How mining stocks profit from snow in summer
The seasonal nature of drilling can hold out advantages for alert investors, says this advisory, which illustrates with four stocks.
It’s time to talk about snow.
Snow equals profits. At least it does with gold and other metals. It also tells those who invest in junior mining stocks when to sit on the sidelines and when to jump in when opportunities arise.
In an unusual year for mining stocks (and a lot of other stocks, come to that), let’s put snow and summer together and see what we get.
Our snow story comes from Mr. Louis James, geologist and senior editor of Doug Casey’s International Speculator. This advisory has its offices in Arizona, but closely follows the junior mining stocks that trade in Toronto — and, in many cases, have their headquarters in Vancouver.
Mr. James admits he may have “rocks on the brain” when he talks of snow in June. But “I can’t help it, I just love geology — but I’m not predicting snow this summer. I’m predicting opportunities to prepare for later profits, and snow will be a key factor.”
But how?
This editor explains the importance of snow and illustrates with four stocks the advisory follows closely.
Mounds of snow
For many geological reasons, economic minerals deposits are frequently found in mountainous regions. And those regions get a lot of snow.
This has a big impact on how much it costs to run your mine. Bad enough hauling away waste rock, without having to haul away mounds of snow all winter.
But at least for those who keep an eye on the mines and their prospects, this makes things reasonably predictable.
For the most part, it means that drilling comes to a stop in the winter. There are exceptions. In some boggy environments, winter is just the time to drill — things need to freeze so you can drill through the ice.
And in other cases, there are contractual obligations to be met, so you keep on drilling despite the snow. “But it’s expensive,” says Mr. James. “Very expensive.”
Thus, as winter falls on “Nevada, British Columbia, Quebec, Russia or places in between, we often see drilling halted, usually around November,” says the editor. Of course, in Chile and Argentina the schedule is reversed, but the drill is the same. Shut down with the snow.
But there are advantages for alert investors.
Warm offices
The seasonal nature of drilling affects the flow of what could be market-moving news, says Mr. James, and the timing of key developments, like all-important resource calculations.
“This means you can predict, to some degree, when some of these major, value-adding events are likely to take place — and you can use the quiet periods in between to build positions in the relevant shares.”
Take Silver Standard Resources (TSX-SSO; NASDQ-SSRI). It has an aptly named property in northwestern B.C. called Snowfield. Its latest resource calculations were released in February 2009. The same winter releases (not all in the same month) occurred in 2006, 2007 and 2008.
“What we see is a clear pattern of late-summer drilling with analytical results in the fall or early winter, followed by resource estimates done by the engineers in their warm offices, while the field crews take a break from the Great White North.”
This stock is cited as a core holding for this advisory’s subscribers. It trades at $24.14, higher than most of the stocks this advisory follows.
Down in Nevada, AuEx Ventures (TSX-XAU) follows a similar pattern, but with an earlier start. Exploration on its flagship Long Canyon gold project began in May during each of the last two years.
A year ago, the first reports were released in July, the last in January, two months after drilling stopped and the last assays were back from the labs. Mr. James looks for the same pattern this year. This is where you can look for summer results following a snowy shutdown.
For an exploration firm, it is not cheap at $2.80, so buy when the price slips back, says the editor. Good news may then push it back up.
Timing the results
Down in Chile, where winter is just getting under way, things are the other way around, of course. Exeter Resources (TSX/V-XRC; AMEX-XRA) started drilling on a gold project last October. The results showed up in “small batches” from November 2008 to April 2009.
The advisory likes this firm, which has “good people” and good prospects. But it, too, is not cheap at $3.70. Buy under $3 is the word.
In recent years, Andina Minerals (TSX/V-ADM) has reported drill results from its flagship Volcan project in the Chilean gold belt from January on through June or July. At $1.66, you can be accumulating the shares of this firm, the advisory tells its subscribers.
This is timing you can count on if you have the information at hand, says Mr. James. “So while no one can time the market, you can time a company’s results — sometimes with a spectacular outcome. If you’re paying attention, you can buy at low prices just before a first batch of important results with a high probability of success are released to the market.”
It would take a bit of homework to be ready for such news. But for those who are willing to brave the thrills of junior mining stocks, it’s an idea that could very well pay off.
In short, when snow falls in the mountains, you can start planning for some golden opportunities to fall into your lap.
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