Commodities and mining, Long-Term Investing, Stocks

How to time the price dip in the junior mining stocks

Suppose you found a junior minor that you think is a hidden gem and its share price is just so ridiculously low that it can’t get any lower. Time to buy! Or is it?

If the company on your radar is:

  • about to start building the mine, or
  • in the process of building the mine, or
  • in production but in very early stages and may be having cash flow problems

…before you invest, you need to find out:

  • the company’s “burn rate”, or how much money it needs to spend per month
  • how much money they have in the bank
  • if any big capital expenditures are planned and for when

All of this is not insider information, it’s open to the public, just go through the quarterly statements. For the latest facts you should email the company’s Investor Relations department (that’s another thing – email them and see how quickly they respond. Some juniors never replied to my repeat messages and that was the final straw in some of the decisions I made.)

The point of the above exercise is to try and time buying on the dip. When you know how much money they have and how much they spend, you can figure out when they’ll be needing financing. Before the financing share price is usually manipulated down (by the “smart money” that provides the financing), so that the offering can be made at the lowest price possible.

Private placement shares usually can’t be sold for several months (4 to 6 is typical). You can look forward to that time, because the PP investor will likely want to dump the shares for more than they paid, and if they had the ability to depress the share price, you can be sure they can manipulate it higher, too.

Juniors are much more driven by company events/news releases than by technicals. It’s just the nature of this beast. Technical analysis works for juniors in the relatively stable periods when no new announcements are expected – but only if the trading volume is sufficient.