Even in a depressed market, it's important to know what might move prices...
EVEN in a depressed gold market, knowing your catalysts in mining stocks is indispensable and is still the fundamental yardstick for buy-sell decisions. Senior analyst Jocelyn August of San Diego-based Sagient Research understands the impact that events can have on your portfolio, and she has mastered the art and science of fortunetelling by keeping an eye on the calendar and those occurrences that will move shares. In this interview with The Gold Report, August discusses what factors give investors an edge right now in this kind of market.
The Gold Report: Jocelyn, I'm looking at a portfolio of junior precious metals mining stocks, and all I can see is red ink. All in that group are underwater for the past 52 weeks. We are currently in a down-trending precious metals market, and I'm interested to know if catalysts matter anymore.
Jocelyn August: Catalysts absolutely do matter right now. We may see a catalyst occur in a company followed by a 2% uptick in its stock, on the same day the sector as a whole may be down 2–5%. We may see that even in this price environment. If you were aware of that catalyst and you bet on it, you would actually have fared better than the sector on that day. By comparison it actually did help the stock price.
Conversely, we also see a fair amount of catalysts that might have a negative consequence to the stock price, particularly when it comes to permit approval decisions that may go the wrong way for the company. You could get pretty badly burned.
TGR: In this kind of depressed gold and silver market, it appears that the effect of negative news is magnified. Is that in fact the case?
Jocelyn August: I'd definitely say so. If it's a negative event for the company and the overall sector is down, you're going to experience magnified effect there.
TGR: The old thinking was that the juniors could perform independently of markets on their own merits as exploration and production companies. Can they indeed perform independently?
Jocelyn August: Juniors can perform well on their own merits. But obviously, the spot price does have an impact on the company itself. That's because a lot more companies can invest in higher-risk, higher-cost projects when the spot price of the metal is at a higher price. So if you're looking at a spot price of $1,750/ounce ($1,750/oz) for the price of gold, that's a lot different than a spot price a couple of years ago when it was in the $1,200s/oz.
TGR: In essence, all of these stocks, whether large or small, are being held hostage right now by the underlying metal price. Is that what you're saying?
Jocelyn August: I would say so. Looking at the environment several months ago or in the last year compared to right now, we were seeing a lot more positive price action in these stocks than we are seeing now.
TGR: Jocelyn, on Friday, Feb. 15, we read that Soros Fund Management had cut its stake in two exchange-traded funds (ETFs). The Dow Jones Industrial Average is close to 14,000 and near an all-time high. The NASDAQ is at a 12-year high. With such strong industrial and technology performance, can investors be expected to return to gold shares with this kind of news permeating the markets?
Jocelyn August: If you didn't expect gold to go down at some point compared to the overall market, then you probably weren't thinking too far into the future. Those Feb. 15 events as well as a potential for gold markets to continue their current trends mean simply that an investor can't just throw a dart at any gold stock and see success. In this type of market, investors need to do their homework to identify gold companies that look to have better prospects than some of the others. Particularly with gold prices dropping, it's important to examine the potential costs of the mining projects that the company is involved in. You can have success with gold in the long term.
TGR: People who invest in juniors don't invest for slow growth, and they tend to be impatient. But your long-term success scenario suggests that you believe patience is important, even with juniors. Is that right?
Jocelyn August: You definitely need to have patience in order to have success in them.
TGR: Can good catalyst news at the company level propel gold and silver stocks up in this kind of environment? Are you seeing it happen?
Jocelyn August: I definitely think that it is possible.
TGR: Do you believe that juniors can access capital to move their programs forward in this kind of market? Do they have to explore their lowest-risk plays in this environment?
Jocelyn August: To some extent, they do need to focus on their lowest-risk plays in this environment. With gold spot prices going up over the last couple of years, companies were looking to develop the higher-cost, higher-risk plays because the economics allowed them to, and they could afford it. But now these companies probably should be looking at lower-risk and lower-cost prospects, but that's not to say they can't get access to financing.
TGR: What are you looking for in junior precious metals miners? What factors give investors an edge right now in this kind of market?
Jocelyn August: For catalysts, we look for projects that have positive resource estimates and positive updates as well as positive dealings with the appropriate regulatory authorities. Permit holdups can certainly add to the capital costs and prolong the start of production and delay the start of revenue. So we're looking for positive regulatory filings, deadlines being met and we're looking for those companies that consistently keep the market updated as to their progress. There are some junior miners that are really good about giving updates—even if they're not quite meeting the deadlines they've set. They are making sure that they are transparent in what they are divulging. But there are some that maybe aren't quite as transparent. I tend to believe no news isn't necessarily good news. We're looking for that kind of transparency in those miners.
TGR: Right now, are these permit approvals the biggest catalysts for moving share price?
Jocelyn August: Permit approvals are not at the very top, but they are in the top three movers—on both a positive and a negative basis.
TGR: I've enjoyed speaking with you, as always. Thank you.
Jocelyn August: I look forward to speaking with you again.
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