Resource Market Getting Into Bargain Territory
By David J. DesLauriers
14 Mar 2007 at 03:55 PM GMT-04:00
resourceinvestor.com
TORONTO (ResourceInvestor.com) -- Volumes have dried up quite disturbingly over the last couple of weeks, and share prices of some of our favourite names are off quite dramatically. The HUI is now down around 315, off from recent highs of 360.
A red screen has been the order of the day for most in the month of March, and indeed, when one scans the universe of names out there, it has been something of a bloodbath. Quality stories are getting to bargain levels, and for those fully invested, the thing to do is be right and sit tight. For those with dry powder, entry points around here look very compelling.
But despite the general weakness, lack of volume, and overall malaise, there continues to be positive underlying interest.
Financings
Even in the face of quality near-production names retreating 20% or more, financings are being completed with ease for companies involved in all metals. The pace has not slowed, but what we are seeing is the beginning of the effects of all of the paper raised in November and December 2006 coming to market as four-month hold periods wear off.
Your correspondent suspects that this is something that will continue for the next couple of months, increasing negative pressure on the whole space.
Uranium
High-flying uranium stories have suffered less than their precious and base metals brethren over the last fortnight, and the price of uranium has continued to rise, now at $90.
Our view is that even if the price of uranium continues to rise, explorers will come off, though near-producers with pounds in the ground will continue to be strong. We may get to the point where the market is no longer excited by 5 metres of 0.10%. A flight to quality is the order of the day for yellowcake stories.
Conclusion
When one looks at the weakness in the market here and can assess that valuations are getting into very attractive territory, one is tempted to fill one’s hat. However, with an avalanche of 4-month hold paper being triggered now and over the next couple of months, and with volumes looking perilously thin, this market could go sideways or lower before it rebounds.
That being the case, one advisable strategy could be to scale into positions for those with dry powder, some now on stories which look cheap, and more later if conditions worsen.
In any case, this is probably a healthy correction, and with any luck it will behind us in the next couple of months, or sooner. Readers who have loaded their portfolios with quality stories underpinned by assets and cash flows will be in better shape than those trying to play a different game.
The hope and promotion stories will take considerably longer to rebound when the time comes, as they too have levered enthusiasm into a full treasury, but the majority have failed to deliver anything on the fundamental side. |
