Keeping Metals In May, Not Going Away

Includes: DNN, KXLAF, PAL
by: Michael Pollick

The usual rule in natural resource stocks, particularly juniors, is "Sell in May and Go Away."

I think that this year, it will be very, very different. I plan to stay aggressively invested right through the summer, with the emphasis on gold, platinum group metals, and uranium exploration stocks.

"Sell in May and Go Away" worked great last year. It works in general because the brokers tend to go off on vacation, so there is nobody pushing the junior stocks at customer. The bids fall out from under them on any whiff of bad news and they crash, sometimes with a real thud. Around about August, when all the suckers have theoretically thrown in the towel, the smart money comes back into the junior natural resource stocks to get ready for what is typically a back-to-business fall rally. That is the cucle.

August would have worked just right last year, because there was a decent spring rally. Many of us remember wishing we had sold in May last year, and are therefore selling now, just to get out even on stocks, or take our losses and fuggetaboudit.

But this year could be very different. With notable exceptions in oil-gas, potash, and coal, natural resource stocks have had a lousy spring, despite the fact that the underlying commodities which they seek to find are doing fine. True, both gold and uranium have had corrections from highs, but if you look at how far they have come in the last few years, the corrections look modest and normal.

Here is something I have noticed on the bulletin boards I frequent which cover natural resource stocks. While everybody is buzzing about oil-gas penny stocks, potash and coal plays, they have given up even discussing gold and uranium issues.

To me that signals capitulation. Capitulation in the stocks that are tied to the only true money, gold. Capitulation in the stocks with a stake in nuclear power, the only true answer to global warming for at least the next three decades.

Since a picture is worth a thousand words, check out this chart of Pinetree Capital, a closed-end fund in Canada whose holdings are concentrated in natural resource juniors.

Rather than 'Sell in May and go away,' my choice this year is to get even more aggressive on uranium and gold juniors. I think the bargains are there to be had right now.

I have a specific rationale for each stock I own, in addition to the overriding trend, which I am saying is a market bottom poised for a sharp rally. While I don't have space in this essay to go into depth on each, here is a sketchy sense of my rationale.

I like Pinetree Capital
because of the broad exposure it gives me to natural resource juniors. This sock has been kicked until it is bloody.

I like Cash Minerals
because it has underlying value in its uranium holdings in the Yukon, in which it is partnered up with Mega Uranium, plus it is only now making the market aware of its large coal holdings.

I like the uranium exploration play in Labrador called Crosshair (CXZ). This one is currently expanding its already promising uranium district in Labrador. Plus the company just said it will spin off to shareholders its gold exploration holdings in Newfoundland into a new company called Gemini.

As a uranium producer with good growth potential, I like Denison.
It has the backing of the Lundin mining family and it owns what is now a fully operating uranium mill in Utah.

My largest play is Kodiak Exploration (OTC:KXLAF),
which I have already discussed here. National Bank of Canada just came out with initial coverage, which could open the gates for summer stock recs; the company is cashed up; and they are doing a lot of scraping and drilling up there in the old gold mining district of Beardmore-Geraldton, Ontario, on land we already know hosts several kilometers of surface showings of gold plus some gold at depth.

For palladium and some platinum, I like North American Palladium (NYSEMKT:PAL). They are starting to make real money from their Canadian mine, and they have an interesting partnership with Goldfields in Finland which should be blessed with a completed feasibility study before September. Both of these provide platinum group exposure without being in South Africa, which has critical electric power problems that have already affected mining there and will for at least a couple of years to come.

The real game is about to begin, and it starts now, while everybody is either laying on the beach or packing their bags. All it will take is a few fund managers who used up their vacation in Vail in March.

I know I am sticking my neck out here, but I am doing so to a much larger degree in my portfolio than in this note!