Osisko Mining: Wait for a shift in momentum

Hi Lou,

I'm wondering if Osisko could be looking at an upturn since the company is now ramping up production and all seems to be going according to plan.

It seems to me that they aren't benefiting at all from the recent run up in gold, at least not as much as the other producers.

Ken

Hi Ken,

Osisko Mining Corp. has created tons of wealth when it came off a rock bottom at $1.60 in late 2008. No one should complain about a better than 700% return on investment in less than three years. I understand your concern that the company seems to be lagging as the price of gold surges.

But keep in mind that it's not a problem unique to OSK. The entire gold mining sector has lagged the advance of the underlying commodity given that we are looking at the behavior of two different classes of investors. People who buy stocks are, on balance, a more conservative lot than those that invest in commodities through futures and options. What you can expect is that there will be a point where gold mining stocks will respond to evidence that the current price of gold is sustainable. There is a school of thought that believes that the price of gold has gotten a bit toppy.

The charts will provide a better picture of what has and may happen with your stock.

The three year chart for the iShares Canadian S&P/TSX Global Index Fund will provide a reasonable proxy for the gold mining sector. As you can see the group has not moved as aggressively as the price of gold.

When you examine the three year chart for Osisko it's clear that it was a curve maker rising much faster than its peers before settling into a range bound pattern in 2011. The range is defined by resistance at $15.50 and support at $12.75.

The MACD signalled a top on the six month chart that surfaced in early July as the stock approached $16.00. There is currently no indication that the shares are about to reverse the selling.

If you like the Osisko story and want to hitch a ride as they ramp up production and reduce their cash cost per ounce wait for a shift in momentum to the buy side.

Make it a profitable day and happy capitalism!

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