(Kitco News) – Phrase it however you like, gold and silver mining stocks have had a rough ride during this bear market, leaving many investors scratching their heads with decimated stock picks.
To help frame the carnage a little bit, the S&P/TSX Venture Composite Index, which is heavily made up of miners, has taken a pasting since late August and has been on a downtrend since early March 2011. It recently hit an all-time low of 637.11.
That’s going to change, according to a few gold and silver specialists, as they expect a turnaround in the fortunes of mining companies and their stock value.
“I think the odds are favoring a turnaround,” said Jeb Handwerger, president of the Gold Stock Trades newsletter. “This has been one of the hardest, and longest, drastic downturns because it’s coming off a 10-year bull market that went very high. This is a correction to the mean, and markets will do that – they’re cyclical.”
Andrew Chanin, chief executive officer of PureFunds, believes that 2015 will be a return to fundamentals over technicals for precious metals prices.
“I thought it would have happened sooner, and we’ve seen so many wild signals from all different areas in the metals space that we’re at some type of turning point,” he said. “That turning point will be the return of the fundamentals to the metals markets, which in turn will help the miners.”
Jordan Roy-Byrne, editor of The Daily Gold newsletter, said he sees a good year for mining stocks in general, but pegs a few groups to really excel.
“I think it’s going to be a really good year, because we’re at the end of a bear market,” he said. “The junior developers and junior explorers are going to outperform because the bear market devastated a lot of producers and it’s going to take a long time for them to get their houses in order.”
The gold and silver mining industry has faced some real hard times over the last few years as sagging metals prices have led to severe cost-cutting measures, and in some cases, severe write-downs on assets.
In turn, that has led to miners flirting dangerously with low profitability margins, and in other cases, companies producing at a loss.
“A lot of companies have been near-at, slightly above or below cost of production and I strongly believe that can’t persist for much longer,” he said. “As far as mining companies being stressed on the cost of production versus the spot price, I think silver has been the guinea pig on how far below the cost, compared to spot, could be, at least for the primary silver producers.
“I think that bounce from $14 to above $17 will be a good indicator for how low gold prices and miners can go,” Chanin added.
A section of miners that have really felt the pinch is the junior-mining companies, which have seen capital all but dry up.
The 10-year gold bull run saw a massive influx of junior-mining companies into the precious metals mining space in a promotional whirlwind. But executive mismanagement, and simply too many companies, has played into the hardships we’re seeing today.
“They (management) raped and pillaged their own companies, and you have to be careful of that with the juniors, or in any market,” Handwerger said. “Good junior mining is which companies can finance, which companies have reasonable management salaries, investigating who’s participating in recent financings – making sure its quality institutions.
“Those are the things investors should look at and that’s why I think we’re going through a difficult time.”
Roy-Byrne noted that there has been an exodus of the more promotional-type junior miners, and that the ones that are still hanging around will eventually get knocked off as well.
“At this point we’ve been three and a half years into a bear market, so it should have gone on long enough,” he said. “Some of these junior companies should die off anyway. It may not have been fast enough, with some companies lagging around a 1-cent stock price, but I don’t think a recovery would save the worst of the worst.”
By Alex Létourneau of Kitco News