Bottom of the Cycle Leverage Prospects
After a median share price fall through the cycle of around 80%, hundreds of early stage mining companies can show very strong bottom of the cycle capital gains even without recovering a material part of their earlier losses. Investors should be cautious about inferring a market recovery from such performance. The flow of new investors is not sufficiently strong presently to maintain the share price momentum. More often than not gains peak quickly and prices revert to earlier levels. Chasing these rises remains premature in a still cyclically weak market. Remaining examples of exploration or development endeavours still trapped within cyclical low price ranges suggest better investment opportunities can be found. Companies falling into this category include Australian Vanadium, Bannerman Resources, Crusader Resources, Deep Yellow, Heemskirk Consolidated, Kasbah Resources, Mineral Deposits, MZI Resources, Potash West and Thundelarra. There are others, too. In most cases, at this stage of the cycle, seller exhaustion is a pre-requisite for market re-pricing which may not be the result of a specific event or a so-called ‘investment catalyst’.
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John Robertson is Chief Investment Strategist for PortfolioDirect a provider of resource sector investment stock ratings and portfolio strategies for mining and oil and gas investors. He has worked as a policy economist, corporate business...
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