A month ago, Michael Ballanger, Richardson GMP’s director of wealth management, speaking to The Gold Report, suggested a positive outlook for gold mining equities in 2014. Gold miners create tangible assets and are beaten down, while at the other end of the scale, many tech stocks generate bubbles and their stock prices soar.
Ballanger thinks there should be a metals bull market now, but it was “artificially delayed by tax-loss selling and year-end portfolio rebalancing.” He says volume versus price charts show that big sophisticated money is moving into junior goldminers.
That volume showed up in the Market Vectors Junior Gold Miners ETF, which is more liquid than gold stocks themselves.
Junior gold mining companies are just getting on with their plans. The price of gold is still high, even though it has been volatile over the past year. That makes a lot of plays worthwhile.
Zoloto Resources Ltd., a junior miner that was not mentioned by Ballanger, just acquired a mill in Ecuador. Trading under the symbol pinksheets:ZRSCF, the company acquired 49% of the Zumba Mill in Ecuador.
Zoloto says the mill can process 50 tons of ore per day. They projected the average head grade over the next six months at 7 grams per ton. The Zumba mill also does contract milling for miners who do not have milling capacity. By October 2014, Zoloto says the milling capacity is expected to increase to 100 tons per day. This is a company that should generate something tangible.
A press release issued by the company last week said Zoloto intends to pursue the significant opportunities it has been offered in Ecuador. The Company expects to process gold, silver and copper at the mill, generating substantial cash flow, and allowing for growth.
Ballanger, the wealth manager, said, “The physical bullion silver and gold markets bottomed in the middle of last year and we thought mining shares would catch a bid soon after the physical market turned. As it would turn out, the mining shares hit new lows in December as they were caught in tax-loss selling and rebalancing. That set up a generational buying opportunity.”
Investors are seeing the current bearish sentiment around gold, and stay away. The popular, but ridiculous price-to-revenue ratios of tech stocks such as Facebook, Twitter and Netflix are holding investors’ attention. While the miners are beaten down and out of favor, many investors do mot seem to worry that tech stocks could take 30 years of optimum performance to be valid. Ballanger said metals stocks are at the “opposite extreme” to tech stocks, and that may be why big money is moving their way now.
See The Gold Report interview.
