Industry expert talks up the ‘junior miners problem,’ and what his—and your—portfolio needs to ignite.
Thom Calandra was co-founder and chief columnist of MarketWatch before it was sold to Dow Jones in 2005. After taking a few years off, he returned with The Calandra Report, a mining-focused newsletter.
Calandra spoke to IndexUniverse contributing writer Hannah Tool about the downturn of junior miners and what he’d like to wake up to on a Monday morning.
IndexUniverse: When it comes to junior miners, geographically, where in the world are you investing?
Calandra: If you're in an ETF like GDXJ [the Market Vectors Junior Gold Miners] (B-33) or GDX [the Market Vectors Gold Miners] (A-55), you're all over the world; doesn't matter which ETF, whether you're investing in the majors or the minors. The indexes that underlie miner funds usually have at least 10 companies. For perspective, a new index running out of Germany that a friend of mine, Michael Koch, started about six months ago, has 80 companies, and the geography is everywhere.
But let's just say you're in the juniors. Speaking just in terms of GDXJ, you're going to have Kinross; you're going to have probably Yamana Gold, so you're going to be in Latin America, Central America, North America, Asia. You're going to be in every single jurisdiction, whether they're safe or not.
IU: Then junior miners are very much a global investment?
Calandra: It's totally fair to say that. With any ETF, unless it's totally specialized, you're getting the whole melting pot.
IU: Junior miners are considered to be a more speculative investment than an actual established mining fund. Why is that?
Calandra: Because some junior miners have zero production!
Now, let's say the junior miner actually has production. Lately, practically no one in the world has been able to make good on their promises to lower the production cost of gold. Add to that the current uncertainty about the price of gold—it's not $1,900 anymore, it's back to $1,275.
With junior miners, it’s not just volatility—they’ve gotten crushed. Recently, they've probably hit their lowest point ever, or close to it.
IU: Are junior miners just silver and gold?
Calandra: No. When people say “junior miner,” they mean everything—platinum, palladium, copper, nickel, rare earth metals, even the energy companies you can say are juniors. And most of them aren't miners; most of them are prospectors. Furthermore, most of them really aren't even juniors. Most of them are like micros.
What was that old term? The “penny dreadfuls.” Nearly all of them are becoming penny dreadfuls because their stock prices are as low as pennies.
IU: A colleague referred to junior miners as “investors’ favorite way to lose money.” I take it you’d agree with that?
Calandra: Well, my wife says I'm the great destroyer of capital wealth. And it's true. We had some great years up until about 2009. This whole downturn in the resource equities started in February or March 2011. So you've had almost three full years of down. It doesn't matter how well you run your company. Add to that the fact that, in the meantime, everything else in the stock market universe has gone higher.
It's painful to stick with this. I know I've stuck with almost everything in the last five or six years, and I can tell you just the value of that portfolio, which is almost 100 percent resource equity, is down 60 percent in three years, easy.