After roaring to a new all time high just over $1900 last autumn the price of gold has now pulled back and is muddling around as it either makes a base to support another advance to new highs this year or perhaps starts another leg lower. (Our bet is a new high later in 2012 but time will tell).
However, while the gold price can be viewed as a healthy pullback after an extended run, gold mining stocks have simply been taken to the woodshed. The percentage declines that senior producers such as NEM have taken is far greater than the gold price. And of course these companies still have the same assets that they had when gold was at $1900.
But if the senior producers have been taken to the woodshed, it’s fair to say that junior gold stocks have been blindfolded and placed in front of the firing squad. Many names in this group have seen their market cap cut in half or more since early 2011.
Anyone who has survived as a speculator in the junior gold market for very long knows that good markets are for selling and bad markets are for buying. You have to be a true contrarian to make money in these markets and the atmosphere in the current junior mining stocks should be catching your attention.
There are some real problems in this sector such as debt and the need for many companies to find financing on possibly unfavorable terms in the coming year. Governments continue to interfere with onerous regulations. But despite the climate, now is the time to find those juniors that are severely oversold and have prospects that will be the catalyst for high percentage gains moving forward.
Jaguar Mining (JAG) is one of the stories that may be worth a look.
After reaching a high of $9+ early this year based on a takeover offer, the stock has been pushed into the $2s as uncertainty about the buyout offer and the general market malaise have taken a toll. It’s been a perfect storm of market turmoil and company confusion and shareholders have voted with their feet.
The question is what are JAG’s prospects going forward. The company mined 156,764 ounces of gold in 2011 from its three mines currently in operation. Their Gurupi deposit in Brazil holds over 3 million ounces that grades over 1g/t and is likely to increase.
So discounting whatever may or may not occur after the buyout distraction is settled, JAG will move forward as a junior producer with exploration upside. Yes they may have to raise money this year. And yes the overall market look awful at the moment.
What more could a true contrarian ask for. While the blood is in the streets it’s time to look closely at Jaguar Mining.