LR: It’s getting harder and harder to find good-quality assets in favorable jurisdcitions.
TGR: Is that good or bad for the junior investor?
LR: Long term, it’s good. The value of the good-quality assets will appreciate. In decades gone by, there was a surplus of good-quality metal deposits available for development. When metal prices rose, a lot of new deposits came onstream and knocked back the metal prices. We saw that cycle repeated several times over the last few decades. But the situation has dramatically changed; there is no longer a surplus of good-quality assets. Finding large, high-grade deposits is getting harder. That means that when a company makes a discovery, the discovery is more likely to yield a high value for shareholders.
TGR: Looking at the relative share prices of junior companies over a two-year window, we see some that are still holding value, despite some downturn in share price. For example, Newstrike Capital Inc. (NES:TSX.V) was $0.40/share in August 2010 and now it’s $1.80/share despite having risen as high as $3.40/share in the interim. There are other firms with similar stories. Do you consider this type of comparison to be an indicator of company strength for the long term?
LR: Yes, those price ranges are good indicators of value in this market. There are several ways to explain undervaluation of high quality firms. Some individual investors are terrified and are selling across the board; they want out of all equities. Another huge component in the selling is investment funds, hedge funds and other institutional-type investors who came into the resource sector not really knowing what they were doing. Now they are looking to get whatever they can get for their positions. Consequently, sophisticated investors are picking up great bargains. That companies like Newstrike are still holding value indicates that they have tangible assets and solid management.
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