Measured by the S&P/TSX Venture Composite Index (CDNX), the juniors saw the worst of the damage in all the equity markets. From its 2007 high, the CDNX fell by 80% before it finally hit bottom in December. And at sub-700, the CDNXís gains for the entire secular bull had been wiped clean.
Like most of the junior faithful, we were well aware the junior sector was already unsettled even before the stock panic unfolded. In gold's powerful 2007/2008 upleg that briefly drove it to touch $1,000 for the first time ever, the junior gold stocks were nowhere to be found.
The juniors not only didn't take part in that upleg, they fell on balance. Juniors typically lag gold and even the larger gold stocks over the course of an upleg since institutional investors usually canít buy them. It isn't until the enthusiasm of individual traders takes hold, in the latter halves of uplegs, that junior rallies are ignited.
Leading into summer 2008 it was apparent that the juniors had missed the boat. Not only had gold given up its ghost and entered into its summer doldrums, but the general stock bear was starting to suck in everything around it with the force of a black hole.
The carnage that ensued is a big problem for this sector. Decimated stock prices and fleeting investor interest is a bad combination for these small companies. With juniors reliant on bullish sentiment to survive, many will now be strained to stay their course.
But there is good news on multiple fronts.
- A slowdown in exploration is smashingly bullish for gold's long-term fundamentals.
- The extremely low market caps of the juniors will open the door for acquisitions. With some juniors closing their doors and others gobbled up via M&A, we are likely to see a noticeable consolidation in the junior gold stock sector. This will allow investors to see the cream rise to the top.