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Quality companies are investors’ best bet when valuations get low

VRIC 2022: Metals are generally still enjoying a bull market ride. (Credit: Henry Lazenby).

Virtually every mining stock in the market today, whether a major or a junior’s, has been off between 10% and 40% over the past few weeks, making anything one buys ‘seem like a bike,’ says independent exploration geologist Brent Cook.

“I don’t buy that,” he told the audience at the VRIC conference in Vancouver on May 17.

According to the seasoned investor and co-founder of the Exploration Insights newsletter, retail investors should look at whether the junior companies they are interested in have enough cash in the bank.

“It’s going to be really difficult to finance anything unless it’s really high quality and proven out,” he said. “So, if you’re looking at a junior exploration company, find someone who’s got the money and is ready to go, unless you want to get in on financing.”

An excellent example of such an outfit, in his view, is Liberty Gold (TSX: LGD), with gold deposits in Idaho and Utah. “Those are good oxide deposits. The company has about $34 million bucks in the bank and three or four rigs drilling right now,” he said.

Speculative resource investor Rick Rule reminded the audience that money has always been made in the discrepancy between price and value. “The value doesn’t seem to change much in the four to six-week timeframe, but if the price does, it’s better to see a lower than a higher value if you’re an accumulator, which I am,” said Rule.

“What I like about markets like this, where people are afraid, is they take leave of their common senses, which is to say all of my competition seems to unilaterally disarm because of fear,” said Rule.

“I would simply point out that, in terms of my portfolio concentrations, when the best companies begin to sell cheaply, I have less inclination to take risk when the less risky positions become cheaper and cheaper. So, I find myself perhaps as a function of my age, erring towards the higher quality rather than the lower quality companies,” said Rule.

Bull market?

The panelists noted that there always seemed to be a gold bull market right around the corner, and right now is absolutely no exception.

“I think people’s expectations are that the gold bull market stairsteps to heaven. Most people have a two-week or three-week inclination when they live in a 10-year world,” said Rule. “From my point of view, we’re four and a half years into a gold bull market, not three weeks out of one.” analyst Jeff Clark also agreed gold and silver were enjoying bull markets. “Just because prices are lower prices does not determine whether the bull market is over or not. It’s not a lower price issue. For me, it’s about whether the fundamentals are still in place.”

“And if they are, it invites me to continue participating aggressively in the global market,” said Clark.

He cites the commodity price crash during the onset of covid in March 2020. “If you bought then against every technical signal saying it’s a bear market; bull market is over. But I bought in March of 2020 and literally cleaned up a year later,” he said.