THH – Explaining my “Sentiment” Tracker

I have received some questions about the charts I use to gauge sentiment. I either use Bear Creek Mining and/or Strategic Metals. The reason I use Bear Creek Mining is because it has been around for over a decade, has been a mature silver developer with large low-grade silver resources, and is what I would call an “optionality” play. When sentiment is “hot” people typically get greedy and just go for the largest silver resources around. When sentiment is “cold” everybody focuses on “risks” and nobody wants to take on “risk” (juniors are considered the riskiest mining stocks). In essence Bear Creek Mining typically oscillates between crashing and rocketing… In other words oscillates between “No price is too low” to “No price is too high”. As for Strategic Metals I use it because it is a very conservative (“boring”) prospect generator with a lot of value. When nobody wants to take on any “risk” then anything “risky” gets little to no value and vice versa…

Today, after the recent flush in miners, Strategic Metals has dropped to a Market Cap of C$33.6 M. According to Strategic Metal’s April presentation the company’s cash position was stated at C$7 M and the company’s equity positions in other companies was valued at C$32 M. Therefore just the cash and equities were recently valued at C$39 M which leaves a sum of MINUS C$4.6 M to reflect the value of over #100 “wholly owned mineral projects located in Yukon, northern BC and Western NW, which host a wide spectrum of metals and deposit types” AS WELL as “Net Smelter Return royalty interests in 11 projects”. In other words, at face value, one can buy the >#100 Projects and #11 Royalties for less than free by buying Strategic Metals at C$0.33/share. Put in another way: Strategic Metals is simply “irrationally cheap”…

Our goal as investors/speculators is of course to try and buying something cheap (low) and sell when it is high (expensive or at least not cheap)…

So when I see Bear Creek Mining and Strategic Metals near multi-year bottoms it signals that there is pretty much no (retail) appetite for risk. The same retail that feel that they can never “overpay” at the highs and there are no risks that are too great. Not surprisingly there is huge “sentiment delta” between “not wanting to take any risk at all” and “no risk being great enough not to discourage buying”. In other words the “sentiment glass” is almost totally empty right now (and has been for some time), and when we get to the next INEVITABLE sentiment high as the “sentiment glass” gets full, we will INVEITABLY see valuations that are multiples of what they are now in the junior space… And a large part of these valuation swings will simply be due to SENTIMENT change and not changes in fundamentals. This is why, over a course of ten years, one can see projects that are almost unchanged swing from being valued at $10/ounce to $50/ounce and back and fourth.

(Strategic Metals = Blue line, Bear Creek Mining = Purple line)

… Suffice it to say, there is a lot of room for sentiment to get better, but not much room for it to get worse. Note that the glass cam remain almost empty for weeks, months or years. The important thing to always keep in mind is that it WILL get full again sometime in the future. Even if it would take a year or two the inevitable moves will probably be more than worth the wait. One can easily mess up at any point in time (most obviously will do) by being impatient and go fishing in a “hot” sector where risks are much higher.

Best regards,

The Hedgeless Horseman