Back in early 2011 at the peak of the junior resource market, John Doe (not a real name), a founder of a junior with a development stage gold project in Latin America, had a stake in his own company worth between $6 – $7 million. On paper, of course.

Fast forward to 2015. A fortune that was worth more than $6 million a few years ago is now valued at less than $200,000.

Ouch. That hurts.

But even at this lowly number, there is a catch. Any bit of selling will drive the value of his shares down further.

Making things worse, his company may or may not survive this downturn. With a negative working capital of more than $4 million, its asset may just end up on the auction block overseen by a bankruptcy trustee or seized by its creditor, leaving shareholders with virtually nothing.

Recently the former head of an auditing firm told me a similar story. “Brett (actual name changed) had done well for himself,” he said. “His holdings were worth more than $25 million a few years ago. Now it’s one-tenth as much.”

That’s not the end of the story, however.  His holdings are not liquid. He’s in trap, the same dilemma as John Doe’s described above.

I thought about that as I left the meeting. What could you have done with $20 million? Fund a dozen good causes that appeal to your heart? Take your family to a luxurious safari every year for the next ten years? Buy a mansion overlooking the ocean? A car you have always fancied?

After that, there would have been plenty left over for new entrepreneurial ventures.

If you have ever been excited by a stock in your portfolio that makes a substantial upward move, only to watch it crash down to earth without your realizing any profit, you probably know the feelings – annoyance and frustration – that these people experience.

There’s nothing unique or rare about these stories. Off the top of my head, I can easily tell you another half a dozen similar stories. The common threads in them are: a) once high-flying stocks have crashed down to earth; b) for one reason or another, few, if any, did anything to protect their gains.

Here’s how you can find out who still has what at stake. Go to SEDAR.COM. Review the information circular of your favourite company for the last four years. Compile their holdings in an Excel spreadsheet. Look at their company’s stock chart for the last five years.

After you have completed the exercise, you will likely reach the conclusion that the journey from riches to rags has been many years in the making. It’s not a big-bang event whereby these insiders wake up one morning and find 80% or more of their wealth zapped by an event beyond their control.

Some have compounded the mistake by adding more to their holdings. The only explanation I can think of is that initially they were convinced the downturn in the market was just a blip.

Perhaps they thought the drill targets were great and that results of the next round of drilling would excite the market like before.

Perhaps they thought a takeover offer for their company was forthcoming. After all, if more than a dozen majors have signed a confidentiality agreement with them, chances were good that one of them would make a move.

Or perhaps unconsciously they are the unwitting victims of the mining promotion business which, boiled down to its essence, is a confidence game.  The unwritten rules require insiders to

(a) have skin in the game;

b) project confidence by not selling;

and c) get tacit approval from other members before selling.

Will these fortunes revive in the near term?

It’s possible, but unlikely. Here’s why. China’s growth is still falling.  Global economic growth is still weak. Commodity prices may appear to have hit the bottom, but in the face of sluggish demand, they are likely to stay at the bottom for some time to come.


Perhaps later in their retirement years, they will have an aha moment and realize it was reckless not to have taken measures to protect their wealth and to have so much tied up in a speculative stock. They may shake their head and say to themselves:

“What was I doing?”

“Why didn’t I see it coming?”

“I should have sold earlier.”

Health is wealth. To make a venture successful requires drive – and lots of energy. Most of the CEOs running the juniors are already in their late fifties and sixties. Many are already showing signs of poor health.  (Could the shrunken value of their portfolio be the real reason for their poor health?)

Timing is very important in junior mining. There’s no guarantee that the combination of circumstances, events and people that propelled their wealth to a high in the last boom will repeat itself when the next one comes along.

Even then, they will still need luck to make it all happen.

Perhaps the biggest lesson from this wealth meltdown is the need to take and enjoy profits.

It’s true in this industry, huge instant wealth can be created from what seems like nothing in a relatively short time span by a few smart people have the right timing and luck on their side.

But for every homerun like Cayden Resources or Probe Mines that gets taken over by a major, there are hundreds of others that languish in obscurity and may never amount to anything.

In hindsight, a classic mistake they made is expecting their stock to get to the top and then getting out at the top.

But the top in the form of a takeover by a major never materialized. In the meantime, their stock kept dropping lower due to unforeseen disruptions from China. It must not have been a prettying sight to watch their net worth shrunk with every passing month.

Sure the ride up was thrilling while it lasted, but it would have been more satisfying if they had got something to show for it or at the very least recovered their investment capital.

One way to do this is to put in place protective sell-stops at different levels as the stock retreated from its multi-year high.

Not having done that, many of them are now staring at a long dark tunnel and a highly uncertain future, their ability to do deals are greatly handicapped.