When Will the Miners Bottom?

Many investors involved in the precious metals mining stock are asking when the miners will bottom. Some are saying that the bottom already happened and others think that there is more pain. I find this question kind of silly because it is equivalent to asking when will people stop selling assets for pennies on the dollar.

Picture this beautiful house.

Let’s say that it cost $300,000 to build it. Investors are currently selling it for $250,000. A month later they are selling it for $200,000. Then, $100,000. Others who also own shares of this house get terrified so they start selling too. Now, they are selling it for $50,000. More people join and the price drops to $5,000. When will it bottom? Who knows.

As a value investor, you come in and say, this is a good deal because the windows alone are worth the market cap. But then the price drops even more. $3,000. You think are they crazy it cost $300,000 to build it and it is selling for $3,000. So you buy more shares and the price keeps on dropping. When will it stop? It has to stop somewhere because the mailbox alone is half of the market cap now. Yeah but who cares. The values don’t matter.

This is kind of what is going on in the mining sector. I look through many companies and I see prices that would never be possible in the private market. I see gold mining companies trading for $10 million while having real assets worth $200 million. In a few days, I will be releasing the January Issue of Ultimate Value Finder which contains a write up on one miner. The other two companies are not miners. Four weeks ago, this particular miner was trading for a market cap of $15 million while generating profits after G&A of $10 million. And this is while the company is growing. FYI. It is up almost 100 percent since then.

So I have absolutely no idea when the miners will bottom. No price is low enough because the people selling do not even look at what it is that they are selling. Last week, I received the following text message from a client. Excuse me former client.

“Please sell everything. I want all cash in my account, PERIOD! ASAP. No further discussion.”