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How Junior Mining Companies Hit the Reset Button

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How Junior Mining Companies Hit the Reset Button

How Junior Mining Companies Hit the Reset Button

Special thanks to Dajin Resources for sponsoring.

There is a saying in junior mining that “a rising tide floats all boats”. Basically what this implies is that when the market is doing well, all speculative companies benefit from a booming market at the same time. In other words, an investor can hold a position in any of these companies and receive a payoff.

However, what they don’t tell you is that a falling tide can make it a pretty rocky environment for even many of the best boats and navigators. In this type of environment, many companies can face dire circumstances in which they may need to get creative to survive. This is analogous to our current situation where junior mining stocks have been in a bear market for over four years.

If push comes to shove and a company’s situation becomes troubling enough, one answer is to hit the “reset” button. Management teams that cannot raise money may use this type of solution to rejig their share structure, pay off debt obligations, and eventually reposition their company to raise money again.

How does this work? First, the troubled company would roll back the stock such that multiple shares would be exchanged for one new share (for example, a 6:1 rollback would mean 6 old shares are turned into 1 new share). Note that such a rollback also changes the stock price by the same ratio, so a $0.01 stock would then be trading at $0.06.

Then, the company would issue new stock to settle any debt that is on the books and then raise money again. Ultimately, in order to be successful at any of this, the company needs to also shift their direction in some meaningful way. Changing the management team, switching focuses, or acquiring a new project may be ways to give a company new life.

While it is never fun to admit defeat for management teams or investors, ultimately this “reset” button is something that is a unique part of this sector and for good reason. It gives a clean slate, and creates a share structure and situation which can possibly be turned around.

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Mining

Charted: The Value Gap Between the Gold Price and Gold Miners

While the price of gold has reached new record highs in 2024, gold mining stocks are still far from their 2011 peaks.

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Line chart comparing gold price and gold mining stocks since 2000.

The Value Gap Between the Gold Price and Gold Miners

This was originally posted on our Voronoi app. Download the app for free on Apple or Android and discover incredible data-driven charts from a variety of trusted sources.

Although the price of gold has reached new record highs in 2024, gold miners are still far from their 2011 peaks.

In this graphic, we illustrate the evolution of gold prices since 2000 compared to the NYSE Arca Gold BUGS Index (HUI), which consists of the largest and most widely held public gold production companies. The data was compiled by Incrementum AG.

Mining Stocks Lag Far Behind

In April 2024, gold reached a new record high as Federal Reserve Chair Jerome Powell signaled policymakers may delay interest rate cuts until clearer signs of declining inflation materialize.

Additionally, with elections occurring in more than 60 countries in 2024 and ongoing conflicts in Ukraine and Gaza, central banks are continuing to buy gold to strengthen their reserves, creating momentum for the metal.

Traditionally known as a hedge against inflation and a safe haven during times of political and economic uncertainty, gold has climbed over 11% so far this year.

According to Business Insider, gold miners experienced their best performance in a year in March 2024. During that month, the gold mining sector outperformed all other U.S. industries, surpassing even the performance of semiconductor stocks.

Still, physical gold has outperformed shares of gold-mining companies over the past three years by one of the largest margins in decades.

YearGold PriceNYSE Arca Gold BUGS Index (HUI)
2023$2,062.92$243.31
2022$1,824.32$229.75
2021$1,828.60$258.87
2020$1,895.10$299.64
2019$1,523.00$241.94
2018$1,281.65$160.58
2017$1,296.50$192.31
2016$1,151.70$182.31
2015$1,060.20$111.18
2014$1,199.25$164.03
2013$1,201.50$197.70
2012$1,664.00$444.22
2011$1,574.50$498.73
2010$1,410.25$573.32
2009$1,104.00$429.91
2008$865.00$302.41
2007$836.50$409.37
2006$635.70$338.24
2005$513.00$276.90
2004$438.00$215.33
2003$417.25$242.93
2002$342.75$145.12
2001$276.50$65.20
2000$272.65$40.97

Among the largest companies on the NYSE Arca Gold BUGS Index, Colorado-based Newmont has experienced a 24% drop in its share price over the past year. Similarly, Canadian Barrick Gold also saw a decline of 6.5% over the past 12 months.

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