It may seem like a confusing time to be a mining investor, but Jeb Handwerger, of Gold Stock Trades, insists it doesn't take a rocket scientist. "Stick to the fundamentals," he says. "The technicals will eventually reflect the fundamentals." In this interview with The Mining Report, Handwerger talks about what companies have the right foundation to shine after the market dusts itself off and starts to climb.
The Mining Report: Jeb, you've been in the resource market since 1996. Based on what you've seen, what are the current trends?
Jeb Handwerger: I first came into this sector when everyone was chasing the dot-com stocks. This was after the Bre-X scandal, where they were falsifying the assays. No one wanted to touch the gold miners, especially exploration stocks. They ran into the dot com sector and energy. Many people quit their jobs to become day traders. Gold had been in a correction since 1981 for 20 years. What we're seeing right now is very similar to what we saw back at that 30-year low earlier this decade—miners hedging production, miners cutting off production because of low prices, miners laying off workers, write-downs, initial public offerings of tech stocks with ridiculous valuations and zero earnings.
The resource market is basing. There are benefits to this process. You can see which companies are outperforming and you can see which companies have a strong balance sheet to weather the storm. You can see which companies are getting attention from investors and institutions and which companies are still advancing.
Some people I talk to are thinking about leaving the sector. That's not the right approach. Gains could be exponential. The right approach is to rotate into situations that will outperform, even if gold and silver stay flat. Stick to advisors who are finding the most compelling situations. Corrections take longer than people expect—the longer and the deeper the base, the more powerful the eventual upswing. It could be huge with the record amount of cash on the sidelines and the large number of shorts who may need to cover their position.
TMR: How can investors know which companies are going to outperform?
JH: It doesn't take a rocket scientist. Pull up a simple chart of which companies are beginning to outperform the index over different time frames, the Market Vectors Gold Miners ETF (GDX:NYSE.A) or PHLX Gold/Silver Sector (XAU:NASDAQ). The charts are a reflection of the fundamentals. During the past year, many junior mining companies have outperformed, many of which we featured in my Gold Stock Trades newsletter. For instance, two of our junior exploration recommendations in Nevada,NuLegacy Gold Corporation (NUG:TSX.V; NULGF:OTCPK) and Corvus Gold Inc. (KOR:TSX) show that significant outperformance is critical during these times as capital seeks out the outperformers.
Source: Jeb Handwerger, Gold Stock Trades
TMR: What are those themes?
JH: A success story that I have followed for about a year and a half is Comstock Mining Inc. (LODE:NYSE.MKT). The company is growing production, with the goal of building free cash flow and sustaining itself. The management and technical team is very impressive, with proven track records.