Heavy Minerals (ASX: HVY) shares are down 20% today. HVY shares are down not because there's anything particularly wrong, other than that the shares went up too much yesterday. This being something that we did in fact say, yesterday we said it in fact.
It's worth pointing out that Heavy Minerals has a perfectly sensible, very probably profitable, mineral sands find at Port Gregory. Just jam packed full or garnet - something the area is known for - and in significant volume too. Note this is not garnet for jewellery, this is the industrial material used for sand blasting and water cutting etc. Nothing wrong with that, garnet in this form is a widely used and therefore easy enough to sell material. It's just that as an industrial sand it sells in volume and cheaply. Profitability depends less upon the scarcity and rarity value of the material and more upon the efficiency with which it is mined, packaged and transported.
Well, that's all fine and yesterday HVY announced an upgrade to the measured resources. Leading to the following:
That spike on that right hand side was excessive. As we said yesterday about Heavy Minerals: “Heavy Minerals (ASX: HVY) shares are up 95% today. HVY shares are up on the announcement that the mineral resource at Port Gregory is higher than earlier thought. That's nice, that's good news, of course it is. But it's perhaps not 95% up good news. We have a feeling that might be an overabundance of excitement rather than a measured response to the news. We'd not say we are certain enough of this to recommend trying to short the stock - we would very rarely recommend a short at all - but we'd, perhaps gently, suggest that trying to chase HVY higher might not be the most wealth enhancing idea ever.”
The 20% or so decline today actually wipes out about half of that 95% rise yesterday - that's just how those numbers work out.
Yes, of course, it's joyful that we get to prance about being right in this specific but the larger lesson is that small cap junior miners are places to take profits when they occur. This is not a world where leaving a position be and allowing it to run works as a technique. Positions need constant management. Another way of making much the same point is that junior miners are there for trading, not for investing. For profits, when they do arrive, can also be very quick to disappear again.
