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Sometimes, it’s worth digging deeper in order to find the hidden gems.
The gem that I’m going to show you comes from one of the precious metals ratios that doesn’t get the attention it deserves.
You see, mining stocks are not alike. There are no two identical companies, of course, but that’s not what I mean.
The senior mining producers, already produce and sell precious metals, so they generate revenues. However, junior mining companies are not producing and selling yet. They have properties at different stages of development, but in general, there’s no revenue.
The value of the senior producers can be best by estimating free cash flows to the company, discounting them to the net present value, and so on. Or through the price-to-earnings values.
This is not really the case with juniors, where a lot of their value depends on… Well, hope. Estimates, assessments, belief in the quality of current and future decisions, and so on.
These two parts of the mining stock sector are similar in some ways but very different in other ways.
The basis is the same – they are proxies for the prices of metals that they either sell or expect to sell in the future. And yet, due to the above-mentioned differences, they will behave differently.
In particular, they will behave differently when the market goes through different emotional stages because there is a different level of “trust” needed to confidently invest in something that provides revenue and in something that doesn’t. The confidence levels will change not only based on what is really happening but also on how it’s perceived.
Therefore, comparing the performance of junior mining stocks and senior miners might give us special insights into the emotional stage of the precious metals market that is not visible otherwise.
There is also another factor at play here. Namely, the link between junior miners and stocks is stronger than the one between seniors and stocks. This is quite normal, given that seniors have revenues to back up their valuations, while juniors depend more on the market mood.
The first kind of link is what is currently providing us with a major indication. Like, a really, really major one.
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