Best of the Week
Most Popular
1.RED ALERT: Paris Terror Attacks - What to Expect Next - STRATFOR
2.Paris Terror Attacks, Death Pangs of a Dying Religion, and Impact on BrExit EU Referendum - Nadeem_Walayat
3.Paris Terror Attacks, Islamic State Attempting to Spark Civil War in France - Nadeem_Walayat
4.Three Shocking Charts That Prove Gold Price Rally Is Coming - Sean Brodrick
5.Stock Market Nifty-Fifty Becomes Fab-Five; Return of the 'Four Horseman' - Mike_Shedlock
6.Africa Population Explosion - Why Europe's Migrant Crisis is Going to Get A Lot Worse - Video - Nadeem_Walayat
7.Gold Mining Stocks May Be The Buy Of The Century - Jeff_Berwick
8.Grandmaster Putin Beats Uncle Sam at His Own Game - Mike_Whitney
9.BRICS? No, CRISIS - Raymond_Matison
10.UK Housing Market Affordability, House Prices Momentum and Trend Forecast - Nadeem_Walayat
Last 5 days
Will Turkey Drag NATO into War With Russia in Syria? - 25th Nov 15
George Osborne’s Autumn Statement and Spending Review Full Text - 25th Nov 15
Will Fresh QE From ECB Boost Gold? - 25th Nov 15
Sheffield, Yorkshire and Humberside House Prices Forecast 2016-2018 - 25th Nov 15
Investors Watch Out For The Auto Industry… - 24th Nov 15
BEA Revises 3rd Quarter 2015 US GDP Economic Growth Upward to 2.07% - 24th Nov 15
Stock Market Supports Are Being Broken - 24th Nov 15
Is Gold Price on the Verge of a Breakout? - 24th Nov 15
Fed’s Tarullo: U.S. Interest Rates Liftoff Should Wait for Signs of Inflation - 24th Nov 15
Silver Price, COT, US Dollar Updates and More - 24th Nov 15
UK Regional House Prices Analysis - Video - 23rd Nov 15
Crude Oil Swinging For The Fences - A 20 to 1 Option Play - 23rd Nov 15
US Dollar, CRB, Oil, Gas, Copper and Gold - The Chartology of Deflation - 23rd Nov 15
UK Regional House Prices, Cheapest and Most Expensive Property Markets - 23rd Nov 15
Stock Market Rally Losing Momentum? - 23rd Nov 15
Will Gold Price Drop Below $1000 Soon? - 23rd Nov 15
Gold and Silver Sector Big Green Light and Low Risk Entry Setup... - 23rd Nov 15
Limits to Economic Growth - Challenge and Choices - 22nd Nov 15
Long Dollar Trade and Current Copper Price Below Cost of Production - 22nd Nov 15
UK Housing Market House Prices Affordability Crisis - Video - 21st Nov 15
The Fed Has Set the Stage for a Stock Market Crash - 21st Nov 15
Stock Market Primary V Wave Continues - 21st Nov 15
Gold And Silver - Value Of Knowing The Trend - 21st Nov 15
UK Footsie Bulls Set To Foot The Bill - 21st Nov 15
UK Housing Market Affordability, House Prices Momentum and Trend Forecast - 21st Nov 15
GDX Gold Miners’ Strong Q3 Results - 20th Nov 15
End of Schengen, Stock Market’s Technical Strength Grows - 20th Nov 15
Justice for All and The Curious Case of Zambia - 20th Nov 15
Paris, Sharm el-Sheikh, and the Resurrection of Old Europe - 20th Nov 15
Silver Prices and The Management of Perception - 20th Nov 15
Stock Market Nifty-Fifty Becomes Fab-Five; Return of the 'Four Horseman' - 20th Nov 15
Waiting for Goldot Again - 20th Nov 15
Michael Curran Goes Down-Market Shopping for Gold Stock Winners - 20th Nov 15
Why Isn’t This Incredibly Bearish Bond Market Development Making the News? - 19th Nov 15
SPX Appears to have Stopped its Rally - 19th Nov 15
The Great Fall Of China Started At Least 4 Years Ago - 19th Nov 15
Using Elliott Waves: As Simple As A-B-C - 19th Nov 15
Has Deflation Been Ddefeated? - 19th Nov 15
Dow Jones Stock Market Index is Not Going to Crash - 19th Nov 15

Free Instant Analysis

Free Instant Technical Analysis

Market Oracle FREE Newsletter

Reasons to Get Excited About Japanese Stocks

Investors, Why There’s Still Old-Fashioned Treasure Out There

Stock-Markets / Investing 2013 Aug 14, 2013 - 02:59 PM GMT

By: Casey_Research


By Louis James, Chief Metals & Mining Investment Strategist

I've always wondered why we tend to glorify pirates and treasure hunters: the Indiana Joneses, the Jack Sparrows, the Long John Silvers. I think it's because most people, while it may not be reflected in their daily lives, are adventurers at heart.

Don't we all dream of digging a hole because we just know there's something there, and hearing that telltale clunk of our spade striking the lid of a treasure chest filled with gold doubloons?

Fact is, the precious metals mining sector—although by many derided, as Doug Casey says, as a "choo-choo" industry—is one of the last bastions where wannabe daredevils can still dream big.

Luck—But Not Dumb Luck

Most of the companies my subscribers and I invest in are explorers looking for gold, silver, and other metals.

Of course today there's a lot of science involved in finding those modern treasure troves. That includes the latest technologies, like XRF guns, to assay rock samples right in the field. And some geologists just have that spot-on intuition about how mineralization twists, turns, plunges, thickens, pinches out, breaks off, and reappears.

However, we can't—and shouldn't—underestimate the role of luck in every discovery. Mother Nature likes to hide her treasures well, plant false clues, and bury them deep. That's what makes the treasure hunt so exciting, difficult, and ultimately (when successful) profitable.

Here's a secret that most mainstream investors don't know: There are literally thousands of mineral exploration companies, and MOST of them will never discover anything.

The money these companies raise in the market will be poured into the ground, and chances are that it won't ever do any good.

This is what makes identifying companies likely to make a significant discovery so difficult—and therefore so enormously profitable when you do.

When an exploration company goes from having nothing to having proven and probable mining reserves of calculable value, share prices can go through the roof... pennies turn into dollars… and dollars into fortunes.

I love being part of the discovery process; especially when the mine gets built and creates new jobs, usually for people who desperately need them—not to mention the metals our civilization depends on.

Windfalls: A Trade of Many Baskets

This is all very exciting, but I would be remiss if I didn't mention the part stock promoters don't like to talk about.

The outcome of most exploration projects is binary—it's either something or nothing, just as one can't be a little bit dead or pregnant—and the odds of failure vastly outweigh the odds of success.

I'm not going to lie to you: Even when you're backing the most serially successful people in the business, with good prospects and plenty of money to go after them, there's no guarantee that every one of their projects will pan out.

So how do legendary investors like Doug Casey hit home runs speculating on early-stage exploration companies?

They do it by adopting a "large basket" approach, speculating on a best-of-the-best selection of early-stage penny-stock picks. Some of these stocks will go nowhere, make marginal gains, or become complete write-offs, but others will double, triple, or yield higher multiples.

The occasional 1,000%-plus gain—what we call a "ten-bagger"—pays for all the rest, and then some.

Obviously they don't come along every day, but 5,000% and even 10,000% gains are indeed possible by speculating in this way—though you have to be willing to take some losses if you're going to reach for something so far out on the bell curve.

Lower-Risk Plays: Haves vs. Have-Nots

Mind you, not all exploration companies start from scratch. Sometimes a known discovery that didn't quite make the cut can later turn into a profitable mine—due to new technology… by combining "splinter deposits" into one project with economies of scale… or simply due to higher metals prices.

Sometimes a new geological interpretation is all it takes, and voila, an old discovery of little consequence magically transforms into a major deposit with very robust economics.  

In some cases, even better management has turned a disappointing dud into a highly profitable operation.

And, of course, you can bet on a team that has already made a discovery, proved it up, and is now building a mine… because proof on the bottom line usually results in a rerating that moves share prices up.

You see that there are many ways to speculate on the process of discovering, developing, and exploiting mineral resources.

Naturally, the higher the risk, the greater the reward when successful. If a mine is already under construction, or is in operation but being expanded, the result will be less spectacular but more reliable gains.

Which is a good thing, because it lets you choose which investment style is right for you (or maybe it's a mix of high and low risk).

Remember, natural resource stocks tend to move in sync with the price of the underlying asset. When gold, silver, or copper jumps 2%, associated stocks will often jump 5% or more—which makes it possible for us to make multiples of our original investment.

Buy Low, Sell High.

Of course the reverse is true as well: when metals and minerals prices drop, share prices in companies that produce them drop even faster, as has been happening for the last two years in the resource sector.

This would be a disaster if we were talking about pet rocks, bell-bottom jeans, or cars with enormous tail fins, but we're not; we're talking about things without which life as we know it would be impossible.

No Metals = Stone Age

Even if some genocidal world government were to kill nine out of every ten people alive right now, without the use of metals those left would barely be able to hang on. It's that simple. And that non-negotiable—regardless of what some environmental extremists may fantasize.

With the population of our planet getting larger every day and unlikely to stop growing anytime soon, nothing short of global nuclear war or a similar catastrophe can stop demand for metals from rising. (And if that happens, we'll have more important things to worry about than stock prices.)

In other words: Investing in mining companies is, without question, one of the surest long-term bets you can make.

That means times when metals prices "correct"—as they are doing right now—should be seen as buying opportunities. Buy low, sell high.

It's remarkable how hard it is for even those who understand this simple, fundamental formula for speculation to actually act on it.

When prices are low, there are always those who bought at higher levels warning of what a disaster the given investment is. It's very hard to put up your hard-earned cash when you don't know if a market has already bottomed or will bottom in the future.

There's only one remedy for that kind of ailment: Don't bother trying to time the market, but focus instead on buying value when you see it.

That's why I pull on my boots whenever opportunity presents itself, and hop in a Jeep, a helicopter, on a horse, or a rickshaw to go check out an opportunity for our subscribers. Only after checking and double-checking that a company indeed has the goods do I recommend it to our subscribers.

Right now is a great time to jump in… because even top-quality mining companies with proven reserves are currently selling for pennies on the dollar.

And as there's no way metals prices can stay depressed indefinitely, all you need is some patience to watch the best of the best miners succeed.

It's my own treasure hunt—and I invite you to join this once-in-a-generation opportunity.

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Casey Research Archive

© 2005-2015 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Biggest Debt Bomb in History