Monday, December 1, 2014

WHY SOME JUNIOR MINERS SELL OFF WORSE THAN OTHERS: a theory


B2Gold:


Every single person who bought B2Gold since September 2010 (except maybe those who received B2 in a buyout - I haven't looked that up) is carrying a 0-60% loss on this position.

That is why I'd think it'll take a stunning event (e.g. people flocking back into the miners en masse) before B2 ever sees north of $2 again. It doesn't matter what its book value is worth or what its production does with Otjikoto coming onstream; it matters how many sellers want to take the loss and GTFO.

Stock is broken unless a miracle can overwhelm the pain-driven selling. It takes an awful lot to overwhelm that float.

Argonaut:


Every person who bought Argonaut in forever is sitting on a 25%-80% loss. So, again, I'd never expect it to come back and I don't care what its book value is or its earnings are. I don't need to read up on them, I don't care about their financials. The chart is broken until something new comes along that can overwhelm the pain-induced selling.

Meanwhile, Rio Alto:


Yes, its chart does look somewhat bad, but the fact remains that anyone who bought and held Rio since July 2013 really isn't feeling any pain at all right now. Certainly not an "80% loss" level of pain.

The only people who think Rio sucks will be those who bought between, say, Nov 2011 and May 2013. So this stock is really no worse than any other miner that isn't broken, and I wouldn't be surprised if (given good news) it performed well in the future. Existing shareholders (post-mid-2013) are happy so new shareholders will have to pay a premium to get in the door.

So, in reference to two miners whose charts I haven't shown, when you ask the question "why is the one trading at >2x book value and the other is trading for <1x book value?", I suspect the answer is right in the chart.

The miner which is trading at high book value has a lot of happy shareholders whose positions haven't crossed the pain threshold. The miner trading at less than book has a lot of shareholders in extreme pain who just want out.

Price is determined by relative number of buyers to sellers.


1 comment:

  1. This all helps feed my "Asset Value is Pretty Much Meaningless in the Miners and Especially the Juniors" theory.

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