The Investment U E-Letter
Friday, October 3, 2003
* * * * * * * 50%-Plus Gains… Where Nobody's Looking…
With the potential for returning many times your investment
By Dr. Steve Sjuggerud, just back from Vancouver
President, Investment U
"In the beginning the gold stock promoter has the dream, and the public has the money… my job is to arrange a transfer." - Saying by a Vancouver mining stock promoter in the old days, days that may be returning
If you had invested $10,000 in Vancouver-based Arequipa Resources in October of 1995, you'd have cashed out with $260,000 a year later when it was bought out. Arequipa did what mining exploration companies dream of… it discovered over seven million ounces of gold. Today, after six punishing years, the Canadian Venture Exchange - where exploration companies like Arequipa are traded - is hot once again… The index for the exchange is up over 50% in the last year, and trading volumes are up over 100%. But this is nothing compared to the potential returns we could start seeing from a portion of the exchange… As the price of gold heads higher, the real opportunities for 10-baggers and 20-baggers (where you can make 10 or 20 times your money) are in the junior gold stocks… And while the words "Vancouver" and "gold" do smack of the investing Wild West, you could, with some careful research - and a willingness to speculate with a portion of your investment dollars - exploit this opportunity for Arequipa-type returns. The Makings of a Bull Run in Gold? We may be at the very beginning of a big "bull run" here in these stocks… as the market for smaller gold stocks has been crushed for over six years. In fact, the Canadian venture market has fallen by four-fifths in size since 2000, and it has been limping along since 1997. Why? It goes back to a disastrous company that sank in the blink of an eye - and took the venture market down with it. The $6 Billion Scam that Killed a Market - and a Geologist The Bre-X scam was blown wide open shortly after the suicide of its chief geologist in 1997. Bre-X claimed to have discovered 4% of the world's gold. It turned out Bre-X had nothing. And $6 billion of investor money disappeared virtually overnight. Before Bre-X, the Vancouver Stock Exchange was where mining companies got their start. As much as a quarter of all world mining exploration funds were raised by stock promoters in Vancouver. After Bre-X, that avenue closed up - literally. The Vancouver Stock Exchange is now just a shadow of its former self, having merged with the Alberta Stock Exchange in 1999. In late 2001, these two exchanges merged with the Toronto Stock Exchange. From 1997 to 2002, nobody was interested in mining. A horrible bear market set in. That is changing right now. The bottom in share prices for Toronto's new Canadian Venture Exchange was hit about a year ago. And the Canadian Venture Exchange index is up over 50% since then. How To Pick A Junior Gold Stock Rick Rule knows more about junior gold stocks than any else I know. (I'll admit, I don't have any money in junior gold stocks, as I'm way out of my element here and don't have any hands-on expertise or experience.) In an article on Rick's web site (www.gril.net), Rick says: "Look for a strong technical team, good financial backing, a strategy for developing exploration targets and joint venturing them with majors, and remember the cycles of perception and reality." As for the "strong technical team," you need to make sure the company you're considering investing in has real geologists and real business managers. Check out the people in the organization, which you can often do through the company web site. If there is no geologist, then you know you're just dealing with mining speculators. And do a broad-based Internet search to learn about the managers (start by typing their names into Google.com). Do they have a history of successful mining projects, or do they have a troubled past? As for "good financial backing," Rick likes to see a lot of cash, and basically sound finances. "Nothing reduces risk like plain old value," Rick says. He explains this more in detail in his article "Investing in Junior Mining Shares," which you can read on his web site. Also, Rich says, look for a sound business plan that includes development and joint venturing - this is how you get paid… how you make your real money… how you end up with a stock like Arequipa, which rose from $1.15 to $30 in a year. Rick urges you to find out their exact plan as, surprisingly, many can't even articulate their plan for making you money. Avoid those. Lastly, Rick warns about the cycles of perception and reality. I think we're safe here, at the moment, six years after Bre-X. We are now grounded in reality. After Bre-X, the gold stock promoters became dot.com promoters. If junior gold stocks finish this year out strong, we may see the promoters returning to their old stomping grounds, hyping junior gold stocks once again. A few other things to look for when evaluating a junior gold stock: Has gold been found before in the area they're looking? Is there a third-party assessment of the company's gold claims? (You can often answer these questions online, by going through the company's web site or checking out the comments on the TSX website - see below). In short, be skeptical. These stocks are for speculators. If you're looking for 10-baggers, or 20-baggers, the TSX - Canadian Venture Exchange offers that potential now. Do your homework, and if you're so inclined, give it a shot. Today's IU Cribsheet - You can learn more about the Canadian Venture Exchange by visiting www.tsx.com and clicking on "Venture" in the blue. To track the Venture index on Yahoo Finance, the symbol is ^SPCDNX.
- To read Rick Rule's reports on investing in junior gold stocks, you can download them for free at www.gril.net. Also, for a very good web site that covers gold and gold stocks, visit www.kitco.com.
- If you want a complete immersion in the art of smart investing (along with a great networking opportunity), I encourage you to check out the 30th Anniversary of the New Orleans Investment Conference 2003, scheduled for Oct. 29-Nov. 2, 2003 at the Sheraton Hotel in beautiful downtown New Orleans… only blocks from the French Quarter. The event's going to feature an entire day of Oxford Club, Pirate Investor and Daily Reckoning speakers… including top Club speakers like Alexander Green, Porter Stansberry, Karim Rahemtulla, Agora President and Founder Bill Bonner and yours truly, among others. Headliners Bill O'Reilly and fund-wizard-turned-author Jim Rogers will also be on hand.
Good investing, Steve | 
