One of the factors in selecting a mining stock according to Frank Homes' article "Five Ms for Picking Gold Stocks" is the mining cycle as he describes below. We have seen the first two stages (Discovery & Development) as it applies to ECU and now must lie somewhere inside that "red circle" where the production decisions is made. The added bonus for ECU is the possibility of further significant discoveries in Valerdena.

5. MINE LIFECYCLE

In the exploration and development phase, a price of a gold stock often follows a course that ends up looking like a double-humped camel (see graphic above).

First there’s euphoria over exploration results that are better than expected. The stock price rises as investors race to buy shares. Then reality sets in – this gold discovery is still years away from being an actual producing mine. At this point, there’s a huge correction in the stock price.

Assuming the company continues down the path to development, its share price drifts sideways until around six months before the first ounce of gold is expected to be produced.

At this point, the stock begins a strong new leg up when a more sophisticated set of shareholders come into the market. Eventually the price drops off and then levels as the speculative money moves on to the next hot opportunity and the company transitions from explorer to producer.

by Frank Holmes
CEO and Chief Investment Officer
U.S. Global Investors