Analysts fear some Junior Miners Valuations Are Showing 'Overbought' Signals

By CanadianMiningReport.com Staff Writer / October 20, 2020 / Article Link

Firmer gold prices and renewed optimism around a U.S. stimulus agreement before the presidential election lifted Canada's main futures stock index on Monday.

The yellow metal  gained 0.58% and rose to $1,913.4 per ounce.

Gold has gained over 26% so far this year, providing a hedge against inflation risks and currency debasement.

Its bullish rally gave junior miners a lift from financings on better commodity prices, and strong interest from investors. However, major indices and ETFs are now trimming their portfolios of junior gold miners and exploration companies.

Most recently, Newmont announced it was moving forward with a 50-50 joint venture with Agnico Eagle to explore the Anza project in Colombia. In a news release from Wednesday, Agnico Eagle said it would solely fund the joint venture until expenditures equal Newmont's previous investment in the Anza project, about $2.9 million.

In a sector that predominantly relies on investor capital to fund exploration and drilling operations, the Newmont – Agnico deal stands out.

Recently, we have seen historic levels of financing for even low-quality junior miners and their projects.

Some analysts are advising caution as they see the space as substantially overbought. Scores of companies have been able to do very large financings with the past few months seeing junior gold miners access capital with enormous ease. But the question remains – will this trend “dampen” the sector.

For investors looking to buy gold stocks, this would mean spending even more time on the due diligence process before deciding which mining stocks to purchase. Currently, there are about 1,500 junior listings worldwide, of which about 200 to 300 present an opportunity for any return on your investment. However, even those that are viable may have put themselves in a less favorable situation simply as a consequence of their market capitalization, and amazingly, many of the non-viable ones have received generous financing.

Additionally, valuations of financings have not aligned with the companies’ intrinsic values.

One possible way to safeguard your portfolio is to rotate capital into some mid-tier and senior producers now that valuations for the junior sector show overbought signals.

Picking the best five or six mining stocks seems like the least risky move to stabilize your portfolio in the current market. Even if these are silver stocks or gold stocks that are currently underperforming, your attention should be on the company’s market capitalization. Mining companies that are fully funded or adjust their exploration operations to the capital they have are posed to perform better in the months ahead.

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