Tuesday, 12 July 2016

The rising tide lifting all boats (?)

"A bull market in mining stocks is beneficial to all of them" is what is depicted by this blog title. Is it really true? Or more precisely to what extent it is true?
In answering this question, I will compare the long term result of the 94 miners and explorers from my database to the short term gains as measured by the percentage recovery from the 12 months low.
With very few exceptions, that low was reached during the months of December 2015 or January 2016. A first observation: all miners or explorers have indeed been rallying and none are anywhere near their 12 months low. Secondly: their participation in the rally during the nearly six months since the HUI miners index bottomed on January 19 has been extremely varied. Gains vary from barely over 30% to a single tenbagger, now quoting 10.59 times what it traded at when bottoming.
All percentages are calculated using closing stock prices on July 11, 2016.

Scatter graphs

You get the picture in following two scatter graphs, where the short term recovery rally gain is shown versus the long term result (since Nov 19, 2010) . The first graph shows miners/explorers with a long term decline or advancing less than 50% on the x-axis. The second graph shows the elite long term picks advancing over 50%. In both cases, the Y axis shows the short term recovery rally gain.
Click any of the graphs for maximum resolution

Fig. 1: Recovery rally gain versus the long term result (since Nov 19, 2010)
Does the rising tide lift all boats?  Yes, but it does so very unequally!

Fig.2: Recovery rally gain versus the long term advance (since Nov 19, 2010)
You find a similar inequality among the 12 top performers in the list. A few implications are that some of the top performers with moderate recovery rally gains actually never were down at the miner bear market bottom. They only saw prior gains (since Nov 2010) dwindle.  At the other hand, all top performers with handsome recovery rally gains rely on those gains to pull them up from a dire situation.

The top-25 rankings

The left table shows 24 miners or explorers with their TSX trading symbol, the sorted long term result along with the recovery rally gain.

The right table shows 24 miners or explorers with their TSX trading symbol, the sorted recovery rally gain along with the long term result.

Quote
LT % result
Up from low

Quote
LT % result
Up from low
AZ
329%
732%

MGT
-39%
959%
OSK
228%
175%

IPT
-22%
827%
FVI
192%
326%

GPG
-94%
800%
PVG
161%
176%

KSK
-94%
750%
KDX
149%
121%

AZ
329%
732%
ASM
120%
265%

AST
-96%
700%
FR
118%
494%

AGV
-95%
700%
MAG
118%
137%

CDE
-44%
685%
THO
117%
128%

TMI
-81%
650%
TXG
86%
194%

MUX
11%
632%
OGC
61%
200%

AXR
-59%
597%
RPM
53%
300%

USA
-62%
579%
TML
38%
103%

EXN
-67%
565%
BTG
32%
391%

SVM
-66%
555%
MQR
32%
550%

MQR
32%
550%
GOLD
28%
124%

BCM
-60%
548%
OR
24%
43%

MSV
-65%
509%
GPR
19%
410%

FR
118%
494%
DGC
18%
224%

HRT
-57%
490%
EDR
12%
328%

AUM
-96%
484%
MUX
11%
632%

AMG
-99%
467%
NGQ
11%
139%

AR
6.3%
454%
AR
6.3%
454%

SPA
-83%
425%
GUY
2.8%
273%

ITH
-78%
412%

Note: if the TSX trading symbols cause you any problem, all mining enterprise names are listed in a table with the trading symbols on the Miners Performance page.

Necessarily few miners occur in both lists, while many less lucky picks are nowhere to be found. Average recovery rally gains among the miners in the database post at 314%. This average clearly is tilted up by a few exceptional advances of penny stocks barely having escaped delisting.
The median recovery gain still posts at 296%. That illustrates how wide spread recovery gains are among miners and explorers throughout the market cap size range.
When weighing the gains using the present market capitalization, the weighed average recovery gains 'only' amount to 226%.  The astute statistician will remember that this particular weighed average still has an upward bias relative to the result that would have been obtained when using the market caps at the very bottom of the miner bear market.

No bail-out

A miner recovery rally doesn't bail you at on an unfortunate or stupid investment decision in an explorer or junior miner.  Apart from quite a few list components having disappeared because of bankruptcy, many more still quote at hefty losses in excess of 90%, despite 'exceptional' recovery rally gains. You find those represented by the symbols at the upper left of the first graph and listed among the top section in the right table. GPG (Grand Portage Gold), KSK (Kiska Metals), AST (Astur Gold) or AGV (Agave Silver, the former Cream metals) just to name a few.

One illustration of a 10-year graph of our tenbagger: silver explorer Mines Management (MGT) should give you a good idea of what really happened before.

Fig. 3: MGT, 10 year graph from Jul 2006 - Jul, 11 2016.
MGT rallied from less than C$0.20 at the bear market bottom in January to C$1.98 yesterday Jul 11.  Yet, relative to Nov 19, 2010 you still are down 39%, despite initial gains in 2011.  When looking back before 2008, you notice that 10 years ago this stock quoted over C$7.  A 'tenbagger' is the wet dream of every mining stock speculator.  However, few are the examples where gains can be sustained over a longer time frame.

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