There are certain natural laws or patterns that exist, patterns that occur which one cannot afford to be blind to and cannot ignore. In the financial markets and especially in commodities, seasonal patterns are extremely strong, repetitive, and reliable signals.
One of our favorite yearly trades is going long natural gas from the mid-summer into the fall as utility companies build up inventories for winter heating season and hurricanes may disrupt supply and deliveries.
Over the last 30 years, the seasonal natural gas trade has paid reliably from July to November as shown below. You can literally set a calendar reminder for July 1st to start looking for an entry every single year and it pays.
This year natural gas has been exceptionally strong, and it is up 65% year to date, with 43% of that gain coming from the late June breakout until today. If one is trading a leveraged product (futures, options, high beta stocks) this trade paid out enormously well with an ROI easily in the hundreds of percentages.
Another commodity that is coming into strong seasonality is gold. Although gold has been having a pretty rough year in 2021, we can see in the chart below that, based on the last 30 years of data, gold tends to do well in the fall going into the Christmas break. From a macro perspective, there are all kinds of factors that could come in to play but we are less concerned about the “why?” as long as the trade works.
We do start to pay attention to the “why?” when we narrow down our search from the macro gold thesis to the micro-thesis around single name equities, especially as it relates to earlier stage drill plays. As Canadian investors, we are well acquainted with mining names and the industry and, as our name suggests, we like to offer some insight in to equities!
So, keeping with the theme of seasonality, in the junior mining space, the seasonal trend we all know about is “Sell in May”. The lesser-known seasonal trend (or maybe the one that doesn’t have a nickname?) is the bull run we tend to get from the end of summer in to the Christmas holidays.
Here is one of the reasons “why”: Many Canadian junior mining firms raise money via flow-through shares before the calendar year end and in RRSP season as investors are planning their taxes. There is also usually a flurry of financing activity in Q1 around the Vancouver Resource Conference in late January and the PDAC in Toronto at the beginning of March. We know that exploration dollars raised by Canadian firms will be deployed through the summer exploration months when the weather is idyllic and that the results trickle in through the summer months but really tend to hit the newswire in the fall months. Thus, assuming the results are good, the stocks trade up and the seasonal trade is around results from the drill season.
Exploration drilling is in and of itself an extremely daunting game where the probabilities of success are relatively low. So picking an exploration play based on technical merit (geology) is not something we are going to do here - we are no geologists. What we will do is highlight two stocks that have fully funded exploration programs with results in the queue and what we feel are the right elements in the capital markets to have an impact when those results hit the wire over the coming months.
Rover Metals Corp.
Rover Metals (TSX-V: ROVR) (OTCQB: ROVMF) is a relatively new issuer. Having started its journey in 2019, it is exploring and confirming historical data in a known mining district in the NWT - they are obviously in the right zip code. The corporate site (rovermetals.com) has a ton of relevant material, maps, videos, etc. about the technical merits of the project - they look good, and the company does a better job of communicating their plan than most. A major point of interest is around the Board of Director and Advisors which are littered with big names in the industry. One would rationally consider that ROVR might have some good insight on where and how to spend their exploration budget.
Since inception, the stock has spent most of its life in the $0.07-$0.10 range and has yet to really break out. Another point worth noting is that there is a good following for ROVR both on their Stockhouse board and their CEO.CA board which to us is a great sign that when something positive happens, there will be a reaction.
ROVR doesn’t have the smallest share count we have ever seen with 115M sitting out there at the moment, however, given that the stock does not trade a ton (avg. daily volume of <200k) we infer that there is a pretty tight shareholder base that is looking for much higher prices. We expect that the average daily volume will likely get to the 1M mark if positive results are published from the summer drill campaign come through. And, given that ROVR is a relatively fresh stock, there does not appear to be much overhead from what we can see on a chart - clear blue sky above $0.125.
Golden Ridge Resources Ltd.
Golden Ridge Resources (TSX-V: GLDN) is another promising early-stage player. With a portfolio of assets in BC right next to some known deposits and operations as well as a few more in NFLD - they have many irons burning. Again, like ROVR, their corporate site (goldenridgeresources.com) has all kinds of technical material for those inclined. GLDN also has a very active following on Stockhouse as well as on CEO.CA and on Twitter which to us is a positive indication and implies that there is some brand awareness/following around the ticker symbol.
However, it is clear that the most obvious investment thesis here is that Eric Sprott owns just under 20% of GLDN of which his last purchase was in July 2021 at $0.27. I mean what else do you need in as far as endorsements are concerned in the junior mining space? And the stock is currently trading at $0.24. Seems like a decent place to enter as the current price is lower than what legendary mining investor Eric Sprott has paid.
In its last press release dated July 14th 2021, GLDN announced that the company has began exploring at the William’s Gold Property located in Newfoundland and Labrador and situated within New Found Gold’s Queensway South Gold Project. GLDN is targeting areas the company deems of high interest from its previous geochemistry and prospecting program GLDN conducted on October 26, 2020. The CEO of Golden Ridge Mr. Michael Blady was quoted “We are extremely excited to commence exploration at the Williams this year. With the Beaver Brook antimony mine in view to the west and the Appleton Fault traversing the Property at our boots, there is no question this is a Tier One exploration project that happens to be relatively unexplored”. Next Tuesday will mark almost 2 months since the company has last issued a press release so the company is due to update the market on its operations and may be the fuel the company need to reach its previous highs of $.41 cents.
GLDN definitely has some work to do to get back to the May highs, but all the right elements are in place from what we can see.
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