An article today titled ‘Junior Gold Stocks: Bent, Not Broken’ by Scott Wright of Zeal Speculation summarizes his views on Junior Golds – where they have been and why, and where they are going. In summary, Wright says:

• in the past several months even though gold has been strong, the risk capital that usually finds its way into junior gold explorers has ‘all but left the scene’;

• junior gold stocks typically lag gold and even the larger gold stocks over the course of an upleg since institutional investors usually can’t buy them. Accordingly, rallies in these juniors are ignited when the enthusiasm of individual traders takes hold in the latter halves of uplegs;

• measured by the S&P/TSX Venture Composite Index (CDNX), the gold juniors have fallen by 80% from its 2007 high before finally appearing to have hit bottom this past December – and this in a period when the gold price has been strong;


• decimated stock prices and fleeting investor interest is a bad combination that does not bode well for the futures of many of these juniors. Ultimately they rely on bullish sentiment to survive, and (in Wright’s view) many will now be strained to stay their course. Stated another way, selling begetting more selling has driven the stock prices of many gold juniors to alarmingly low levels over such a short period of time it has radically changed the landscape for junior gold stocks. For some of these companies the damage may be irreparable – with capital (new equity infusions) leaving the junior sector being “deadly for the survival of this species”;

• Wright’s believes his latest round of research on over 300 gold juniors has revealed ‘just how rotten the environment’ is for this sector. He says “what I found was frightening”. Only 3% of junior golds had market capitalizations over $300 million (the floor market capitalization of ‘small cap’ per Investopedia.com) and only 15% had market capitalizations between $50 - $300 million (the definition of a micro-cap per Investopedia), leaving 82% being defined as ‘nano-caps’. Taking this further, Wright found just over 50% of all junior gold stocks have market caps under $10m;

• 85% of all junior gold stocks are currently trading under $1 per share, 75% are trading under $0.50, 59% are trading at less than $0.25, and nearly 40% are trading under $0.10;

• using 3-month average volume and the average share price for all the nano-cap juniors, the average daily trading value per stock only amounts to $44,000, and $18,000 for the ‘under $10 million market capitalization’ juniors;

• when it comes to investor awareness, without a major discovery Wright believes ‘the smaller a company is the harder it is to attract interest’, that a company’s share price impacts their ability to raise capital going forward, that a company can release only so many shares to the market without disrupting share capital provisions and ‘diluting the heck out of existing shareholders’, and if a junior tries to raise capital with an over-ambitious offering size relative to its market cap and existing shares outstanding it simply won’t find the subscribers. To Wright this means that “many juniors with super-low share prices will have a difficult time raising capital in today’s environment. And if they are able to find subscribers to new shares, they aren’t likely to raise significant-enough capital to fund costly exploration programs”;

• Wright concludes “the fact of the matter is it will be extremely difficult for many juniors to flex enough muscle to obtain the capital necessary to fund multi-million dollar exploration campaigns when they are so small”;

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