The gold and resource funds are getting hit with redemptions,...

The gold and resource funds are getting hit with redemptions, some pretty heavily, and I hear Franklin, Van Ecke, Dynamic, Sprott, Beaupost, US Global, etc., are selling what they can, not what they want. Most are fully invested and have little flexibility when redemptions hit (unless they have shorts). The funds have invested a great deal into developing gold stories like Lydian (-25%), Colossus (-24%), Belo Sun (-29%), Torex (-16%), Pretium (-26%), and Rainy River (-30%) among others, and are now selling out to a rapidly diminishing number of interested investors.

Could it be any worse?

Well, yes. Euroz reports that in Australia the junior explorers are trading some 60% below year highs and only 15% above year lows (below). On average, the developers and producers are both ~48% from year highs, and, on average, only 13% above year lows; the developers are faring a little better at 25% above lows.


( 12-month performance of ASX listed producers, developers, and explorers. Source-Euroz Securities Limited)

Although I have no idea when (or if) the gold price will turn dramatically higher, my assumption is that until it does the funds will continue to be hit with considerably more outflows than inflows and forced to continue selling for some time.

Pop Quiz: What is the single prerequisite to selling high?

I am most tempted to add to Lydian, Belo Sun, Alderon, Virginia, and Midas; however, I do not have unlimited capital and I am banking on even better prices over the summer. You, of course, may feel differently--we are probably much closer to a bottom than a top. We do know for certain that the world is using more metal than it is finding, whilst production costs continue to rise. Until that situation changes, quality deposits will be have to be found, acquired, and put into production.

Before getting into today’s letter, we want to bring to your attention some useful resources that may help in your own due diligence in the junior mining sector. Corebox, a site most of you are probably familiar with, has added a new feature that shows a company’s drill results (length and grade) on a logarithmic plot compared to Corebox’s drill hole database. This provides a quick interactive perspective on the results (link here), which can be used in conjunction with our drill interval calculator, here.

At Venture Radar, recent company financing and other information is available for free (once you signup). This is a very helpful site that documents who is raising how much and at what price—a $360,000 financing at under 10-cents would be an “avoid”. A new European based site, Mining Radar, is also offering charts, company information, and commentary here.