Erik Wetterling, Founder and Editor of The Hedgeless Horseman website, joins us to discuss the absurd valuation mismatches seen near bottoms of bear market corrections, when comparing market caps of the advanced explorers, developers, and producers to where some of the earlier-stage grass roots explorers are valued.  Erik points out that while the whole sector is sold off, there are windows of time, like what we are seeing now, where buying quality projects and management teams with banked success in the ground, is far more compelling risk/reward setup, than just jumping on the much more speculative early stage drill-plays, just because they have small single-digit market caps.

We review how he is reshuffling his portfolio and adding in a few more advanced exploration, development and even production companies that have defined ounces in the ground, that are getting only a fraction of the value they should.  Often these projects have solid economic studies in place, underappreciated sunk costs that are very difficult to replicate, and solid management teams that are on deep discount along with the whole sector.  Another point raised was that often these more advanced projects have also attracted key strategic stakeholders through large institutional funds or major and mid-tier producers, that have also vetted these companies in a much more thorough manner than retail investors can, and yet they are being valued down near many early-stage discovery stories that don’t even have resource estimates out, and even some hot narratives around pre-discovery companies that haven’t even found anything significant yet.  

As Erik points out: “These valuations are wack and this whole sector is wack right now.”  

Some examples Erik uses to point out just how hard it would be to replicate all the work and sunk costs infrastructure and permitting of these more advanced projects were: I-80 Gold Corp (IAU) (IAUX),  Ascot Resources (AOT) (AOTVF), and he also mentioned Hannan Metals (HAN) (HANNF) as an example of a junior that just brought in a strategic investment from Teck Resources, that was underappreciated by retail.

*Some of the companies mentioned by Erik are personal positions and covered on The Hedgeless Horseman website.  Shad holds shares of i-80 Gold in his portfolio for full disclosure.

Click here to visit Erik’s site.