...Since we’re dealing with a very similar setup as in 2002 it wouldn't surprise me to see another junior hype (over-valuation against gold) within 12+ months from now and yes, we definitely find ourselves in BUY territories right here right now...
The current situation reminds me to the one of late 2002 when sentiment was as bad as it could get and needless to say the juniors were extremely undervalued against gold those days.
It was back then when I wrote my first piece on junior mining companies (2003 – Year of the Junior Mining Companies) and stated:
Profits of 100% to more than 1000% are in the pipeline next year (2003) if invested in high quality junior exploration companies! END.
Well, I had a lucky shot I guess since the entire junior sector exploded to the upside and appreciated by a multiple of 100% towards the end of the year. Sure enough it was hallelujah time for the gold shares back then and people bought hand over fist all the gold shares they could get their hands on. The year of 2003 turned out to be the best year for the junior sector in this gold bull market so far.
The reason for bringing this up is because (as mentioned above) current situation (from a technical perspective) is very similar as in late 2002. Investors who are feeling depressed about their junior investments should realize that we’ve been there before and extreme depressed levels never persist for a long period of time. It’s just a law of nature, all items swing from under-valuation to over-valuation and back. The junior sector is extremely under-valuated these days (just like in late 2002) and it’s only a matter of time before this sector will be moving towards over-valuation again. Back in 2002 it took the junior sector about one year to morph from a severe under-valuation against gold towards a severe over-valuation against gold. Since we’re dealing with a very similar setup as in 2002 it wouldn't surprise me to see another junior hype (over-valuation against gold) within 12+ months from now and yes, we definitely find ourselves in BUY territories right here right now. The only short-term uncertainty is how far gold could correct further from here on. . . .