From Jim Sinclair
Dear Friends,
The key to running the short position for any junior starts with success on the ground. A junior must move to the producer category if it is going to hang the shorts out to dry. If the junior cannot make this leap then it will not fly with the eagles. However that alone is not enough.
The management of your junior gold producer will have to work for their shareholders. This is what Durban Deep did in the late 1960s and Homestake in the 1930s. That is why Durban Deeps went from $0.36 to $36.00. It is also why Homestake was the shining example in gold during the 1930s. Homestake's strategy was to dividend out a huge majority of its net profits to their shareholders.
It did not hurt that the Hearst family was a major stockholder in Homestake. But even today that is simply not enough.
The junior has to dividend something to its shareholders that the short does not want. A good example of this, albeit in a different market sector, was Canada's Schenley Distilleries in the 1940s. Schenley offered a dividend to shareholders in cash or in warehouse receipts for deliverable whiskey.
Applying the Schenley example to the junior gold producer, such a company could offer their shareholders dividends in cash or gold bullion much like Durban Deep and Homestake did in the past. Now the party shorting the junior producer will also be short of gold bullion in various amounts according to the wishes of the shareholder of the company.
There is no way to beat these destroyers of wealth other than to strategize retaliatory actions within a historical context - perhaps adding a Schenley wrinkle.
Send this to your junior mining and exploration company management. You will find out fast if the management is working for themselves or the shareholders.
This is where the rubber will meet the road in 2011 and thereafter.
Goldfinger
