Thursday 4 January 2018

New year, same stupid investor behavior (Aurania Resources)

Happy New Year to all!  May 2018 bring us mining investors the joy that marijuana and cryptocurrency investors saw in 2017.  Despite no exposure to those sectors, I had a very good year in 2017 and will remember it fondly.

2018 is off to a good start for metal prices and mining stocks, thanks in large part to US dollar weakness.  I think this is going to be a good year, but then I usually start the year off with such wishful thinking.  We are getting into the latter part of this economic cycle, so the time is right for materials stocks to finally do well.  My favorite metals for this year are zinc and silver, but I also like copper.
Fidelity - Sector Performance by Stage of the Economic Cycle

Reflecting on my strengths and weaknesses, I often let fundamentals and my cynicism get in the way of making profits.  I didn't jump on the cobalt or lithium band wagon because I didn't understand those sectors/metals well enough, even though I could tell they were hot.  Duh, you don't need to understand the sectors when anything associated with those metals is likely to go up.  A fool and his money are soon parted, so I may as well be positioned to take some fool's money.  This year, I will try to hold my nose and buy stocks just because they're in a hot sector or because investors are naively drinking promotional Kool-Aid.  What will the hot metal be in 2018?  I'm not sure yet, but I've already seen a few articles predicting it will be vanadium (link).

Even though we are barely into the new year, the fun and games in the junior mining sector have already begun.  Today, we had a mix of companies getting their wrists slapped by regulators (TSXV:LIC), share prices doubling thanks to a newsletter recommendation (TSXV:ARU - more below), and mysterious share price moves just before a stock is halted pending news (TSXV:MYA - up 37.5% before the halt).

Maya Gold 3-month chart - price pop before halt pending news.  Sketchy!

Aurania Resources' (TSXV: ARU) stock started going on a tear at around noon EST.  Volumes jumped and "investors" were tripping over each other to buy stock, causing the price to more than double in a couple of hours and finish the day up 61%.  I noticed the action and thought that Aurania had done it and found the lost city of gold in Ecuador!  Alas, the company issued the mandatory "no material change" new release.  Rumor has it that a newsletter writer recommended the stock.  My guess is James Dines, as his subscribers typically exhibit this type of "must-own-it-right-now" buying behavior.  One of the sheep paid as much as $7.57/share, giving the company a market cap of $172M.  These people need to realize that with a little patience they can buy shares for a lot less, increasing their potential returns.

I don't know Aurania well enough to opine on the odds of them making a discovery.  They have a big land package and a very interesting story, so I wish them luck.  What I do know, however, is that the current market cap of Aurania is $114 million.  There are lots of companies with defined, meaningful gold resources and interesting potential for new gold and copper discoveries that trade for much lower market caps.  New year, same stupid behavior.

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