A few days ago, Reno-based El Capitan Precious Minerals Inc. reported largely positive news on tests of ore samples from a mining project in New Mexico.
Investors' reaction? They dropped the company stock, which trades on the Over-the-Counter Bulletin Board, from 22 cents down to 15 cents in a matter of hours.
And El Capitan's experience isn't a rarity.
Executives of small companies exploring for gold and silver in Nevada say they're frustrated that the boom in gold prices hasn't provided much kick to their publicly traded stocks.
The slumbering market for stocks of small mining companies, in turn, creates difficulties for companies that look to sell equity to the public to raise capital for exploration programs.
Investment analysts and mining company executives say several factors combined to keep the stocks of junior mining companies from rising in lockstep with bullion prices.
For one, there are thousands of small mining companies whose stocks are publicly traded some 1,500 of them are trading on the Toronto Stock Exchange and the Toronto Venture Exchange alone.
Sorting out the potential winners and losers becomes a daunting task even for professional analysts, who typically focus their effort on the top-tier junior companies.
And the quality of small mining companies and their managements varies widely, says Ken Pavlich, the president of El Capitan and a 30-year veteran of the mining industry.
"Many of them have come from nowhere," Pavlich says. "A number of them are run by people with little or no experience in the industry."
Mark O'Dea, the president of Fronteer Development Group Inc., a Vancouver company with big holdings in Nevada's mining district, notes that investors often move into bullion or the stocks of big gold companies as a safe haven from turmoil in financial market.
If they're fleeing risk, O'Dea says, they're not likely to flee into stocks of junior mining companies whose management sometimes presents a risk.
And the risks are aggravated, O'Dea says, because junior mining companies typically are involved in the exploration segment of the mining business a segment that can pay off hugely with a discovery, but one that also can leave investors with empty pockets if nothing turns up.
Says Robert Shields Jr., the president of Reno-based Piedmont Mining Co., "If you don't have reserves, everyone hits the exits at the same time."
Some of the lack of interest in junior exploration companies may simply be seasonal, says Wendell Zerb, an analyst who follows the sector closely for Vancouver's Canaccord Capital Inc.
Small mining stocks, he says, often do best in the winter months, when investors and mining executives attend a round of industry meetings. The stocks then slump in the spring and summer months.
But Shields and other executives of publicly held exploration companies say they're confident they're about to get their day in the sun.
"Most everyone that was going to sell has sold," says Shields, who expects oil-rich buyers from the Middle East to begin buying small stocks. Because the stocks typically are thinly traded, he says moves to the upside can be explosive if a big demand hits a small supply of stock for sale.
In fact, Zerb says some of the junior mining stocks have begun to show signs of life in the past couple of weeks.
"It's quite selective," he says. "It's geared to companies that have active operations. It's not across the board."
Fronteer Development's O'Dea, meanwhile, thinks that investors will be drawn to junior exploration companies as a natural process as they work their way down from the big producers such as Barrick Gold and Newmont Mining.
To make sure that Fronteer gets its share of their attention, the company is running tours for visitors and analysts of its holdings in Nevada.
The company is spending some $14 million on exploration in the state this year, including work on properties it acquired when it purchased NewWest Gold Corp. last year. Fronteer also is working with Newmont on a $14 million exploration project 10 miles northwest of Winnemucca.
"Nevada needs to know we're in business," O'Dea says.
