As we begin to count down the remaining days in 2012 many investors in junior mining stocks are faced with the same decision – do I sell my shares for a tax loss or do I hold onto hope for 2013?
Yes, that is the scope of the carnage in the junior mining markets today.
2012 was, without question, one of the worst years in history for venture-based mining companies. Across the board exploration and development stage mining companies were crushed this year. If you, as an investor in the sector, managed to stay even during the year consider yourself smarter than the average bear.
For Canadians, investors have until December 24th to record a capital gain or loss for the 2012 tax year on Canadian-listed stocks and until December 26th for U.S. equities. U.S. investors have until December 31st to lock in their gains and losses.
According to Canaccord Capital analyst Nicholas Campbell, “Leading up to these dates, we could see increased selling pressure, which can often, but not always, lead to a bounce in equity valuations after the date of record has been passed as investors repurchase equities sold for a tax loss.”
Mr. Campbell warned that frustrated junior mining investors could see more selling pressure in December, regardless of a company’s underlying fundamentals.
In his Top Mining Minds interview with MiningFeeds, Rick Rule, Chairman of Sprott US Holdings, an investment management firm active across the entire spectrum of the natural resource industry states, “The junior market will bifurcate. The lower quality companies (at least 70% of the TSXV) will continue lower, as they strive to reach their intrinsic value ($0.00) in the absence of market support and financing. The strong will begin to rebound sharply, driven by seller exhaustion, increased merger activity, and what we believe will be a very strong discovery cycle.”
The question is, do you own one of the 70 percent destined for a share consolidation? If so, maybe it’s time to realize your losses and identify one of the 30 percent that will “rebound sharply” after seller exhaustion – perhaps towards the end of December on the heels of tax loss selling.
As one mining executive reminded me during a lunch meeting – a project is either going to be a mine or it’s not going to be a mine… there’s no in between. So pick wisely.