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There's a Fire Sale Taking Place in Elite Gold Stocks

By Matt Badiali, editor, S&A Resource Report
Wednesday, December 21, 2011

Blood is running in the streets of Dawson City, Yukon.
 
Not literally, of course. Dawson is the heart of the new Yukon gold rush. It's the most exciting new area for gold exploration in the world. I have no doubt that over the next decade or so, many investors will become millionaires because of the investments they make in the next few years.
 
We already saw global gold miner Kinross Gold rush in and buy one project here. We've seen several other junior mining companies exploring potentially huge new projects.
 
But the downturn in commodities has crushed the share prices of the small companies exploring the area... and has put some spectacular assets at fire sale prices...
 
Back in September 2010, I told you that the Yukon Territory of Canada was the best place to speculate on a huge gold discovery.
 
The Yukon is best known for the Klondike gold rush of the 1890s. But for the next 100 years or so, it was written off by miners, who figured all the gold had been either collected or eroded away.
 
About 10 years ago, things changed. In the early 2000s, companies spent around $6 million on exploration in the Yukon. By 2007, companies spent nearly $140 million... a 2,200% increase in just four years. And it led to some incredible discoveries.      
 
One was made by ATAC Resources. It's the Rackla Project. This expanded from the original Rau deposit (rhymes with "wow"), to become a world-class gold discovery. (Readers who took us up on our original recommendation to buy ATAC made over 500%.)
 
It is a Carlin Style deposit, named for Nevada's Carlin Trend. That kind of deposit hosts hundreds of millions of ounces of gold... in Nevada. The ongoing exploration hasn't given us a firm answer for the Yukon's version.
 
Enthusiasm for that discovery pushed ATAC's market cap from $497 million when I wrote about it last year to $972 million at its peak. So readers had plenty of opportunity to cash in. But starting this past July, ATAC has given up more than 70% of its market value. It's been a breathtaking drop. And it's not the only Yukon explorer in the same position.
 
Here's a list of the companies I told you about in September 2010 (minus one, which was bought out). You'll see their market value then... their market value at the peak... their market value today... and how much the recent rout has cost them in market value...
 
Company
In Sept 2010
At the Peak
Today
Recent Drop
ATAC
$474
$972
$232
-76%
Golden Predator
$45
$161
$63
-61%
Northern Tiger
$35
$60
$12
-79%
Taku Gold
$18
$31
$5
-85%
Arcus
$14
$15
$4
-71%
Pacific Ridge
$8
$35
$7
-81%
Hinterland
$7
$19
$2
-91%
Central Res
$3
$5
$2
-65%
All figures in millions of Canadian dollars. Data from Datastream.
 
You can see that each one of these companies soared after my write-up. They did so well, in fact, they got ahead of the data.
 
For example, ATAC's Rau deposit is truly world-class. But it's also located in a freezing wasteland. When I visited the gold camps, it took me over an hour in a small plane to get there... from the nearest town.
 
It will take hundreds of people and hundreds of millions of dollars in investment to get the kind of infrastructure needed... just to build a mine there. And it's cold in the winter... bitter cold. This makes operating machines much harder and more expensive.
 
All that investment is yet to be made. It doesn't deserve the almost-billion-dollar valuation it got this summer.
 
Now... however... it's cheaper than it was 15 months ago. And so are all the other projects owned by the companies listed above. These guys haven't been sitting on their hands this whole time. They've been drilling and finding more gold. In short, they've been increasing the value of their deposits.
 
That leaves us where we are today. We've got more-valuable deposits selling at an average 44% discount to their September 2010 prices.
 
This simply can't last. There's too much gold up there.
 
However, the market hates risk right now. The fears of domestic recession, economic troubles in Europe, and a potential war over Iran's nuclear facilities made the market skittish. No one wants to own stocks that could fall 80% or more in value right now... but they will eventually.
 
As soon as the fear lessens a bit, investors will once again look north and think... that gold is worth a whole lot more money than it's trading for today.
 
Even so, I'm not ready to buy them yet. The whole region is shut down now. The Yukon is frozen solid. There won't be a drill rig turning until May. That means we could see share prices fall farther before they go up again.
 
So take this time to put together a list of favorites. Then pick up shares when the market begins its recovery. This tactic paid off big from September 2010 to this past summer. I think it'll pay off big again in 2012.
 
Good investing,
 
Matt Badiali




Further Reading:

Over the last few months, Matt and Larsen Kusick have given readers lists of companies to add to your watch list...
 
"Anytime you can buy a dollar for $0.55, it's worth taking a long look."
 
"When the market bottoms out, these are the companies I'm going to look at first."
 
You don't have to "catch the bottom" to make money. But to lower your risk even further, stick with these "trophies"...

In The Daily Crux
Market Notes
Phone-maker Nokia plunges 30% in less than two months... its market share is collapsing.  
 
Google tops a short list of large-cap stocks up more than 25% in the past six months.
 
Brewers are in an uptrend... Ambev and Boston Beer are sitting at all-time highs.
 
Small-cap stocks are trying to break downtrend... Russell 2000 is up 7% in three months.
Market Watch
Symbol Price
Change
52-Wk
S&P 500 1241.30 +3.0% -0.5%
Oil (USO) 37.56 +3.8% -1.3%
Gold (GLD) 156.98 +1.4% +16.2%
Silver (SLV) 28.77 +2.9% +0.2%
U.S. Dollar 79.85 -0.7% -0.7%
Euro 1.31 +0.7% -0.3%
Volatility (^VIX) 23.22 -6.8% +41.5%
Gold Stocks (^HUI) 513.92 +3.7% -8.7%
10-Year Yield 1.92 +6.1% -42.7%

World ETFs
Symbol Price
Change
52-Wk
USA (SPY) 123.93 +3.0% +1.6%
S. Korea (EWY) 51.56 +5.0% -10.5%
S. Africa (EZA) 60.24 +5.2% -12.3%
Canada (EWC) 25.62 +2.3% -12.6%
Japan (EWJ) 9.04 +2.6% -13.4%
Singapore (EWS) 10.86 +3.0% -14.0%
China (FXI) 35.04 +4.3% -15.8%
Lat.America (ILF) 42.17 +3.4% -16.1%
Israel (ISL) 13.52 +0.8% -20.3%
Taiwan (EWT) 11.22 +2.8% -21.4%
Russia (TRF) 14.05 +3.2% -37.1%
India (IFN) 19.95 +3.3% -39.2%

Sector ETFs
Symbol Price
Change
52-Wk
Utilities (XLU) 35.01 +2.1% +17.0%
Retail (PMR) 21.89 +2.7% +13.9%
Big Pharma (PPH) 71.22 +1.0% +13.8%
Health Care (IYH) 70.55 +2.1% +8.5%
Real Estate (IYR) 56.57 +3.0% +7.3%
Consumer Svcs (IYC) 70.97 +3.1% +5.8%
Big Tech (QQQQ) 55.93 +3.0% +3.4%
Transportation (IYT) 88.76 +3.3% -1.2%
Defense (PPA) 18.13 +3.4% -1.2%
Industrials (IYJ) 63.13 +3.4% -1.5%
Internet (HHH) 70.14 +2.5% -4.0%
Media (PBS) 13.01 +3.4% -5.7%
Software (PSJ) 23.64 +2.4% -6.6%
Telecom (IYZ) 20.92 +3.1% -7.6%
Construction (PKB) 11.88 +4.6% -7.6%
Insurance (PIC) 14.61 +2.7% -8.5%
Biotech (PBE) 19.70 +3.4% -10.6%
Financials (IYF) 48.35 +3.5% -12.7%
Water (PHO) 16.68 +3.9% -12.8%
Basic Mat (IYM) 64.39 +4.4% -13.8%
Semis (PSI) 13.83 +5.5% -14.9%
Oil Service (OIH) 113.22 +4.8% -16.5%
Nanotech (PXN) 6.14 +3.4% -38.5%
Alt. Energy (PBW) 5.05 +4.6% -49.8%

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