Junior Miners Not Benefiting From Higher Gold Prices...For Now - Mickey Fulp
(Kitco News) - Many investors continue to celebrate gold’s significant breakout and six-year high last month, but not all of the gold sector is seeing robust interest.
Interest in the junior-exploration sector has been lackluster compared to gold, which saw its best month in three years. While gold prices rallied 7.8% last month, the TSX Venture Composite Index ($JX), which is heavily weighted with junior explorers, lost 2.3%.
In an interview with Kitco News, Mickey Fulp, creator of the Mercenary Geologist newsletter, said that it’s not surprising that investors are a little hesitant to jump into the volatile junior market sector as gold’s rally has come during a seasonal slow period for the precious metals and the mining sector.
He noted that investors took advantage of a similar gold rally three years ago in June 2016. After investors jumped in, the sector found little follow-through, trading in a tight range. Since April 2018, the junior-mining sector has been in a consistent downtrend.
“A lot of investors don’t think this rally in gold is real just yet,” he said. “They have seen false starts before, so I think investors want to see some evidence of staying power.”
Fulp said that if the gold market can hold its gains through the summer, he would expect to see investors jump into the junior resource space.
“I think the market has been waiting for this type of move and they want to see if it will last,” he said.
Although there is still some downside risk to junior explorers, Fulp said that investors might want to “start chipping away” at some of the stronger companies in preparation for a potential rally.
“You don’t want to go in at this time, but you can start building your positions,” he said.
As for potential companies to look at, Fulp said that he continues to like gold explorers in Western U.S. He added that government deregulation policies are making it easier to explore and potentially build gold mines.
He added that one of the two companies he currently owns is Revival Gold, which is developing its Beartrack project in Idaho. The company is in the midst of a summer drill program looking to bring its source estimate up to 3 million ounces.
The second company Fulp owns is Integra Resource, which is developing its DeLamar project, also located in Idaho. The company is looking to increase its current resource estimate of nearly 4 million ounces.
Although it could be a while before investment interest trickles down to the junior sector, Fulp said that there is also still great potential for major producers. He added that producers are seeing a perfect storm of higher gold prices and low input costs, including lower energy bills.
“I think producers will have really good margins this year. These higher gold prices are just gravy for producers,” he said.