What 10-Baggers (And 100-Baggers) Look Like

Tyler Durden's picture

Submitted by Jeff Clark via Casey Research,

Now that it appears clear the bottom is in for gold, it’s time to stop fretting about how low prices will drop and how long the correction will last - and start looking at how high they’ll go and when they’ll get there.

When viewing the gold market from a historical perspective, one thing that’s clear is that the junior mining stocks tend to fluctuate between extreme boom and bust cycles. As a group, they’ll double in price, then crash by 75%... then double or triple or even quadruple again, only to crash 90%. Boom, bust, repeat.

Given that we just completed a major bust cycle - and not just any bust cycle, but one of the harshest on record, according to many veteran insiders - the setup for a major rally in gold stocks is right in front of us.

This may sound sensationalistic, but based on past historical patterns and where we think gold prices are headed, the odds are high that, on average, gold producers will trade in the $200 per share range before the next cycle is over. With most of them currently trading between $20 and $40, the returns could be stupendous. And the percentage returns of the typical junior will be greater by an order of magnitude, providing life-changing gains to smart investors.

What you’re about to see are historical returns of both producers and juniors during three separate boom cycles. These are factual returns; they are not hypothetical. And if you accept the fact that this market moves in cycles, you know it’s about to happen again.

Gold had a spectacular climb in 1979-1980, and gold stocks in general gave a staggering performance at that time—many of them becoming 10-baggers (1,000% gains and more). While this is a well-known fact, few researchers have bothered to identify exact returns from specific companies during this era.

Digging up hard data from before the mid-1980s, especially for the junior explorers, is difficult because the information wasn’t computerized at the time. So I sent my nephew Grant to the library to view the Wall Street Journal on microfiche. We also include information we’ve had from Scott Hunter of Haywood Securities; Larry Page, then-president of the Manex Resource Group; and the dusty archives at the Northern Miner.

Note: This means our tables, while accurate, are not at all comprehensive.

Let’s get started…

The Quintessential Bull Market: 1979-1980

The granddaddy of gold bull cycles occurred during the 1970s, culminating in an unabashed mania in 1979 and 1980. Gold peaked at $850 an ounce on January 21, 1980, a rise of 276% from the beginning of 1979. (Yes, the price of gold on the last trading day of 1978 was a mere $226 an ounce.)

Here’s a sampling of gold producer stock prices from this era. What you’ll notice in addition to the amazing returns is that gold stocks didn’t peak until nine months after gold did.

Returns of Producers in 1979-1980 Mania
Company Price on
12/29/1978
Sept. 1980
Peak
Return
Campbell Lake Mines $28.25 $94.75 235.4%
Dome Mines $78.25 $154.00 96.8%
Hecla Mining $5.12 $53.00 935.2%
Homestake Mining $30.00 $107.50 258.3%
Newmont Mining $21.50 $60.62 182.0%
Dickinson Mines $6.88 $27.50 299.7%
Sigma Mines $36.00 $57.00 58.3%
Giant Yellowknife Mines $11.13 $39.00 250.4%
AVERAGE     289.5%

 

Today, GDX is selling for $26.05 (as of February 26, 2014); if it mimicked the average 289.5% return, the price would reach $101.46.

 

Keep in mind, though, that our data measures the exact top of each company’s price. Most investors, of course, don’t sell at the very peak. If we were to able to grab, say, 80% of the climb, that’s still a return of 231.6%.

Here’s a sampling of how some successful junior gold stocks performed in the same period, along with the month each of them peaked.

Returns of Juniors in 1979-1980 Mania
Company Price on
12/29/1978
Price
Peak
Date
of Peak
Return
Carolin Mines $3.10 $57.00 Oct. 80 1,738.7%
Mosquito Creek Gold $0.70 $7.50 Oct. 80 971.4%
Northair Mines $3.00 $10.00 Oct. 80 233.3%
Silver Standard $0.58 $2.51 Mar. 80 332.8%
Lincoln Resources $0.78 $20.00 Oct. 80 2,464.1%
Lornex $15.00 $85.00 Oct. 80 466.7%
Imperial Metals $0.36 $1.95 Mar. 80 441.7%
Anglo-Bomarc Mines $1.80 $6.85 Oct. 80 280.6%
Avino Mines 0.33 5.5 Dec. 80 1,566.7%
Copper Lake $0.08 $10.50 Sep. 80 13,025.0%
David Minerals $1.15 $21.00 Oct. 80 1,726.1%
Eagle River Mines $0.19 $6.80 Dec. 80 3,478.9%
Meston Lake Resources $0.80 $10.50 Oct. 80 1,212.5%
Silverado Mines $0.26 $10.63 Oct. 80 3,988.5%
Wharf Resources $0.33 $9.50 Nov. 80 2,778.8%
AVERAGE       2,313.7%

 

If you had bought a reasonably diversified portfolio of top-performing gold juniors prior to 1979, your initial investment could have grown 23 times in just two years. If you had managed to grab 80% of that move, your gains would still have been over 1,850%.

 

This means a junior priced at $0.50 today that captured the average gain from this boom would sell for $12 at the top, or $9.75 at 80%. If you own ten juniors, imagine just one of them matching Copper Lake’s better than 100-bagger performance.

Here’s what returns of this magnitude could mean to you. Let’s say your portfolio includes $10,000 in gold juniors that yield spectacular gains such as the above. If the next boom cycle matches the 1979-1980 pattern, your portfolio could be worth $241,370 at its peak… or about $195,000 if you exit at 80% of the top prices.

Note that this does require that you sell to realize your profits. If you don’t take the money and run at some point, you may end up with little more than tears to fill an empty beer mug. In the subsequent bust cycle, many junior gold stocks, including some in the above list, dried up and blew away. Investors who held on to the bitter end not only saw all their gains evaporate, but lost their entire investments.

You have to play the cycle.

Returns from that era have been written about before, so I can hear some investors saying, “Yeah, but that only happened once.”

Au contraire. Read on…

The Hemlo Rally of 1981-1983

Many investors don’t know that there have been several bull cycles in gold and gold stocks since the 1979-1980 period.

Ironically, gold was flat during the two years of the Hemlo rally. But something else ignited a bull market. Discovery. Here’s how it happened…

Back in the day, most exploration was done by teams from the major producers. But because of lagging gold prices and the resulting need to cut overhead, they began to slash their exploration budgets, unleashing a swarm of experienced geologists armed with the knowledge of high-potential mineral targets they’d explored while working for the majors. Many formed their own companies and went after these targets.

This led to a series of spectacular discoveries, the first of which occurred in mid-1982, when Golden Sceptre and Goliath Gold discovered the Golden Giant deposit in the Hemlo area of eastern Canada. Gold prices rallied that summer, setting off a mini bull market that lasted until the following May. The public got involved, and as you can see, the results were impressive for such a short period of time.

Returns of Producers Related to Hemlo Rally of 1981-1983
Company 1981
Price
Price
Peak
Date
of High
Return
Agnico-Eagle $9.50 $21.00 Aug. 83 121.1%
Sigma $14.13 $24.50 Jan. 83 73.4%
Campbell Red Lake $16.63 $41.25 May 83 148.0%
Sullivan $3.85 $6.00 Mar. 84 55.8%
Teck Corp Class B $17.00 $21.88 Jun. 81 28.7%
Noranda $33.75 $36.38 Jun. 81 7.8%
AVERAGE       72.5%

 

Gold producers, on average, returned over 70% on investors’ money during this period. While these aren’t the same spectacular gains from just a few years earlier, keep in mind they occurred over only about 12 months’ time. This would be akin to a $20 gold stock soaring to $34.50 by this time next year, just because it’s located in a significant discovery area.

 

Once again, it was the juniors that brought the dazzling returns.

Returns of Juniors Related to Hemlo Rally of 1981-1983
Company 1981
Price
Price
Peak
Date
of High
Return
Corona Resources $1.10 $61.00 May 83 5,445.5%
Golden Sceptre $0.40 $31.00 May 83 7,650.0%
Goliath Gold $0.45 $32.00 Mar 83 7,011.1%
Bel-Air Resources $0.81 $1.60 Jan. 83 97.5%
Interlake Development $2.10 $6.40 Mar. 83 204.8%
AVERAGE       4,081.8%

 

The average return for these junior gold stocks that had a direct interest in the Hemlo area exceeded a whopping 4,000%.

 

This is especially impressive when you realize that it occurred without the gold stock industry as a whole participating. This tells us that a big discovery can lead to enormous gains, even if the industry as a whole is flat.

In other words, we have historical precedence that humongous returns are possible without a mania, by owning stocks with direct exposure to a discovery area. There are numerous examples of this in the past ten years, as any longtime reader of the International Speculator can attest.

By May 1983, roughly a year after it started, gold prices started back down again, spelling the end of that cycle—another reminder that one must sell to realize a profit.

The Roaring ’90s

By the time the ’90s rolled around, many junior exploration companies had acquired the “intellectual capital” they needed from the majors. Another series of gold discoveries in the mid-1990s set off one of the most stunning bull markets in the current generation.

Companies with big discoveries included Diamet, Diamond Fields, and Arequipa. This was also the time of the famous Bre-X scandal, a company that appeared to have made a stupendous discovery, but that was later found to have been “salting” its drill data (cheating).

By the summer of ’96, these discoveries had sparked another bull cycle, and companies with little more than a few drill holes were selling for $20 a share.

The table below, which includes some of the better-known names of the day, is worth the proverbial thousand words. The average producer more than tripled investors’ money during this period. Once again, these gains occurred in a relatively short period of time, in this case inside of two years.

Returns of Producers in Mid-1990s Bull Market
Company Pre-Bull
Market Price
Price
Peak
Date
of High
Return
Kinross Gold $5.00 $14.62 Feb. 96 192.4%
American Barrick $28.13 $44.25 Feb. 96 57.3%
Placer Dome $26.50 $41.37 Feb. 96 56.1%
Newmont $47.26 $82.46 Feb. 96 74.5%
Manhattan $1.50 $13.00 Nov. 96 766.7%
Cambior $10.00 $22.35 Jun. 96 123.5%
AVERAGE       211.7%

 

Here’s how some of the juniors performed. And if you’re the kind of investor with the courage to buy low and the discipline to sell during a frenzy, it can be worth a million dollars. Hold on to your hat.

 

Returns of Juniors in Mid-1990s Bull Market
Company Pre-Bull
Market Price
Price
Peak
Date
of High
Return
Cartaway $0.10 $26.14 May 96 26,040.0%
Golden Star $6.00 $27.50 Oct. 96 358.3%
Samex Mining $1.00 $7.20 May 96 620.0%
Pacific Amber $0.21 $9.40 Aug. 96 4,376.2%
Conquistador $0.50 $9.87 Mar. 96 1,874.0%
Corriente $1.00 $19.50 Mar. 97 1,850.0%
Valerie Gold $1.50 $28.90 May 96 1,826.7%
Arequipa $0.60 $34.75 May 96 5,691.7%
Bema Gold $2.00 $12.75 Aug. 96 537.5%
Farallon $0.80 $20.25 May 96 2,431.3%
Arizona Star $0.50 $15.95 Aug. 96 3,090.0%
Cream Minerals $0.30 $9.45 May 96 3,050.0%
Francisco Gold $1.00 $34.50 Mar. 97 3,350.0%
Mansfield $0.70 $10.50 Aug. 96 1,400.0%
Oliver Gold $0.40 $6.80 Oct. 96 1,600.0%
AVERAGE       3,873.0%

 

Many analysts refer to the 1970s bull market as the granddaddy of them all—and to a certain extent it was—but you’ll notice that the average return of these stocks during the late ’90s bull exceeds what the juniors did in the 1979-1980 boom.

 

This is akin to that $0.50 junior stock today reaching $19.86… or $16, if you snag 80% of the move. A $10,000 portfolio with similar returns would grow to over $397,000 (or over $319,000 on 80%).

Gold Stocks and Depression

Those of you in the deflation camp may dismiss all this because you’re convinced the Great Deflation is ahead. Fair enough. But you’d be wrong to assume gold stocks can’t do well in that environment.

Take a look at the returns of the two largest producers in the US and Canada, respectively, during the Great Depression of the 1930s, a period that saw significant price deflation.

Returns of Producers
During the Great Depression
Company 1929
Price
1933
Price
Total
Gain
Homestake Mining $65 $373 474%
Dome Mines $6 $39.50 558%

 

During a period of soup lines, crashing stock markets, and a fixed gold price, large gold producers handed investors five and six times their money in four years. If deflation “wins,” we still think gold equity investors can, too.

 

How to Capitalize on This Cycle

History shows that precious metals stocks move in cycles. We’ve now completed a major bust cycle and, we believe, are on the cusp of a tremendous boom. The only way to make the kind of money outlined above is to buy before the boom is in full swing. That’s now. For most readers, this is literally a once-in-a-lifetime opportunity.

As you can see above, there can be great variation among the returns of the companies. That’s why, even if you believe we’re destined for an “all-boats-rise” scenario, you still want to own the better companies.

My colleague Louis James, Casey’s chief metals and mining investment strategist, has identified the nine junior mining stocks that are most likely to become 10-baggers this year in their special report, the 10-Bagger List for 2014. Read more here.

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DoChenRollingBearing's picture

Well, 10-Baggers and 100-Baggers look a little too speculative.

Now, physical gold going up 30x - 40x seems much more reasonable...

dryam's picture

Buying miners is gambling.  Buying physical is obtaining insurance.  These two things are at complete opposite ends of the spectrum.

Winston Churchill's picture

Plus the nationization risk if gold becomes manipulation free when the

paper makets collapse,.

fonestar's picture
What 10-Baggers (And 100-Baggers) Look Like

 

Did someone say Bitcoin?

centerline's picture

I don't know, but I know what a double-bagger looks like.  That's where you need a bag for your head and one for her's, just in case one comes off.  Or, in the south, one for your head (or her's) and one for the dog because you don't want him to see what you are boinking.  ha ha.

AllThatGlitters's picture

Wait, is Fonstar implying that somebody has introduced a 10X leveraged short vehicle for BTC? That might be a good 10-bagger candidate.

The Dunce's picture

10-baggers look like your mother's ass.  All flabby and not worth a damn.  Bitches.

Seeking Aphids's picture

thought you were going to say...or, in the south, one for your head and one for her's because you don't want her to see.......

tiger uppercut's picture

No, absolutely no one said Bitcoin.

kaiserhoff's picture

As you can see above, there can be great variation among the returns of the companies. That’s why, even if you believe we’re destined for an “all-boats-rise” scenario, you still want to own the better companies.

Yaz, the Juniors are going to be illiquid and the bid/ask differential is a bite in the ass.  They also tend to be Canadians, so the accounting is , ahem, speculative. 

I prefer physical, but if you need to own stocks in a pension plan or whatever, buy the best of the majors, and protect them with long term puts or put spreads.

BeanusCountus's picture

+1 Im a subscriber to their service. Only spec capital to their portfolios. Very small amounts of spec cap at that. Good analysis, no complaints there. As of today, however, juniors are more likely to go out of business than hit a home run. Thats the nature of the current cycle. Rather have some finished product in my hand than a geo study saying there is lots of it in the ground that can be mined economically at a profit.

Spitzer's picture

I am a subscriber too.. I made good in 2010 but I took the brunt of the "worst selloff ever" these last 3 years.  Down about 50%. Meh... None of my picks went broke. I can handle an unrealized 50%..

 

One is down 80% but its got no debt and millions in the treasury.

A lot of these stocks are this low for the same reasons Twitter and Snapchat are so high. Complete and total delusion.

daemon's picture

" Buying miners is gambling.  Buying physical is obtaining insurance. "

Do you really believe that in 1979, when the price of gold went parabolic, there wasn't an awful lot of gamblers among the buyers of physical ?

 

JLee2027's picture

Buying stocks in a manipulated market is a fools game. Physical Gold and Silver, in your possession, is all that counts. 

Now, physical gold going up 30x - 40x seems much more reasonable...

Or more.

daemon's picture

" Well, 10-Baggers and 100-Baggers look a little too speculative.

Now, physical gold going up 30x - 40x seems much more reasonable... "

May I remind you that talking about "10-Baggers and 100-Baggers"  or  "physical gold going up 30x - 40x" is probably meaningless ?

Ultimately, if the dollar or other fiat currencies fall to the ground, you may have to talk about  "1000-Baggers and 10000-Baggers"  or
"physical gold going up 3000x - 4000x" , and that will probably mean nothing about what that can buy in the "real world". 

TheRedScourge's picture

I hope you mean 3-4x not 30-40x, or else you're just being silly.

prains's picture

LOFL!

 

its a long way to Friday.....

nmewn's picture

Stawks bitchez!...lol.

Dr Benway's picture

Stupendous returns! From extrapolating a chart! Yay!

U4 eee aaa's picture

Yep, I've made many millions doing that. It never seems to translate back to trading though

Rakshas's picture

I'm tapped, silver lead copper I got  nothing left to play with....... hmmmmmm boy for sale!!!

Alpha Monkey's picture

Wrong site, you need to head on over to the Afghan embassy.

kaiserhoff's picture

or Morocco, Algeria, Thailand, Greece, San Fran...

Manthong's picture

Don't forget Tunisia..

That’s apparently where Keynes got his.

 

http://www.keynesatharvard.org/book/KeynesatHarvard-ch09.html

 

ebworthen's picture

I've been waiting since 2011 so yeah, hope it happens.

Magnum's picture

Don't buy physical from Tulving.  He stiffed countless people for likely tens of millions $$ for lack of Physical delivery.  Closed up shop.  

DoChenRollingBearing's picture

I heard that too about Tulving.  This would be his second big fraud.

Duke Dog's picture

Tulving is great -what BS are you spreading - couple of cocksukers!

Bill of Rights's picture

Obviously your reading skills need to be honed perhaps a set of balls on your chin would help.

Pure Evil's picture

Well, at least the website is still up and running.

And, at least he'll be able to use that scrotum as a chin warmer since hell has frozen over.

Magnum's picture

As proof that Hannes Tulving belongs in the stripey hole, he dropped premiums to absurdly low levels in the weeks leading up to his bankruptcy, just to attract more suckers he knew would never get their gold.  

Scum exists in the physical market, it's name is Hannes Tulving.

greatbeard's picture

>> Tulving is great

Tulving was great.  Try to stay current or lose your ass.  I had dealing with Tulving and was generally satisfied.  I recently, 6 months ago, had second hand knowledge, a friend of my best friend, never got delivery and eventually had to force a cash settlement.  He ended up with the better price so he made a profit, but took a big risk apparently.  I registered it but didn't condemn Tulving necessarily.   But then again, I'm no longer buying or selling so Tulving doesn't really matter to me.  Turns out Tulving is a bad apple.  Sorry for the folks who lost cash or metals.

 

 

Colonel Klink's picture

Duke Dog has been licking his own balls while Tulving has been scamming people.

hungrydweller's picture

I have bought all of my phiz from Tulving with no problem.  The customer service on the phone can be a littel gruff but I have alwasy received what I ordered when they said it would arrive.

MeelionDollerBogus's picture

more than a little gruff:

Tulving just closed doors for good & filed bankruptcy and a class action lawsuit for losses has started.

http://about.ag/tulving.htm

http://www.ocregister.com/articles/tulving-604564-company-coin.html

Magnum's picture

Count yourself lucky. Hannes Tulving ran a gold ponzi that started heading south six months ago. He went belly up last week.  The amount of money he scammed from customers is probably tens of millions.

What's more, if you paid Tulving and received gold, you may be required to return the gold to creditors pursuant to a class action settlement. You could be just as F'ed as the people who didn't get delivery.

Read up on your old friend Tulving in the news.

e_goldstein's picture

Got to wonder if Kitco is next.

rpboxster's picture

I used Tulving in the past, without issue.  Customer service sucked, but the prices were great.  But, when delivery started being stretched out, I moved to Texas Precious Metals.  TPM only sell what they have available.  Great service, great people.  Very good prices, too.

flying dutchmen's picture

junior gold mining stocks are in general a scam.  with very little value added to the investor. 95-99% of the mining stocks eventually go to zero they do a stock rollback and rinse repeat on the promotion.  Casey sells subcriptions and then also raise capital. if they were really good at it they would run money and show a track record. ( but they dont).

disabledvet's picture

most of it is just very expensive rock farming actually.
i mean forget about just the mining aspect...you also have to get the gold out of the mine...not an easy thing to do. You also have to have very friendly mining jurisdictions (there aren't many right now...Quebec, Nevada, Arizona are about the only three i can think of) and then you're gonna have the massive capital costs associated with the running of the mine.

It's no wonder even with the biggest price spike in generations most of these plays have been zero baggers in one of the biggest bull markets in history.

FCX looks good here...and the CEO has bought truly massive amounts of his own company's stock.

But here have been your "ten baggers" already: http://seekingalpha.com/article/2069253-commodities-today-fuel-cell-comp...

Ballard Power is up 250% to start the year. This is not even anything "new." This company...let alone the technology and the other companies competing in this space...has been around since the 90's.

Spitzer's picture

i mean forget about just the mining aspect...you also have to get the gold out of the mine...not an easy thing to do.

It isn't a lot diffrent then any other commodity. There is positives.  You don't have to market gold. You don't have to worry about competition per se.

You also have to have very friendly mining jurisdictions

What about oil ? Same story there.. Even worse actually. You don't frac gold.

It's no wonder even with the biggest price spike in generations most of these plays have been zero baggers in one of the biggest bull markets in history.

Apparently you arent aware of the fact that from 2001 to 2011, gold miners beat the DOW and most indexes by hundreds of percent. And there was 1000% of percent of money made from 2008 to 2011 in the jr's.

 

 

logicalman's picture

Paper promises are in general a scam.

Derivatives are a scam on a scam on a scam...........

The financial world is based on fraud and theft.

 

nmewn's picture

But they never seem to run out of willing participants, it really is incredible, this thing called greed & manipulation

I hold before you ladies & gentlemen, an offer, that if you win, you pay me a commission and you pay "it" taxes on those winnings. If you lose, only slightly "it" will allow a write down for tax purposes of your other unconnected winnings to this loser, if you have any. If you win large, you're set for life but you have to bet large on this one thing. 

If you lose it all, well, you shouldn't have played at all then, should you? But thanks for the commisssion.

Not to worry, "it" will take care of you from here on out.

Next? ;-)

tenpanhandle's picture

Just because a prospect doesn't pan out doesn't mean it was a scam.  Certainly they are gambles but proper investigation and due dilly before purchasing can provide many exceptional opportunities, especially as so many are incredably undervalued right now.  Junior miners and explorers are important components to the process of discovering and opening mines and by extrapolation providing metals and mineral to the world.  Suck on that all you naysayers. Never saw such a onesided batch of comments on ZH.  Contrarian investment anybody?

Spitzer's picture

Yep

It hurts to buy now. I have been but damn is it tough...

A Lunatic's picture

Nothing is certain, stack responsibly.......

Yen Cross's picture

  I'm not sure what 10 baggers look like. 

   100 baggers looks like the ,  United States Senate        Bitchez

PLira's picture

Damn, I wish I had a time machine.

 

Dr Benway's picture

If you go searching for "ten baggers" (lawd I hate that term and anyone using it) you shouldn't be surprised if you get completely tea-bagged nine times out of ten.

In fact, you should fully expect that the majority of such speculative stocks will become worthless, if you have but an inkling of how risk-return works.