The Little-Known ‘Glitch’ That Could Lead To 53% Gains
The past year has not been great — generally speaking — for mining stocks.
Just look at the chart of the Amex Gold Bugs Index below — comprising some of the biggest names in the precious metals mining space. The index has fallen nearly 49% so far in 2013.
Most investors cringe when they look at a chart like this. But many of the savvy industry experts I know in Canada love seeing these big drops, especially when we’re nearing the end of the calendar year.
#-ad_banner-#You see, I’ve worked in the mining and oil and gas sectors for more than a decade, traveling as far as Russia, Chile and Madagascar to inspect natural resource projects. But these days, I call Canada home. And, as editor of StreetAuthority’s premium advisory, Junior Resource Advisor, my job is to provide readers with investment opportunities they won’t find from analysts who sit at a desk all day.
And I’m excited when I see a chart like this for one simple reason. It has to do with a “quirk” in the way the Canadian tax system works — a quirk that lets watchful investors buy good resource stocks at double-digit discounts within short windows in the latter months of underperforming years.
Today, I want to show you why such down times are so exciting to these pro investors and how you can use the same “quirk” to buy stocks in the United States at an average discount of 12.8%.
The Center of the Mining Universe
Canadian stock markets are the biggest source of capital in the world for mining companies. Mining companies listed in Canada raise billions in equity every quarter to pursue their exploration, development and production projects.
Most North American mining firms have a listing on the Canadian TSX or TSX-V exchanges. Many also have cross-listings on American exchanges such as the NYSE or the over-the-counter market. Once a company is listed on both exchanges, the share prices north and south of the border tend to move more or less in tandem (except for a small difference representing the exchange rate between the Canadian and U.S. dollars).
In short, what happens in Canadian markets affects the share price of most of the mining companies I look at in my Junior Resource Advisor portfolio.
That’s critical to recognize, because there are some unique patterns that happen in Canadian trading, especially during down years.
To see what I mean, take a look at this chart.
You can clearly see in this chart showing the TSX-V from January 2011 to March 2012 what happened in mid-December thanks to this “quirk”. Note the significant drop. These losses were almost completely erased by early January 2012.
And just to prove to you that this isn’t a one-time anomaly, I’ll note that the mining-heavy TSX-V stock exchange has seen four such years over the past 15-year period. Those are 2012, 2011, 2008 and 2007. All four of these years saw a notable dip in the index during the second to third week of December, followed by a quick rebound in the weeks that followed.
To give you an idea of the effect this Canadian tax “quirk” had on individual mining stocks, take a look at this chart of Thompson Creek Metals (NYSE: TC)…
Now, we don’t know yet how good the buying opportunities will be this year. The TSX-V index entered September nearly 25% lower than the start of the year. The wider TSX was slightly positive coming into September.
But any individual stock that had a down year could be vulnerable to this Canadian tax “quirk”. Ivanhoe Mines, for example, could be a candidate. The company began 2013 above $5 per share and currently resides around $2. It’s not a lock — Ivanhoe has some powerful people behind it who may keep buying interest high enough to stave off tax-loss pressure. But it’s a possibility.
For such stocks, consider keeping some cash available going into December. If and when notable weakness presents, you have the opportunity to buy on the cheap and position yourself for a quick gain on the rebound. And remember, many of these mining firms are listed in Canada AND the U.S. — and thankfully, regular American investors can take advantage of this quirk by simply buying shares on normal American stock exchanges.
It’s a formula that’s reliably made a lot of money for industry insiders — had you known about this quirk just one year ago, you could have made 33%… 46%… even 50% gains in a month. And in 2008, you could have made as much as 92%.
Note: I’ll keep my Junior Resource Advisor subscribers alerted to any such opportunities I see in the coming months. But for those who don’t subscribe to my premium advisory, I’ve put together a detailed report that explains more about this Canadian tax “quirk” and how it has led to gains of 53% by January of next year — but only if you take action by December 9. To read the report, click here.