With Gold approaching the door of a major breakout, I want to focus on the gold and silver stocks and stock selection (VanEck Gold Miners ETF (NYSE:GDX)).
The miners and juniors have disappointed investors because Gold has performed well in recent years but has not increased enough relative to costs. Outside of Gold, the precious metals sector remains in a secular bear market.
However, the opportunity is that if and when Gold surpasses resistance and begins a real bull market, it will enjoy rapid and dramatic gains that will far outpace cost pressures. Margins will expand, and miners and juniors will benefit tremendously, as they always do after breakouts in the Gold price.
With that in mind, I wanted to provide some help and wisdom from various public conversations with Rick Rule (mine and others), arguably one of the most successful investors in the history of junior mining.
The first criterion point is people. We have all heard it and from many voices.
To dumb it down, if you are looking at junior producers, look for management teams with a track record of building or operating mines. If you are looking at exploration companies, look for management teams that have discovered or grown or advanced projects to an acquisition.
The second criterion point is size.
Rick often mentions looking for gold projects with $10 Billion in in-situ value and a minimum of $2 Billion in situ value for silver projects. That amounts to 5M oz Au and 80M oz Ag. The lower production cost, the more valuable the project.
When looking at pre and post-discovery opportunities, keep these thresholds in mind.
Finally, be a contrarian. Rick always says, “You are either a contrarian or a victim.”
Avoid the high fliers and look for companies trading at a major discount. This industry is very cyclical, and corrections of 40% to 50% are normal in even raging bull markets.
Here is the cliff notes version of the top 3 criteria. Look for companies with a large deposit or a deposit with the potential to be large, a stock trading closer to its low than high, and management with a track record.
Also, patience and courage are key components to success. Rick has said most of his 10-baggers required around five years and endured a 50% decline along the way.
I am using these criteria to refine my investments.