Last year was pretty ugly for junior mining investors. Even Brent Cook, editor of the newsletter Exploration Insights and a geologist with over 30 years of experience in the field, couldn't buck the general market downtrend. He ended the year with a year-over-year paper loss of 37%.
"I'll tell you the mistake I made and I think probably everybody did this," Cook said in an interview at the Cambridge Resource Investment conference this week in Vancouver. "I saw the valuations going up in January, February, March - the junior market was really rocking. My fear was even though things were quite highly valued, I didn't want to miss a real boom."
Cook, who always keeps some cash on the sidelines, adds he was afraid to sell things that were getting pricey because there was nothing better to buy that was cheaper.
While his portfolio is still up 101% from inception (in 2008), and he did make an 80% gain on the stocks he did sell last year, Cook says, in retrospect, those over-valuations were a sign to sell.
Since the market slide, which started in April and continued for the entire year, Cook hasn't missed the market's signals - he's used the lower valuations as a buying opportunity to pick up solid juniors (and majors) that have been oversold.
"I think we're in a really fortunate place over this coming year where companies with value that have raised money at much higher prices are going to be selling cheaper with more value - more drill holes, more data to evaluate, closer to saying this is a legitimate resource," he says. "But the market sold this along with everything else. So I think we can continue to buy things like that this year - that's what I'm aiming for."
Two of Cook's favourite juniors are Canaco Resources (CAN-V) and Esperanza Resources (EPZ-V), both of which saw big declines in the second half of 2011.
Last March, Canaco raised $120 million at $5.40 per share in a bought-deal financing; now you can buy it for around $1.30 per share.
"The funds were just jumping in on this thing - and they all bailed out as well - the stock got down to $1.20. During this time period they've been drilling and drilling and drilling, and the results continue to show me that they've got what I think is going to be a legitimate, decent size, decent grade, open-pittable deposit in Tanzania," Cook says. "So we're buying this stock at $1.30 with $115 million in the bank, and a $41-million exploration program. That, to me, seems like a good buy."
Canaco is working on an initial resource estimate (due at the end of March) and preliminary economic study (due in the third quarter) for its Handeni gold project in Tanzania.
Esperanza is a similar story, Cook says. The company raised money at over $2 before its stock price declined to around $1 near the end of 2011. Cook sees Esperanza's small, but low-cost Cerro Jumil oxide gold deposit, in Mexico, as a natural target for a mid-tier active in Mexico.
"They've got an economic assessment on it that puts the value after tax at $300 million and their enterprise value is $47 million; they've got $20 million in the bank. So I think there's room there to make some money with not a lot of downside risk - that's what I'm really looking for right now."
While market volatility seems here to stay, Cook believes commodity prices will remain stable this year. China and the eurozone are both slowing, but commodities are still being mined faster than replacement resources and reserves are being found. Cook evaluates projects based on US$1,500 per oz. gold and US$2.50 per lb. copper.
His advice for investors wary of volatility? Do your homework and know what a project is worth.
"My ex-boss Rick Rule says if you know what a can of tuna's worth -- say it's worth a buck. If it goes to 50 cents you buy more, if it goes to $2 you sell it," Cook says. "If you know what a deposit's worth you can be much more comfortable with what you own."
--For more advice from Brent Cook, check out this recent interview.
And for some fantastic footage of the Yukon and a mini-tutorial/reality check on what it takes for an exploration project to become a mine, check out Cook's three-part site visit from 2010 here.
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