There isn't a lot of good news in the market right now. If you turn on the news or read a majority of the mainstream investment gurus out there, we should all lock our doors and get ready for a financial end-of-the-world. But Gene Arensberg of GotGoldReport.com has a different take. He's generally bullish on the junior mining market… and he's not the only one.
Mr. Arensberg delivers a biweekly Got Gold Report that covers gold and silver, and he also delivers an periodic newsletter covering stocks he calls "Vulture Bargains".
Recently, we spoke to Mr. Arensberg as he was preparing for the New Orleans Investment Conference, where he is presenting and leading a workshop. "I think it's one of the no-miss investment conferences of the year," he said. "Our first talk is about 'gaming' the resource company gurus and taking advantage of some of the spectacular volatility in the junior mining space. It's what we call the Vulture Bargain-Hunting Method."
We asked him to briefly describe his Vulture Bargain-Hunting Method. Here's what he said: "There's only so much luqidity to go around. The gurus who follow these junior companies tend to follow a very small subset of the huge volume of companies and a lot of the liquidity tends to be around those companies. It's easier for investors to know what to invest in (because it doesn't make a lot of sense to follow a company that doesn't have a lot of liquidity). I'm talking about using the gurus (like Mickey Fulp, The Coffin Brothers, and others)… but there are many others."
And right now, according to Mr. Arensberg, the time is right for investing: "When times are bad, the companies that the gurus focus on tend to see negative volatility… On steroids. So we wait until there is investor disgust and angst, that's when we swoop in and buy their shares."
Mr. Arensberg is timing the market and he thinks that right now is the right time: "We've got a super negative liquidity event underway. People have been throwing their shares overboard into the alligator-filled swamp. Now's the time to buy. Like Rick Rule says, the small resource companies are about as cheap as they were in 2002 and 2008. Everyone is crying for Armageddon so this is a great time to buy for vultures."
Next we turned our attention to some of the specific companies that Mr. Arensberg likes. He gave us a few companies that investors should pay attention to.
"The super-high-risk part of this business is the explorers – the ones who haven't found anything yet but they're in the right place and they're working with the right rocks," Mr. Arensberg said. "There's a bunch of them in the Yukon right now that have just been crushed. One of our favorites is Northern Tiger Resources (TSX-V: NTR). They've already made a significant discovery at their 3Ace project. Because the initial results were good but didn't have a 'wow factor', Northern Tiger has been crushed from about the sixty-cent level all the way down to the twenty-cent level. It might get a little cheaper from here, especially if there is more trouble in Europe, but we think it's a great high-risk speculation."
Next, he shifted from explorers to near the near-term producers that he's paying attention to. "For the near-term producers who are about to actually begin mining gold, I really like Timberline Resources (TSX-V: TBR). Timberline is going to be producing between 50,000 and 70,000 ounces of gold annually at their Butte Highlands project starting next year. They're in partnership with a company called Highland Mining and Highland Mining liked the project so much that they agreed to front all of the development cost, including building a mile-long ramp underground to get to the pay zone… that's to the tune of $25 million. Timberline didn't have to dilute shareholders to get to the pay zone; I think that's a pretty good deal. I think Timberline is extraordinarily undervalued."
"I'm also really excited about Riverstone Resources (TSX-V: RVS) in Burkina Faso," said Mr. Arensberg. "They have already proved out about 1.9 million ounces of gold resources from a very shallow project. Since that resource estimate was done last year, they had completed about 30,000 meters of additional drilling, so we know their resource estimates are going higher. And, they just completed a deal with their partner Roxgold Inc (TSX-V: ROG) for Riverstone's Yaramoko project. There's some spectacular bonanza grade results and Roxgold bought that property from Riverstone, and Riverstone still participates in in the property. Riverstone is currently $0.60 but I think it could be at $1.50. It's really cheap."
Along with these companies, Mr. Arensberg follows several others and will be talking about a few other picks at the conference. "I've got a presentation on Wednesday afternoon and I have a workshop on Wednesday evening," Mr. Arensberg said. "I'll have at least 10 charts of the various different Vulture Bargain Candidates of Interest (VBCI). These 'candidates' haven't made it to full-fledged Vulture Bargain status, but we're tracking them with interest. All of the Vulture Bargains have come from the VBCI list, and we've made a significant investment into."
Mr. Arensberg believes he has found some winners and his successes have helped to make him a respected stock picker. He related one particular stock as an example: "We've sold out of Hathor Exploration (HAT). We think there is still some upside to the Hathor story, but not more than 10%, so we're taking the money and running. It was a great deal for us. We recommended Hathor at $1.43/share in July of 2010 and we exited at $4.40/share."
Many investors are bearish right now but not Mr. Arensberg. He's bullish, and he tells us why: "The market is wonderful right now because people are throwing out their stocks and this is the time that we deploy our reserves. You never know how cheap these small resource companies can go. We're taking positions at roughly 10% to 25% of the most recent high that the company made so we're at the very least, we're getting in at a lower level than most people got in at and we think they're going to return to their former glory."
He's not the only one who thinks this. His bullish view is backed up by others, as well: "When Rick Rule and Eric Sprott both talking that this is the best market for juniors since 2002 and 2008, it's time to pay attention. These guys know what they are talking about. We consider Rick Rule an honorary Vulture. He's one of the best in the business and he says he's on the bid."
So, how should investors approach this market? "You have to go in with the idea that you're in for 'as long as it takes' [to make a profit]," said Mr. Arensberg. "It's a completely different mindset than momentum trading. Momentum trading is a lot more fun: You're buying on the way up. When we're buying in a negative market; we're buying something that's really cheap; it's been clobbered down. Then we have to be willing to watch these ridiculously cheap prices go cheaper (if the market continues down). But if you think the world is not going to end, then at some point the companies should reverse and those stock prices should rise."
"I believe we'll see venture market at much higher levels before this bull market is done," he concluded.
Investors who are interested in hearing more of Mr. Arensberg and being part of his Vulture Bargain Hunters can find more about him at his GotGoldReport.com website where there are a lot of benefits to subscribing. Along with the Got Gold Report and the Vulture Bargain Report, subscribers also get all of the archives and previous reports, as well as about 40 technical charts including the Vulture Bargain stocks. "I also provide brief notes about why we're paying attention to the various Vulture Bargain stocks."
The market may seem gloomy to some but to Mr. Arensberg, now is the opportunity to buy!
RESOURCES
Got Gold Report
http://www.gotgoldreport.com
New Orleans Investment Conference
http://www.neworleansconference.com/
Northern Tiger Resources
http://www.northern-tiger.com
Timberline Resources
http://www.timberline-resources.com
Riverstone Resources
http://www.riverstoneresources.com/
Roxgold Inc
http://www.roxgold.com/
Hathor Exploration
http://www.hathor.ca/
Manson Creek Resources
http://www.manson.ca/