By Ben Kramer-Miller
Wall St. Cheat Sheet
The bear market has generally hit the smallest gold miners, with no revenues, the hardest. Often, these companies are sitting on gold resources but they need funding in order to develop their mines, and with low gold prices, financiers are simply not willing to put forth any capital. As a consequence, the market refuses to recognize the value of these companies’ assets, as it anticipates that they will either gather dust or that the companies in question will issue more stock in order to raise the capital they need.
The result is that there are companies out there trading at a small fraction of the value of their resources. For those bullish on the gold price, this can be an incredible opportunity, because if the gold price rises, financiers will be more willing to fund these projects, especially if they can get some of the gold through a royalty as a part of the loan agreement. Thus, not only will the intrinsic value of these companies’ projects rise, but the shares of the companies that own them will trade at higher fractions of their properties intrinsic values.
That is the good news if you own shares in of these companies and the gold price rises. The bad news is that these companies often don’t have any capital, and they need to keep issuing stock in order to pay their employees or to explore for more resources. Investors in these companies need to accept the risk that their shares will continually represent a smaller portion of the company over time until the gold price rises. As an investor who likes to take a chance in some high risk-high reward equities with some of his portfolio, I went hunting for a company that fit such criteria and came up with Canarc Resources (CCM.TO).