The junior mining sector is in desperate times, with share prices depressed and many companies struggling for their very own survival.
But here's one sign that better times could be on the horizon: corporate insiders at many of these firms are snapping up shares, believing that this is a time to bargain hunt, not run scared.
According to INK Research, which monitors transactions among corporate directors and officers within their own businesses, there are more than four stocks with key insider buying for every one with selling on the junior miner-rich TSX Venture exchange.
Insider transactions often foreshadow market moves six to 36 months in advance - so it could be quite a wait, if they're right, for a rebound in the sector. One upside, though, is it gives investors lots of time to identify companies with strong management teams that have access to capital, cash, and meaningful reserves. In other words, the winners of tomorrow.
"While the excitement that surrounded mining stocks as recently as two years ago has waned, experienced value investors recognize that such periods of investor neglect often give rise to the best deals," INK CEO Ted Dixon said in a research note.
The S&P/TSX Venture index in late afternoon trade today was at 1,095, a far cry from the 3,370 record high it hit on May 7, 2007.
Mr. Dixon notes INK's indicator that tracks insider transactions in the junior market has helped to keep the broader basic materials sector indicator above 300 per cent - which means there are about three stocks with key insider buying for every one with selling. The basic materials sector is also getting a lift from buyers in some producers, most notably Goldcorp Inc., Iamgold Corp. and Osisko Mining Corp., he said.
"Talking to any one junior mining executive might not leave an impression of long-term optimism," said Mr. Dixon. "However, as a group they are signalling this is more of a buying period at the industry level than a time to sell."
"The situation at each company is of course specific to the circumstances. Some juniors will not survive the bear market. Moreover, some recent insider purchases have been defensive, driven by backdoor proxy take-over battles or fears of one occurring. Nevertheless, such action may well foreshadow a period for the industry where weak companies are reinvigorated through new managements or mergers."