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There Are Bargains in Junior Developers

Source: Michael Ballanger


November 14, 2023 ( Newswire) Michael Ballanger of GGM Advisory Inc. shares his thoughts on the current state of the junior resource sector to tell you where he believes it is headed and what stock you may want to keep an eye on.

The junior miners are going to have a particularly challenging tax-loss season as investors harvest capital losses and apply them against past gains or bank them in anticipation of future gains, but what it spells is selling pressure.

There are those who think that the poor performance of the TSX Venture Exchange will result in fewer gains against which to apply losses, but within the TSXV, there are pockets of strength (like lithium earlier in the year) where enormous gains were realized.

If I am holding shares in a junior silver deal, I am likely to book a loss and switch it to a junior gold and around the same price so that I have a protected window of tax-free capital gains going into 2024.

The exploration stocks have always thrived or struggled "on the margin" of either bullish or bearish sentiment for the metals.

When the senior and intermediate gold and silver miners and developers catch a cold, the explorers catch pneumonia.

The developers, however, are where one finds the greatest bargains because as they get kneecapped along with other junior resource stocks, their value per ounce or value per pound of whatever proven resource they hold gets taken down despite the outlook for that resource.

Getchell Gold Corp. (GTCH:CSE; GGLDF:OTCQB) is just such a developer whose 2,059,900 ounces of proven-and-probable gold ounces are being assigned a value per ounce of under $5.00. Admittedly, all junior gold developers are being assigned value per ounce numbers considered either impossible or highly unlikely prior to this recent downdraft, but I recall 500,000-ounce deposits being acquired for over $200 per ounce in Nevada back in the 2002-2011 boom.

I am sure that the junior gold developer space is littered with stories like Getchell which is typical of resource sector bear markets where "Undervalued gold deals" are like noses; everybody has one. (That phrase became popular in the smoky boardrooms of investment banking houses back in the 1980s and I must confess that in the interest of decency, I used the word "noses" in place of another anatomical appendage common to all humanity.)

There was a time when I was a younger, angry man that I refused to buy stocks unless they were in the resource category. They had to have a product that the world needed, and while they were volatile, it was infinitely more honorable to own a hard asset than some "story stock" where the CEO is a paid actor and reads off a script sheet every time a question is asked while signing stock buyback orders designed by activist fund managers just as a boatload of options vest.

Everyone over the age of 50 remembers the darling of the dotcom era, former GE Chairman and CEO Jack Welch, who ran the NYSE darling from 1981 to 2001, exiting with a record $487 million severance package. Back in the heyday of the technology boom pre-2001, Welch was a regular on CNBC, where hosts doted and fawned over him like a 60's rock star.

He would lecture people on integrity and leadership, and American values and became the poster child for American exceptionalism. Then, when the dotcom bubble popped, and the rose-colored glasses were ground into tiny grains of sand, the world eventually discovered that, as Warren Buffett famously said about bear markets: "who was without swimming trunks when the tide went out."

GE crashed and burned in the 2000s, and since the peak in 2001 at $198/share, GE has not exceeded the Welch-era highs in twenty years. Most importantly, the Welch legacy of exaltation has since been replaced with a reputation for underhanded financial reporting, risky deals, improper treatment of staff, and general corporate malfeasance of the highest order. Like Sam Bankman-Fried, the CNBC crowd reveres and worships these Oscar-winning corporate impersonators until they blow up, after which the spin involves simply never mentioning them again except in a cold, calculating, impersonal manner.

There are hundreds of Welches and SBF's out there, all well-rehearsed in the art of subterfuge and shell-gaming. Like the magician that wants you to focus on the waving pink handkerchief, the MSM wants us all to focus on the narrative rather than the reality, which is precisely why I have learned that whether you own stocks or bonds or gold, there is no morality or immorality inherent in such ownership. This entire liberal-left notion of "ESG" being a prerequisite for responsible corporate behavior is a load of horsefeathers.

As I move into the twilight of senior citizenship, I have found immense joy in seeing through the thin veils of a bullish narrative or the odious linen of a bearish narrative, choosing instead to "rent" a position in either the SPY's or the GLD's or the QQQ's without the tepid assumption of either guilt or innocence. You see, in the world of trading and investing and in the philosophy of free market capitalism, the only judge, jury, and executioner is one's Statement of Profit and Loss, and if it says "profit," you are headed to the clouds with a harp and white toga and if it says "loss," you get out the asbestos footwear really quick.

Such are the rules of the back alley trader and pool-room preacher.

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