The problem with mining and in particular junior exploration right now, at least from an investor’s standpoint, is that no significant new money seems to be coming into the trade. Some stocks are being bought … but mostly with money taken out of other stocks. And thus the sector as a whole — amply demonstrated by the middling performance during the past year of various mining indices and diversified investment funds — is churning. It doesn’t help the situation when we have huge opportunistic grabs the likes of NovaGold’s (AMEX/TSE: NG) monster equity placement of almost $400 million (including overallotment option). Or that NovaGold in its infinite wisdom has decided to create yet another company in an already overcrowded space by spinning off a NovaCopper. I’m not trying to pick on NovaGold, just making a point. They do have some valuable assets if only they could do something with them other than dangling hopes and prayers in front of big New York hedge fund guys who are too lazy to properly research the sector.
Fortunately it appears that the tide may finally be turning from a short-term speculative market of fools to one where strategic positioning and building true shareholder value are appreciated. A possible shift is indicated by the sudden slew of smart-ish mergers and rollups that we are witnessing at both the producer and junior level. We already have four of these examples from our own portfolios: Pan American & Minefinders, Panoramic & Magma Metals, Macusani Yellowcake & Southern Andes and Smash Minerals & Prosperity Goldfields. In a different market, having such a high concentration of buyouts would probably make us look like geniuses but the truth is that nobody is getting rich on these deals because valuations still suck. Yet it is a big positive that some transactions are being driven by rationalization of purpose (building assets with productive value instead of blue sky “in situ” promotional value) and strategic considerations. Also quite relevant is that these mergers and rollups are reducing the huge number of companies that investors have to consider and spend their money on.
The thing is that the market is made up almost entirely of “Greater Fool” trades and traders. By that I mean that most investors have the purported tactic of buying low and selling high with no intention of holding a particular stock for its organic growth or dividend/income potential. One reason for this is simply the dearth of legitimate companies with such potential especially in the junior resource market. As a consequence of this, the market is presently populated by fools (including us by necessity) … not fools in the sense of intelligence but rather intent. Yet we can’t all possibly buy low and sell high and succeed. In fact only a few do. It’s the classic pyramid scheme quandary: eventually you run out of even greater fools than yourself.
As already noted, there is some hope for a shift away from such a denouement in the resource market but in the meantime there is the very real risk that the investing world and in particularly the junior resource market simply runs of out fools. As it did (hopefully temporarily) last year. That development came somewhat as a surprise and probably doesn’t represent a secular shift but we need to be aware of the different possibilities and alternatives going forward. We need to be prepared to act based on whatever we see happening and not what we would like to see happen.
Here’s a strange analogy but apt in my experience at least: Comic Books. You see like many kids growing up in the United States during the 1960s through the 1990s, I started reading comics (not the “funnies” but serious stuff like X-Men, Spiderman, Dark Knight, etc.) in elementary school and my growing collection eventually became a valuable “investment” asset as the ranks of collectors swelled. Some popular titles became highly prized as more and more collectors started following a particular story line and sought to complete the series by acquiring all the back issues. By high school, I was buying multiples of “important” first issues and “appearances” and later selling the extra copies back to the local comic book shops at a profit.
But then at some point everybody caught on to the (small but still exciting for a teenager) profit potential of comic book “investing” and started doing the same thing. Seeing the higher demand, the publishers started printing much larger runs of the issues they expected to be very popular … so called “key issues”. Not to mention that they also started publishing reprints, which for some collectors who primarily wanted to just read the storyline from the start, was enough.
By the time Todd McFarlane’s Spiderman came out in 1990, my comic book “hobby fund” was thousands of dollars in the black and thus I made my largest purchase yet (by then a college student): several hundred of the #1 issue of Spiderman in various permutations (green cover, silver cover, bagged, unbagged, platinum edition, etc.). I was hoping to make a killing … unfortunately so were thousands of others like me … and not to mention the publisher itself: Marvel Comics, anticipating the demand, had printed probably the largest run of any comic book ever issued up to that point (a year later, the new X-Men series had an even bigger first printing of over 7 million copies). Despite countless buyers greedily rubbing their hands together in anticipation of buying multiple copies of the first Spiderman issue, there was still such a huge oversupply that Marvel had to come up with special gimmicks like different cover colors and pre-bagging. Serious collectors always put their comics in plastic bags to keep them in pristine shape, but a comic book sold in sealed bags is basically meant for “investment” and not reading.
So when comic books are being pre-bagged by the publisher, thereby ensuring that they will not actually be read, we have a situation called jumping the shark. I didn’t recognize the phenomenon at the time (it wouldn’t even be named for another decade) but I knew innately that I didn’t like what was happening. I wonder what might be the equivalent of that in the junior exploration or mining sector? I don’t know, but one thing for sure is that we at Metal Augmentor like to be cautiously observant and so we are always on the lookout for stuff like this.
Recognizing any future “shark jump” should be easy if we allow ourselves to admit and say: “Now that really is ridiculous!” We did see some troubling signs last year like Stillwater Mining buying Peregrine Metals or Golden Minerals buying ECU Silver but those weren’t really ridiculous deals … ridiculous would have been Freeport-McMoran buying the former and First Majestic Silver the latter. If you don’t catch my drift then you might be a greater if not greatest fool and proceed accordingly.
Getting back to my comic book exploits, needless to say the secondary market for Spiderman #1 did not go very well. Patient selling did eventually allow me to make my money back on a couple hundred of these cursed Spiderman #1′s but a few years later the back issue market had become so oversupplied (not just for McFarland’s surfeited works but all comic books with the exception of the truly rare issues) that I ended up dumping thousands of previously valuable titles (including hundreds of Spiderman #1) in front of a community center in East Oakland. I hope the kids who ended up with them tore those ridiculous pre-sealed bags open to read those cursed books! I’m sure there are still several boxes of Spiderman #1 somewhere in my garage … just contact me if you’d like a genuine silverax copy real cheap! In any case, Spiderman #1 ended my career as a comic book speculator. Let’s hope all of our junior resource speculating careers don’t end in a similar manner … say, due to the insatiable desire of Bay, Howe and Wall Street to keep putting together “pre-bagged” companies with moose pasture projects until the point is reached when all of us fools can no longer bear the weight of the crap.
I should note that besides comic books, baseball cards (and later basketball, football, hockey and even car racing cards — do you see a pattern?) also had a similar run from the 1960s to the 1990s, teaching several generations of kids the finer art and pitfalls of speculative collecting. With beanie babies (introducing girls to the arcane art) being the last great money-making fad to die out during the 1990s, I wonder how much the experience of the “collecting” generation had to do with the real estate and stock market, and in particular dotcom, booms that came a few years later. Sure, the proximal causes were easy credit and excess liquidity but it seems to me that cultural preparation might have played an important part as well.
And it wasn’t all bad in the same sense that the Amish don’t have it all bad. Yes, speculative bubbles are obviously bad things and excessive risk-taking is not a productive enterprise, but let’s consider the possibility that entrepreneurialism and innovation themselves spring from speculation. Moreover, an appetite for speculation may be something that requires conditioning and experience. If so, then perhaps societies that are economically dynamic should thank their cultural habit of wheeling and dealing to which their children get exposed during their formative years.
On a positive note (for the prospects of an enduring supply of fools at least in the U.S.), the “collecting generation” is still very much out there and could be the driver for whatever fool mania is yet to come in gold, silver, commodities and resource stocks. A stacking and stashing phenomenon (collecting silver or gold coins bit by bit) has already taken off during the past couple of years thanks to online discussion camps at Zero Hedge, Max Keiser, TF Metals Report and the like. Maybe the next generation of kids will get an early lesson in speculation after all … from silver and gold?!? Quick, somebody needs to come up with a collectible format that is affordable to them (I suggest about a dollar per item so that would be something with about 1/50th of an ounce of silver or 1/1000th of an ounce of gold). Such a fad would then supply a whole new batch of speculators that fool-inspired markets like the present one will desperately need in order to succeed in the future.
But beyond that, it seems to me that the real money to be made in precious metals and natural resources over the long term is not from studious application of the Greater Fool Theory or speculation itself but from the productive deployment of capital … building businesses that will generate substantial return on capital over the long term. Everything else — including owning gold and silver beyond 10-25% allocation for wealth protection — relies in part on someone more foolish (again in the sense of speculative intent and not intelligence) eventually finding something to be more valuable than you originally found it.
Importantly, building a mining company that will generate organic growth and a solid return on principal cannot be done in a nilly willy manner but must be accomplished using all of the strategic tools and discipline that entrepreneurialism and capitalism can muster. Getting it right is measured by the amount of enterprise value created, which is particularly difficult in a business like mining where the assets by definition are depleted over time. Spinning off a supposedly valuable project for short-term gains is the antithesis of such an approach and a sure sign that fools are dominating the market. The spinoff is merely a satiation of the foolish appetite for instant reward. On the other hand, strategic mergers and rollups (including by juniors whose management recognizes that a multi-project pipeline is important for mitigating risk and creating the pre-conditions for organic growth) are a sign that fools are losing their influence. Let’s hope so before we completely run out of them!
Would Bernanke and Obama count as the ‘greater fools’ in your scenario? If so, gold investors are in good hands.
Also, dissing Zerohedge? Think you are qualified? Axe sharp enough to chop their wood? Maybe be content to carry their water….
@strannick
I diss ZH all the time though here I just said “thanks to” … which I thought was a rather neutral connotation. But yes, I am qualified and in fact I could easily make a career out of factually disputing the details and pointing out errors they make — yet that would be penny wise and pound foolish given the general gist and theme of what they talk about, apart from the conspiracy mongering, is directionally correct (i.e., not pissing in the wind) and perceptive in a subjective sense. The Greater Fools aren’t the politicians or policy makers but rather those who will be fooled by their non-solution solutions that failed to address structural or fundamental issues in favor of pursuing ideological varnish (that goes for Republicans and even Libertarians as well). If a Volcker-type solution comes along, we must be ready to change as the tides will surely shift but until then the markets will operate subject to the supply and demand of fools.
Will stated, Silverax! My views of OOOhedge are similar to that of the National Inquirer…
I agree with much of the logic and story, and I can say that it all makes sense, especially if you believe that precious metals prices could plunge in a world of competitive currency devaluation.
Personally, I believe that better times are ahead for Precious Metal Prices, due to debt denominated currency devaluations, and perceived (real) risk of inflation in the U.S. and Europe. Currently, there is no currency that can effectively take the place of the U.S. dollar, and gold/silver prices are too low to become a defacto currency. Furthermore, so few people actually own or are exposed to gold/silver, any incremental increase in demand could cause prices to rise exponentially.
Does That mean that gold will become a reserve currency? No, But if the currency wars cause a further break down in economic activity, Gold/Silver will be a serious option. For example, a lender nation, i.e., China could peg to gold, and a lot of countries could get religion real fast.
@Jack Kamerling
All of this is very true, and hopefully with the recent spate of mergers we are in fact seeing the market rationalize in light of the current shortage of fools (they are sure to return in force). Even if we don’t get ever-rising PM prices, John Kaiser has put together into one coherent scenario some of what we ourselves have been thinking and saying for some years now — about gold having an upper limit in terms of notional GDP but also prices remaining elevated while the deficit issues are not resolved (which of course will not happen for a long time) … most importantly being that once higher gold (and commodity) prices are rationalized by the industry then we will really see valuations rise because buyouts and internal models will start using these higher prices to gauge what assets are worthwhile — this should help lead to the next mining boom where the quality assets are gobbled up and agglomerated by either the majors or mid-tier producers looking to gain market share. And of course along the way the PMs and commodities themselves will provide some excitement but unless your timing and trading are meticulous then it will be hard to see how one could build massive wealth buying gold and silver at these levels and holding them for a few years. You should buy physical for a lot of reasons but not because they will make you fabulously wealthy.
Unfortunately the link between precious metal prices and the junior mining sector is threatened by management printing shares faster than Bernanke is printing dollars!
Good point, Mr Doyle
Silverax,
Your experience with Spiderman is comical (pun intended). We will certainly end up the greatest fool in PM investing if we neglect to think about an exit strategy. In my experience selling at the right time is actually more difficult than buying.
I do believe we are headed for a mania in precious metals (certainly this belief is a speculation) and we are probably somewhere early in the 3rd phase (mania phase with large retail investor involvement). The people entering now with nothing but “new paradigm” and hyperinflation talk about probably the same ones who will get burned. As the price rises higher they will probably realize they have not bought enough precious metal to make a life changing amount of profits and thus will continue buying as things get crazy, instead of selling
(woops, pressed ‘post comment’ early)
… instead of selling into the optimism as you need to to make money.
Let us remember however that comic books speculation has more to do with numismatic coin investing than bullion investing. Silver and platinum group metals especially have very important industrial applications and intrinsic worth. Also, bubbles are most dangerous to those entering at the final stages. For those of us that have been at this for a while it is more a question of loosing profits. Silver is not going to crash back to anywhere near where it started the last bull run ($4/oz). Infact in will probably never see sub $20/oz again.
One last thought. All bubbles start on strong fundamentals. They only end in ridiculous speculation. The .com bubble is a perfect example. It started off with the realization that the internet was going to fundamentally change how people interacted and do business. This realization was correct, however by the end of the mania companies with little more than an idea were IPO’ing for hundreds of millions of dollars. Still, after the fallout the “new paradigm” folks were still vindicated. Apple was no bubble. Neither was google, nor many others. So it will be with precious metals and junior resource investing.
Taking silver for example. The government stockpiles are gone. New uses are being discovered. Ore grades are falling (like for every commodity), and energy prices are rising. The days of cheap silver are gone forever. Buying raw materials today is about transferring forward the cheap energy from the peak of Hubbert’s curve to a time where it is more scarce (barring a technological breakthrough which is certainly a possibility). Silver is an ideal media for this ride.
If I can one day sell my silver for 10 times the goods it purchased at the start I will certainly be a seller. Having a hard-assets mentality though, I will probably just buy more farmland or maybe houses if the timing is right.
@SilverKnight
Great rant!
BTW, on that day I will change my name to CornKnight.
@SilverKnight
SilverCornKnight, would have a nice ring to it!
Microcap trade idea might be of interest to some . . .
Vior (VIO $.065) owns21.25 mm Aurvista (AVA $.38)shares and +$2.5 mm cash summed nearly $11 mm but Vior’s mkt cap is only $6.6 mm. Aurvista has had a nice move up as have many gold jrs lately . . . news in the pipeline and recent changes in mgnt. VIO needs to appreciate +50% to close the gap.
Disconnects this large rarely last long.
Potential catalyst: standstill agreement expires the end of this month. AVA should acquire VIO thereby repurchasing 21.25 mm of its own shares and also getting VIO’s cash. AVA needs to raise funds soon anyway.
@Drew
Interesting and potentially worth throwing some speculative money at, especially since Aurvista also looks pretty cheap and as you mentioned the recent management changes could be positive. However, I don’t think it’s a sure-fire bet. For starters, the last several years have proved that disconnects like these can last quite a while. The gap usually close at some point, but that can just as easily be the result of Aurvista falling back to where it was a few days/weeks ago. Vior owns over 40% of Aurvista and therefore it would be difficult for them to actually monetize their interest without signficantly impacting the sale price unless Aurvista is suddenly in vogue. I’m not sure how AVA purchasing VIO would help them raise cash since presumably they’d need to pay in cash rather than say issue more shares to VIO! Let’s certainly keep an eye on this.
@Drew
OK, but I see VIO did a $115k flow-through in Dec at .09 and paid a finder’s fee. How does that work if you have $2.5m cash? How certain is that cash?
Even though they get the VIO cash, AVA still have to pay. They could pay in shares of course, but then the focus is more clearly on their own worth?
@Zurbo
Well Aurvista has come in since I originally posted. It was offered but didn’t actually trade at .38. Didn’t mean to mislead. But, a 50% valuation gap usually doesn’t last long.
New management at AVA is impressive. They are marketing currently and I think they intend to raise a couple mm. The new cash plus roughly couple mm on the BS currently should fund the 2012 program.
AVA has 1.9 mm Au oz in a handful of zones using .7 gpt cutoff. They will eventually update the resource estimate using maybe .4 gpt, so the resource will increase in size simply by using the lower cutoff, but also due to drilling.
VIO raised flow through money to spend on their other projects. They own a small royalty and some exploration assets. The Vezza mine which is going back into production has a drift onto VIO’s property, so that claim has some value if/when Vezza starts mining that resource.
Doesn’t make sense to use regular cash on exploration expenses since it is easy to sell FT shares at a higher price.
VIO must hold the AVA shs 18 mnths from AVA’s IPO last August, and has announced its intention to distribute them to shareholders.
All jr developers routinely dilute in order to raise funds to further exploration. AVA can tap the mkts or they have the additional option of simply acquiring VIO. From AVA’s perspective, depends on which option is least dilution to AVA shareholders (acquiring VIO retires 40% of AVA shs).
AVA would like to be rid of this 40% shareholder with his board seat, but if they do nothing then the AVA shares will eventually get distributed to VIO shareholders which are not concentrated.
Why should anyone invest is a sector where management’s number one priority is the preservation of their lofty compensation packages? And there’s no shame in it? Even the “fools” have wised up and refused to participate in this game. On the other hand, if you’re a venture capitalist on the inside of one of the endless private placements, you not only get a sweet, nearly riskless return, you get a lot of free corporate jet rides to exotic locations all around the world. The word “shareholder” implies that you pays your money and you get to share in the successes that a good project, idea, product or whatever brings. Show me the money!
Newmont Mining took a step in the right direction last year http://www.miningweekly.com/article/newmonts-novel-gold-linked-dividend-gets-the-spotlight-2011-10-28 but their current dividend yield is still less than 2.5%. And they’re hoarding 5 Billion dollars! They’d better get up off those hands before gangrene sets in. Sheesh, why would any fool take on the crazy risks in this sector when management seems to do everything in its power to avoid sharing? If their dividend payout(NEM) only goes up when the price of gold goes up, why not just buy the damned gold?
Look, I know it’s poor logic to mix producers with explorers etc. but the main point is that, as a group, management sees shareholders as a tool to realize its top goal of long and rich careers in the mining biz. Any fool can see that its better to take your money elsewhere. Cigarettes and wine Altria Group, Inc. (MO) with a dividend yield of 5.4%…a captive audience. A better return can probably be had hoarding nickles. Their melt value is currently 15% over face value.
@forwill
I agree that Newmont’s (and others’) gold- and silver-linked dividend policies are gimmicky weak-sauce, but that doesn’t mean I think increasing dividends more significantly is the right direction.
@Zurbo
It seems even the mainstream equity classes are percieved as rigged nowadays. People talk about golds dismal performance during the eighties and nineties but rarely talk about the dismal DOW performance from ’65 to ’85. http://www.tradersnarrative.com/long-term-chart-inflation-adjusted-dow-jones-industrial-3691.html. Individual investors that still get suckered into the likes of NovaGold boggle my mind. But, I was right there with them at one point until I found you guys. When the Natgas pipeline idea doesn’t work out for NovaGold shareholders, maybe they’ll propose rocketing a large magnifying glass into orbit and concentrating the Sun’s energy onto a land based collector. They might even be able to operate 18 hours a day if they place the orbiting apparatus properly. When you have such a large gold depost, you have to think BIG.
I might need to go back to skool to learn how to spell nickel, but I know one thing…you guys are working your fingers to the bone trying to help me make money in this tough sector. I do appreciate all you do.
@forwill
Need to find the right companies to hold long term (only a few that have enterprise value because of unique assets or management or product or whatever) with everything else being a “trade” (buy when things are bad, sell when the going is good). There are only a few mining companies that have rewarded shareholders over the long term and typically dividends was a very important part of that reward.
@Zurbo
You increase dividends if the money cannot be invested in an accretive manner (funding organic growth or buying undervalued assets). Unfortunately most management has no clue about any of this, especially those who have the letters “M”, “B” and “A” after their names. Most companies do ROI analysis only when the outside consultants come in (management shakeup or operational problems) — and exploration/mining companies never do it to my knowledge. They also don’t do things like attempt to gain strategic leverage by short-term hedging of gold or silver price volatility — or acquiring gold/silver near extreme lows in the market. ow many of the 130 companies that had more cash then their market cap in late 2008 went out and bought gold or silver at ridiculously low prices of silver under $10 or gold under $750? … The answer is exactly zero. Instead now you have at least one that is buying a silver ETF, PSLV, at what is basically near an interim peak in the silver price. If you are going to do something that inane, just dividend the cash!
Tom changed his hobby from Spiderman comics reader to spiders’cartoon creation it seems.
http://en.wikipedia.org/wiki/Minuscule_(TV_series)
(Created by Hélène Giraud and Thomas Szabo)
My children (2 and 4 years old) really like your TV series Tom, and I quite like them too actually…
@Giuseppe
That’s my twin brother! (actually, never heard of him…)
I always read Stewart Thomson’s commentaries on Kitco. I’ve gleaned some good tips about trading psychology from his commentaries. In my mind he seems to have a very good handle on TA as well. The cheerleading stuff is kind of a bonus when worry sets in.
Here’s his latest http://www.kitco.com/ind/Thomson/feb142012.html. I’ve never seen this stock market liquidity flows chart he’s writing about that looks “truly frightening”. Any thoughts on its value and/or his interpretation?
@forwill
It’s not really a liquidity chart, it is the commercial trader net short position in index futures. They are basically net short but there could be a number of reasons for that — though I would agree when Thomson speculates it could be “smart money” attempting to protect profits after a significant run. We’ve been talking about this for weeks in the subscriber updates and in fact that last week (new one about to come out) we had a S&P chart that pointed out what technical situation could result in the next few weeks to couple of months. We want to speculate on a potential drop but our timing needs to be exquisite in order to work out since the drop may not be really that big (right shoulder on S&P would complete around 1250 I believe or less than a 10% decline). Also looking for something in gold and silver but I feel we still need a couple of days to have it work out. I put together a reasonable gold scenario on Feb. 9 for an interim peak and will be sharing that on the Weekly Subscriber Update which is coming out later tonight. So far it is on track and if so then we could have a peak on Thursday and then hard down into next week — perfect for the March COMEX silver option expiration. So bottom line I see many of the same things that Thomson is seeing and I generally agree with the sentiment that stocks and gold are vulnerable or at least that traders should be mentally prepared for a decline — but where I differ is that I do expect this to be part of a technical advance that still has its final phase coming this Spring.
It seems to me that most of the fools have recently started to hit retirement age, and the sons and daughters of the fools are very preoccupied with trying to make ends meet in basement suites, in 400 to 600 apartments, social media and worrying about getting good jobs or any job, than be worried about the next great wave in juniors. Ask the typical 20 and 30 year old and if 90% don’t reply mutual funds, I’d be shocked / what’s your crowd?!
We have a demographics and economic (very little discretionary income – that is not already committed if there is any at all) with young adults with much more to worry about that the next wave in junior miners! And then we have $7T on the sidelines fearing “big caps” never mind micro caps on a venture exchange or the best of the best jrs on the TSX. With my bias, I’ll just shake my head at the irony!
We lament about the crooks on Wall Street but our markets streets are still filled w/ insider trading and tips aka when was the last time the BCSC or OSC charged anyone with tipping of inside info? Such a simple question and we don’t even bother wasting our time asking it anymore because its a waste of time when we could be thinking about what to get for lunch or whether I’ll sub skim for whole fat for my coffee.
So when Rick Rule says that it is the top 10% of QUALITY jrs that make the money, I think there is something too that. To make up for the lack of fools, I suggest to make up for it by not throwing money after stories and ideas; do some serious DD. But no matter how much DD you do I personally think that it is one of the tougher things to do, to make money in the markets without a good decade plus experience and lots of losing first.
I once read that investing is a craft and that even the great masters (like a Michael Angelo was the example) had to learn their craft and to apprentice. It is the same way with investing. So we can’t control when of if the fools come back but we can learn from past mistakes, learn to listen to trusted and proven voices and to do our best to recognize true and incredible value that has a way to surface vs. the story or the momo play of the day.
Tom,
Is there a way to change the order of the posts so we get the earliest ones on the bottom?
@31Floors
I assume by posts you mean comments in which case the answer is currently no, though we are working on some upgrades such as allowing subscribers to preview before posting and edit afterwords for a certain period of time. We could also consider adding in first-last sorting functionality, though I’m not sure how this would work unless we also disable tiered comments.
I don’t think we can expect much from the retail investor. The fools will have to come from hot money crowd, hedge funds, institutions and the like. After all they bought all that MBS CDS crap not a stretch to see them buy Jr. miners.
@Rob
But those were triple-A and perfectly riskfree!
@31Floors
Very solid points … I’d just add or aver that without new money it becomes a slushy pool of funds that moves from hot to hot play or it becomes an “all sink” scenario (the opposite of “all boats rise” during a boom phase). There certainly is decades of experience here at Metal Augmentor so that is not wanting … and yes ultimately we must become ever more selective and discerning to simply have a chance to just march in place (much less make some big profits) if there is not going to be any new money for a while.
Kaiser slides from California, something for everyone I think (except base metals), much macro with gold vs global GDP (and an interesting “sum of endeavour” pricing idea), plus Nevada/NGE passing mention and he obviously owns FVI too. He needs a new charting package.
Ot hear Oscar Carboni tell you Au is so expensive it is owned only by speculators, watch out for when interest rates rise. http://www.kereport.com/2012/02/18/california-resource-investment-conference-indian-wells/ (seg 7), and that Las Vegas is the measure of the US economy (or perception), and it is booming!
btw, much discussion about M&A being the theme for 2012.
@Dave
whoops: http://www.kaiserbottomfish.com/i/jk/pdf/KaiserCambridgeCaliforniaKeynote20120211.pdf
@Dave
And, did I mention International Enexco and Northgate, whatever they are called now, both dropped the properties they optioned from NGE, so I have no idea why Kaiser has so much faith in NGE.V
@Dave
Yes I think we discussed Kaiser’s concept before and it is a very good one — of course we ourselves have mentioned the gold to nominal GDP measure and also I like the two other critical points which is that the ratio is a reaction to instability and that the gold producers (the good ones at least) don’t need much higher than current gold prices to do very well in the years ahead (I’m not saying 1000% returns but say 30-50% annual especially with some good entry and exit timing).
@Bart
Nevada Exploration/NGE may have something as I said but they need to get the right project and the right sniffs going so there is some proof of concept. As I noted a while back we can afford to wait because it was unlikely something big was going to happen soon. Of course we can say that it is a good idea to wait on 90% of junior co’s…
Dave, I used to be an NGE fan. I was even in the original IPO. The problem is that the share structure is very different today, they have spent millions along the way and they have ZERO ounces in a 43-101 compliant resource. Personally, there are better stocks to play in the Nevada space.
Thanks for the link Dave. Hmmm…the “transition anxiety” idea seems to be well supported by the rising percentage of private gold ownership. The 8 Trillion $s parked in US savings accounts added to the large cash holdings of corporations sure points to a deflationary “wait and see” mindset.
Personally, I believe that if our leaders would show ANY ability to honestly debate and decide the “taxation fairness and spending” issues and move toward a simpler, more transparent process that returns some semblance of the rule-of-law, this dreadful mindset would quickly disappear. They do just the opposite though. They make things more convoluted and complex, adding to the level of uncertainty.
@forwill
The key is “certainty” for sure but I think we tend to grossly underestimate how easy it is to do something simple and how simple it is to do something easy … at least in the realm of politics and economics.
I lost my first comic collection to Hurricane Camille in 1969. I had started with Spiderman #2. After Camille, I had the first Conan from 1969 as my most valuable.. I had 50 of Spiderman #252, the first black costume. I stopped collecting in the mid 80′s. That collection was lost in Hurricane Katrina. All bagged, boxed and cataloged. Comic book speculation will never return to what it was. Demographics alone insure that. Great analogy to the mining sector Silverax. (My son still has his GI Joe collection which I imagine is depreciating)
@John
Thanks for adding your thoughts…too bad Hurricanes apparently had such a strong affinity for your comics! I still have a #252 somewhere I believe (I kept one of each key X-Men and Spiderman issues … well-read ones, so if any of my (then future) kids wanted to read a series start to finish they wouldn’t have to skip the expensive issues). I just reminisced this past weekend with one of my comics “investing” buddies who still actually has most of his collection — he hasn’t tried to sell anything in a decade. The dealers apparently want key issues to be professionally graded ($20 or more)…and then barely pay that much for the book. Oh well! There is no hope for comics alright but maybe the “younger” generations can still get interested in “investments” that actually produce something inherently valuable (gold, silver, copper, whatever). Not to say that good money cannot be made simply buying the right mining companies and then getting rewarded via earnings (whether distributed as dividends or plowed back into growth) but it sure would be more fun if some “mania” money were to show up from time to time.
The greater fool fears seem to be dreading.
http://www.zerohedge.com/news/are-we-running-out-greater-fools
I’m thinking markets are more and more about game theory than technicals or fundamentals. These days anyway
Spreading not dreading or maybe that also
The past 17 months have been nothing short of a disaster, for those who have owned the Au miners…Just look at several of the indexs, HUI, GDX, GDXJ, all of which are trading at similar levels 18 months ago, WITH RISING GOLD PRICES!
We have given up about 40% of our gold mining profit in just last year, after five years of trading!
What has happen? A number of things, ETFs, Internet (yes order your metal from the comfort of your home), very poor mining production and performance.
Have you been wondering, why you are not seeing that 3 to 1 or even 2 to 1 ratio in gains? Why even worry whether the miner you bought has good management and finance’s, just buy an ETF of your choice or go to one of many of your local coin dealer and take your security blanket home.
The 1980′s return on equity gold miners will never happen again…Beside what was mentioned above, is poor stock performance…Since the start of the gold bull, gold prices advanced six to seven fold… Most of the majors and intermediates struggle just to maintain a 1 to 1 ratio.; which means there is no relevancy in owning them!
Investors are wising up…Broken promises and in many cases fraud and management deception…Remember when they told us “we will make money at $600 oz;” then it was “we will make money at $1000oz”…There were two COE, of two large miners, stating that their over all cost was near to $1200 to $1300 per ounce…Where are the miners making $10 to $12 per share – there are none…Where are the miners paying $2 or $3 per share dividend – there are none…Could it happen in the future, perhaps, but more than likely their cost will escalate as does the price of gold…
April 20, 2012, will represent one year of gold exceeding over 1500 per ounce…We are looking for robust earning growth (50+)…Instead, however, we except more disappoints in second quarter earnings…Failing that, we will be moving out gold assets into the Ag sector…
Yes, investors, are finally fed up with all of the pyrite promises from their gold operators…
Gold (haha) gold (haha) we don’t need no sinkin gold…
@Hans
there are some bright spots…take Rio Alto Mining (RIO.to) for example.
Thanks, Ras, but are not allowed to trade on any foreign exchanges…
We truly hope that the industry begins to produce serous earnings for their shareholders and soon…From our perspective its six months and counting….
I would be remiss in not adding the following comments…
In the last two years, we took numerous positions in “in-situ” gold companies…
Our biggest winners were Northern Dynasty and Midway Gold: unfortunately they were offset by large losses in Nova Gold and Tower Hill !
The only two “in-situ” companies we are now actively following are, MDW (have position) and NTGMF..
Our gold watch list has been reduced to six companies, with two of them listed above…As stated before, the next six months are crucial! If Au miners fail to produce robust earnings, we will exit the gold miner market…
It appears wiser investors have already done so…
The industry has produced more disappoints than surprises…Rising production, rising Au prices, rising reserves, yet the common shares just limp alone…There is something wrong with this picture, don’t you think!
After a decade of ever rising gold prices I would think that these companies would begin to deliver very positive results for their shareholders…
My dear friends, I am not optimistic…
@Hans
Where are you going to redeploy your investments if you leave the gold sector? Too much cash sidelined is making us all victims of the biggest whack-a-mole game ever thats perpetrated by the big boys.
A couple days ago I entered coal in the form of ACI, BTU and PCY but I have the feeling there’s the possibility that I’m entering too early. Electric generation migrating to Natgas as quickly as possible. Should be good for Natgas, right? There’s also a lot of hubbub about the auto industry ramping up production of many new models that run on gasoline and LNG.
Just when you think it’s safe to pop your head up and buy some resource stocks…..http://www.youtube.com/watch?v=D0n8N98mpes
Forwill, I am still a gold bull, so it would take place in a form of a ETF or the purchase of physicals…
Silver would become our next point of interest; and as well platinum and palladium…To these metals, we would apply the same metrics as we did with the Au miners…
I have little expertise in the coal industry, (or anything else for that matter) but in general, I would be very cautious on coal, as I see strong headwinds for it…
Re-election of BO, would result in waves of attacks on the industry by the Enviro’s agent, the EPA…Coal would be on the dole for destruction…
That being said, (watch Red China’s GNP as well as its import needs, also India) if the export markets remain strong and certain manufacturing processes requiring the use of coal, there many be still a future for this commodity…
Not only the USA, but also the world has massive fields of NG which will be economical due to fracking..Shipping it to foreign markets in a liquid form, does increase costs, nevertheless, it still will enjoy a cost advantage over both goo and nuclear..Remember, both Europe and Japan, are turning their collective backs on nuclear power…
GM should have developed the Therm rather than the Volt; which did not take long to bolt…Honda, has been producing a model for many years, however, the issue is the lack of retail refueling stations…Hear in Minnesota, there is only a single CNG station, operated by Center Point Energy; so infrastructure is the main burden and barrier…
There was an in-home refueling station (at a cost of $4,ooo) however, the company went bankrupt after losing support from Honda…
If NG supplies continue to grow, as they have recently, there will certainly be a market for CNG vehicles, unless of course, the EPA mandates a mix of NG and ethanol…
I have to remember to read everything posted by MetalAugmentor. I really enjoyed this essay and lesson on greater fool market action.
Hans,
You commented “Re-election of BO, would result in waves of attacks on the industry by the Enviro’s agent, the EPA…Coal would be on the dole for destruction…”, well I put to you that if there was ever a need for something that can not speak for itself to have a voice, it is the environment. It was the EPA that brought the crises of acid rain to the forefront and provided the leadership to curb sulpher and NOX emissions and God knows what else that saved the Great Lakes, for example. I was too young and busy to notice then, but I trust industry at that time in the 1970s to have done what industry does best: argue that there was no proof and besides they couldn’t afford to deal with the problem if there was a causal effect.
The auto industry fought tooth and nail against un American imposition of mileage standards but who was right in the end? I am sure there were many days when GM was getting its ass whupped and begging and getting tax payer bailouts that those same people damning the EPA were wishing the EPA shoved those mileage requirements down their throats.
I suggest even Wall Street squid will agree, in quiet moments surrounded by family and friends, that for the good of man and society as a whole, that regulations are needed. Perhaps Jamie Dimon, Blankfein and Phil Gramm might even have conscience away from the cameras. I don’t know. I would suggest that criminal defense attorneys when defending scum will rationalize that they are doing their job just as the state is doing its job (but that if his scum got convicted it would be for the betterment of society). The point is that people will do the best they can because that is what they are supposed to do, not because it is right; not because it is for the best. Similarly when we dismiss offhand an initiative such as Obama’s on coal, we should think about the greater issues. Have no worries, coal produced 40% of the US electricity last year.
The disaster at Fukushima has helped nix the nuclear rensaissance that was stalled shut with 3 Mile Island. My heart fell. I fear that coal will continue to have its day and that we’ll be hearing much more about clean coal spin. Don’t be fooled about NoX and mercury reductions, and sulphide emissions controls. That is nice but it is SPIN. The elephant in the room is CARBON CAPTURE. Full stop. And that is expensive and unproven technology and can’t be done everywhere.
Personally, I try to invest with a full-on macro view and it includes geopolitical and environmental consequences. To not do so is to ignore the elephant in the room, and believe me that elephant is going to get bigger and bigger. When I started to invest in Golden Predator, it was with a view that water shortages will increasingly be a permitting problem in South American countries (notwithstanding that many mines are build in arid mountainous regiions far from habitation (but not all). The financial crises will resort to increased disparity between rich and poor; violence and revolution would increase (ie. Arab Spring) and should gold become part of the financial system solution that increasingly gold mines will be seen as public property by annexation or royalty increases. So I invest in GPD because global warming while causing an immense risk to mankind by way of releasing methane from the melting Arctic tundra, does not provide the water shortage problem that you see in increasingly desert areas. As well arguably the most friendly mining jurisdictions in the entire world once you get a deal done w/ the First Nations (and GPD has excellent First Nations relations). (I note that MA just assigned GPD as a peerless company and I bought more shares on Friday at .53 by the way).
Go to MA’s company index and read up on what they have to say on GPD. I won’t kid you, I like this peerless concept, no muss no fuss and available to all even the non subscribers. Get some GPD, its a steal if you think there is a future in gold. My only other north play is in Nunavut. Sabina got killed on negative announcements pertaining to some major northern projects. But the numbers on SBB are MUCH superior to those projects. SBB at $2.70 is most likely a steal too (and by the way my avg cost
) ).
The discussion of Greater Fools would not be complete without consideration of the markets as a whole. Wall Street and the capital asset allocation model is BROKEN. Coxe speaks about this frequently. The stock market is supposed to be the means by which scarce resources are allocated to the market place. It is a critical part of the capitalist system, a very important part.
But with the financial crises, with securitization of mortgages, bad home promotion policy, no effective regulation (ah there’s that word again- two words actually) on derivatives, with too big to fail and FASB capitulation and allowing banks to value assets at well over the actual market / liquidation value of same; HFT of course; with the return of the world financial leadership back to the East where it was before the Industrial revolution in full swing; with pension, social benefit and future obligations unfunded that are piled on to future generations (no wonder we the boomer Gen are called the Selfish Generation – that is overly kind IMO), with the cost of environmental degredation and Climate Change passed onto our children, with pension funds so seriously under water collecting in part 1% returns and acturial assumptions that can be as high as 8% PA, the discussion of the Greater Fool seems to be much bigger than who’s gonna buy my penny stock.
http://www.zerohedge.com/news/why-market-slowly-dying
Speaking for myself I am flat for the year and I’ve got twice as much cash as I normally have; and this undoubtedly helps a lot in terms of my emotion. So I don’t feel the capitulation and despair that is prevalent throughout the blogosphere, in gold loving forums. I’m a firm believer that losing in the markets is a PREREQUISITE for making money in the markets, but even then it is no guarantee. Particularly now, with the system itself at the abyss. But at least I’m qualified.
These are the toughest and potentially most volatile and dangerous markets ever. Read the ZH link. Myself, I’m picking away at (what I hope and understand to be) quality.
@31Floors
Nice post. I enjoyed reading your broad perspective.
@31Floors
I have to second David, that was an excellent, far ranging and very insightful rant!!!
@31Floors
Those that seek the blessing and intervention of government to fulfill their agenda or fears, shall in the course of events become it’s chattel…
Those that think otherwise are naive…Hear is another failed fulfillment, from the EPA Goddess, in the search for air nirvanaville…
http://docstalk.blogspot.com/2012/04/cop-in-their-own-words-epa-says-no.html
And when your neighbor ax why every summer gasoline prices increase, tell them that the air regulators has 45 to 70 mandated gasoline blends…
Thank goodness, the EPA mandated higher mileage vehicles; but I thought that was done by the exporting Japanese and the Europeans…
BTW, Floors, I am delighted you have positioned yourself into cash! We are out of the metal market entirely and a waiting 2nd quarter results; which I hope are ALL favorable to miner investors…
Please do not neglect the oil industry, in your portfolio….
Forwill, brilliant comments, indeed!
The comments and discussions here at MA are the best. The fact that subscribers and the MA team can debate severe differences of opinion without resorting to schoolyard tactics is always refreshing. Particularly in an online world where posters typical modi operandi is to name-call and berate individuals right out of the gate.
There is no doubt in my mind that in a perfect world, environmental regulations are intended to provide necessary checks on industries that can drasticly affect our collective quality of life. But we should always be able to freely question the efficacy of any edict or proposed legislation without being called enviro-haters and baby killers.
Take the clean, non-polluting electric car for example. You’d think the electricity used to charge the batteries came from outer space or something but nope; the power is generated by burning fossil fuels. Granted, off-peak generation that is usually “wasted” could be used more efficiently.
Have massive Federal subsidies for ethanol and solar panel production really helped protect the environment?
Is Cap and Trade legislation going to reduce the amount of coal being burned or is it a scheme to shift energy costs from coastal users to midwestern and southern users? http://online.wsj.com/article/SB123655590609066021.html
http://online.wsj.com/article/SB10001424052702303772904577333531487110266.html
Why isn’t there massive subsidies for building NG refueling stations all across the nation with tax credits for vehicle converversions to cleaner burning and abundant natural gas?
http://campaign2012.washingtonexaminer.com/article/billionaire-fuel-subsidyfight-pits-koch-vs-picken/242966
http://www.exxonmobilperspectives.com/2012/03/22/natural-gas-cars-a-look-under-the-hood/
What’s best? What’s fair? Who’s right? Let the debates continue.
@forwill
A major problem and common theme is that markets don’t necessarily price the externalities. Cap and Trade is an effort to do that, probably a clumsy and ultimately doomed effort, but I think the pricing of externalities will become a dominant feature of future economic systems. Hope they get at least some of it right in the future, ethanol and solar subsidies are definitely steps in the wrong direction as is backing away from nuclear.
@silverax
I,m confused. You say pricing in externalities will be part of future systems but that backing away from nukes is a mistake?
Seems to me the externalities to price into nuclear is off the charts. If such things were priced in nuclear wouldn’t have a prayer. Even just the talk about evacuating Tokyo as a result of poorly engineered fuel rod storage is beyond valuation. Nuclear needs to reinvent itself as a much safer tech otherwise the threat to humanity from another 9.0 or emp or grid down or human error, terrorist situation is too risky to quantify.
The US government is borrowing 42 cents of every dollar it spends. Is debt accumulation the answer to spurring sustained growth?
Here is another great read provided through J Mauldin’s website… Hoisington First-Quarter Review and Outlook.You have to sign up to read the entire report; but it’s entirely free.
http://www.johnmauldin.com/outsidethebox/
It presents a very good case why the “fools” staying out of the stock market might not be so foolish after all.
HI forwill,
Thanks for those links, which illustrate how tough it is for government to artificially introduce a market element. This is where some would then slam government and regulations and start name calling, including liberal insults against, well (fxxx Liberals!!). But I think the vast majority, the silent crowd following majority KNOW that there is a very bad trend happening, here in terms of ….lots of things. The one thing, I would argue the BIGGEST and MOST IMPORTANT thing, is the thing without an agent, the thing that I will guarantee will take the short end of the stick as economic conditions become more and more bleak, and the thing we take for granted. That is what is missed when we look for market solutions such as cap and trade or ‘regressive taxation’ to try and price carbon emissions into the formula. Clumsy but necessary. While we can dawdle along and do what the NDP did with Campbell in BC, pull the rug from his ‘solution’ and go back to the drawing board instead of trying to work and make progress… on a gutsy move by Campbell.
In my perfect world I would be able to align my convictions with my investments. Mine is not a perfect world! However, I’ll mention that Sprott’s Dave Franklin’s top picks included RPG ram power. This Rick Rule loser (and Favorite, too!) has gone from +$4 to .35 and I bought at .335. The premise was that it was now operating in Nicaragua (Otto was and is giving Nicaragua increasing thumbs up to allay my geo ?) and they seem to be making progress in California. I detect a distinct lack of meaning presentations that can present the business plan. I have so many to juggle that I did not read the MD&A, reflecting also that it was more of a play purchase as I’m prone to do. I really should look harder, thanks for the prompt!
I think that this is one, that deserves a closer look w/ my armeggedon type thoughts! I don’t have to read the MDA to know that there is a tremendous BV discount in the market price. I’m wondering about the business plan and to establish my comfort level w/ mgt – certainly I’ve heard Rule glow about the expertise a few years ago and would also need to determine if there have been mgt changes.
@31Floors
RPG.WT ask .045, RPG ask = .35, strike .72 2014-05, not callable. Someone tell me if I’m wrong (warrant sites often are! nothing like having the strike a year too far out).
Seems like a good bet to me, but my bid is below the current bid, I own a small handful at .35.
RR in March: “Has been a particularly painful speculation for him. They have had some management issues. Brought its phase 1 plant on time and on budget. Suspects if they get through this calendar year, on time and on budget with phase 2, that they will be taken out next year.”
In Jan Jacobs said: I like Ram Power Corp. (RPG:TSX), and we are rating it Speculative Buy with a $0.74 target price. It’s just coming online with 36 MW of geothermal in Nicaragua. It will have another 36 MW in a year on the same site and could pay a dividend in 2013. So I think there is some good near-term potential to that one. TER: Your implied return is more than 100%. After a tough year, the stock is up about 14% over the past four weeks. Are we looking at a turnaround? JM: I think so, because all these junior developers now are show-me stocks. The market wants to see their projects come online on time, on budget and with cash flow. Once you see that, these values are going to move into these stocks very quickly.
@Dave
Worth looking into further. An RPG if it makes it can be potentially worth substantially more although risk of failure is high as well. High risk/high reward is an ideal situation for warrants.
Too much stock dilution…
http://www.mineweb.com/mineweb/view/mineweb/en/page66?oid=149438&sn=Detail&pid=102055
Just a quick note as I run out the door but that RPG .02 cent pop may have been assisted by a SH report positive on GMA and Magma. Since come down to earth. I’ve not looked at the MD&A but the presentation and quarterly update gives me the same impressions as before. Fragmented presentation of numbers and a picture that is unclear in terms of guidance. They didn’t make it easy anyway. They w/down $136 million in assets in the last year and this is still cheap on a market cap to book basis. But these days what isn’t?
In terms of stock dilution, yep Hans no absence of money printing (but the low rate of money flows offset that) or VSE er… I mean Venture paper. Those flows are down too!
Floors, what is MD&A?
We can now celebrate the one anniversary of Au exceeding the 1500$ level…Breakout the best champagne possible (please leave the Dollar store variety at home)…And behold, the market even through in a 10% bonus, as well!
Those miners who have been producing for six years or more, have no excuses for not measuring up….NONE,NADA, NUN! Investors, have been very patient with the industry and now has come the time to take production and produce for the bottom line…Those COE who have failed should step-a-side or be forcefully removed… After all, the industry is enjoying a second year of record M&A’s, so is it axing too much for the same thing for earnings….
Much of this opine also applies to the silver producers, too…
If the market place fails to appreciate accelerating earnings, at least company officials have discharged their responsible, to crop-holders…
For the sake of stockholders and producers alike, let their be a Krakatoa earning season for all miners in the coming months; if only to satisfy and silence the critics of the industry…
If earnings fail to materialize, then the current sentiment of disappointment will turn to indignation, with shareholders fleeing for the exit..PMs investors, want a decent return on their monies and not empty promises or the golden shaft….
Ah, another COE speaks out of the industry inability to compete with ETFs….
http://www.mineweb.com/mineweb/view/mineweb/en/page34?oid=149729&sn=Detail&pid=102055
@Hans
Maybe it would be worthwhile to start a list of junior gold producers who have been vocal about about paying dividends in the next year or so. Buying them at these depressed prices would make the yield all the more attractive.
Two for the list would be Starcore and Kirkland.
KJM, an excellent idea! Both of these companies are impressive, especially Starcore being black with only 9k in Au production for the quarter! Brigus, take a field trip to their operations dressed as tourists…
Of course, Kirkland’s COE could have supported his comments with a dividend payout..They have 64 cents to play with…
Dividends are not a cure all, but for the long term investor with ever rising dividend levels, it is a powerful incentive…
A BIG think you, (thank) to Silverax and Dr Zurbo for providing this link, which EVERY investor should use prior to buying, whether miners or not…
http://www.fraserinstitute.org/uploadedFiles/fraser-ca/Content/research-news/research/publications/mining-survey-2010-2011.pdf
@Hans
That’s the old version. Here’s the new version: http://www.fraserinstitute.org/publicationdisplay.aspx?id=18045&terms=mining+
I also like Ottos very brief do and don’t about LatAm mining: http://www.incakolanews.blogspot.com/2012/04/investing-in-latam-natural-resources.html
Tweetie, since I am 63 of age, I prefer the older version…LOL
Thanks for the update, nevertheless…Good old black and white, easy to satisfy ones appetite…I am surprised Peru did not make the black list as well…
Floors, thank you for the explanation! Most kind of you, dear Sir!
Good. I’m glad they removed this from the introduction:
“Founded in 1974, we are an in de pendent re search and educational orga nization with loca tions through out In order to protect its in dependence, the Institute does not accept grants from government or contracts for research.”
When the Fraser Institute is funded directly by individuals, corporations and associations that would like to remove and reduce as many regulations and oversight as possible, to claim to be an independent research organization that needs to protect its “independence” well that is rather absurd isn’t it? As well the Fraser Institute is also a political and philosophical body.
Hans – MD&A is the management discussion and analysis that can be found on SEDAR with every release of financial statements.
I sorry to go off subject, but I thought I would pass off this historical book to those who may be interested…It is a report by the Interior Department (1915) on production of minerals (some world stats as well)…There are also links for other years…
Ag declines by 60% over a 1/2 century P.4
Platinum prices double by 1915 P.42
Platinum uses P47
Ag doubles by 1919 – 1920 review
http://www.farlang.com/gemstones/us-geol-survey-1915/page_001
Thanks Hans. Sounds like this rally may be developing some legs, per Trader Dan -and more than a few others. After all there was an article in the Globe suggesting the bottom was in. ;0)
http://www.theglobeandmail.com/globe-investor/mining-sector-feels-cold-splash-of-reality/article2413101/
http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2012/4/28_KWN_Weekly_Metals_Wrap.html
Would be fun to be in forwill’s shoes, cashed up.
Floors, many thanks for that excellent article from Canada’s finest newspaper.
I should have kept this guy’s article, who said it does not matter if gold prices go up because miner’s cost increase as well…
The examples of several of these collapses are truly frightful indeed..
It appears that cost overruns are much more prominent than coming in UNDER budget….
The countdown is on, 120 days or less for second quarter earnings…Will they or won’t they – the investment community is saying…
Produce or become a goose! Miner investors are growing tired of being floozies…
In some prior posts I’ve talked about demographics as being a problem, a huge problem, really that has a lot more impacts than just which fool is gonna buy our shares. All you have to do is to look around for the children, there are fewer and fewer. Work pressures, low paying jobs, worker rights that mean our children can be taught by some stale 75 year old teacher instead of a fresh up and comer; and of course the huge cost of housing (don’t read too much about this ?? blame the mainstream newspapers that rely on real estate ads for a disproportionate share of their revenues, IMO). Yea yea there will be some great 75 year old teachers -amongst the snoozers, but think of those 20 somethings that become disenfranchised indebted 30 somethings.
((((((
Here’s ZH on this general subject:
http://www.zerohedge.com/news/new-normal-class-warfare-old-vs-young
I try to factor in environmental considerations in my investment decisions, as part of my big picture. For example when visiting w/ DPM’s IR recently, virtually every question had to do w/ the Namibian assets, from an environmental exposures point of view. No questions about throughput, contribution margins or future financial forecasts. (Of course if i owned it I would have popped a few of those too!)
http://www.theglobeandmail.com/globe-investor/news-sources/?date=+20120430&archive=ccnm&slug=201204300786108001
I’m glad I work. Reading the sites that I do is depressing because like most of you, I give a ***t about the world we live in and our neighbors. It’s not about dollars and cents. When some people think about $5,000 gold they think about what that will do to their portfolio. When I think about $5,000 gold, I think about what that will do to the rain forests of the world, Brazil ….and low on the list is my pf. The illegal mining impacts are often spectacularly bad.
Luck to all.
One service I like a lot that I subscribe to and can highly recommend is Notes From the Rabbit Hole by “Biiwii”. Smart dude has this knack of addressing what I’m thinking about in his next paragraph, or on the next page. I could never crunch numbers like David and Tom, not even close. My ‘gut’ and experiences only go so far and that doesn’t guarantee anything, anyway. But I’m very glad to have Gary in my corner with his charts and to assist with my thinking.
http://www.biiwii.blogspot.ca/
I continue to think how appropriate and perceptive the title of this thread is!! Rick R has been talking about his 10% ‘rule’ so to speak.
http://www.financialsense.com/financial-sense-newshour/guest-expert/2012/04/25/rick-rule/golden-opportunities-why-gold-stocks-have-underperformed
FWIW, I took a very small position in Allied Nevada ANV and will be looking for more on weakness in days ahead. It’s got an earnings call early next week if anyone has nothing better to do. This is an intermediate producer and seems to have a great and low cost growth profile.
Thanks for your comments, Floors…
This is a rather shocking chart…Since the first quarter of 2008, Au and the GDX index have been separating by wider and wider margins! More evident than owing paper no longer makes cents. After all, if miners are being mark to mark with the physical, why even bother with the former?
http://www.google.com/finance?chdnp=0&chdd=1&chds=1&chdv=1&chvs=logarithmic&chdeh=0&chfdeh=0&chdet=1336223410237&chddm=19159&chls=IntervalBasedLine&cmpto=NYSEARCA:GLD&cmptdms=0&q=NYSEARCA:GDX&ntsp=0
Please, everyone needs to examine the five year chart.
@Hans
I would caution that the chart is pretty distorted due to 2008, and one month in particular, October ’08. If you instead start the chart in November ’08 you can see that the GDX is still outperforming GLD, and significantly so until a few months ago when things started to get pretty ugly for the miners relative to gold.
Floors, many thanks for the excellent linkage!
Everyone needs to spend the 25 minutes. That’s an order!
Mr Rule, is extremely articulate and informative…I felt like a student in remedial class..
Thanks again, Sir, as I am going to listen a second time…
Dr Zurbo, sir, it matters not where one starts on the chart.
Currently, Gold has advanced +133% vs GDX +8%….
The shakeout continues and it is going to be ugly..I am calling the, We Buy Ugly Stocks guys.
Somewhere in the going forward, the industry is going to be a Midas buy…In the meanwhile the mischief continues…
@Hans
I’m not trying to argue that the GDX has done well, only that there’s always going to be a certain arbitrariness to how you measure relative performance because of having to choose a starting point. Starting in November 2008 results in the GDX outperforming gold by a factor of 2 for the majority of 2009, 2010 and 2011.
This is nuts. Close your eyes and hold on tight.
I’m making a little money on my puts but the bulk of them expired last month. What a pisser.
I am absolutely NOT an options maven. I’ve been learning the hard way that these suckers will slowly bleed you dry if you’re an optimistic fool like me. I hear evil laughter in the backround every time I place a bid and picture in my mind some seller rubbing his hands together in delight.
With sentiment so bad today, I started shopping for some simple calls with strikes that maybe, just maybe will enter the money in a December turn around. Here’s a few I found that look darn cheap.
HL JAN 18 ’13 6 Call Option
TGB JAN 18 ’13 4 Call Option
ACI JAN 18 ’13 12.5 Call Option
@forwill
Those are probably not too bad on the call side…we are going to probably look out to Jan’14 at this point! We have, as I’m sure you have noticed, reduced our involvement in options at this stage because of market uncertainly and frankly the lack of the right risk-reward balance. There will be a good time again for that type of speculation but for the moment no. Even the June COMEX gold puts we were considering (and did not buy other than maybe one) are going to expire at this pace well out of the money despite the ugly gold market we’ve had. The main thing that would have done well in retrospect, is to have blindly sold the rise into early March (throwing the baby out with the bath water) and then wait a few months to see how things shake out. In our case, though, simply because of timing and the situation of building up portfolios, we essentially started in mid-stream (buying mode in 2009-2010) looking for the opportunity to accumulate on pullbacks. And boy did we get a BIG one! In any case, we’ll be looking at options and warrants once the technical picture becomes more clear (the sign will be silver, and now gold, getting back above 200dma and bouncing with subtlety a couple times off it from above … re-establishing them again as support). At this point that could take several months, assuming the Eidetic Fib full retrace doesn’t happen instead in the meanwhile.
Maybe I am doing my part to keep the market supplied with fools, but I have accelerated my sales of physical gold and silver to up my proportion of miners. Seems like the least I could do to sustain the delicate balance of fools to non-fools. Am I the only one?
You are correct, Dr Zurbo…I do not know what I was thinking…Oh wait, when I was posting that reply, my wife hit me with a frying pan…
I owe you a drink.
Now that is funny prose, Forwil l!
Even on a day from hell like this, there was still serious money to be made on the long side. A lot of good stocks bounced sharply off their lows if one was nimble enough. Of course with all sell offs, dry powder was a necessity.
Yes, indeed, KJM but I am afraid it was only good for a day trade since we believe the is heading down.
Dr Zurbo, I should have stated that the GDX is subject not only to the ebb and flow of gold prices but also the stock market as well…
Perhaps this is the reason why many investors only part take in the physical trade…
In 2009 of March, miners were not only the sole stocks one could have found in the bargain bin…
Irrespective, the gold bull lives as long as there is a world wide fiscal insanity…
I don’t think this qualifies as a full-on contrarian veiw, but it is good in that it highlights the need to remember that what we need to be watching is the “real price of gold” in a deflationary scenario.
“”Indeed, current analysis certainly allows for a breakdown because current analysis as of last week’s ‘jobs’ report on the back of previous economic reports, implies a lurch toward economic contraction. And in an economy built on inflationary policy, economic contractions have a nasty habit of turning into deflationary episodes.
The play we are working is not one where gold and USD rise to the heavens during a deflationary episode. It is one where Uncle Buck benefits on his own for a time as gold potentially declines but out performs most assets. This is the RPG (real price of gold).
Subscribers and blog readers have probably noted my lack of patience with authoritative figures out there micro managing the nominal price of gold. That is because they did the same in 2008, scaring many people out of position, only to see gold double. But also, it is because the gold mining fundamental case depends on a rising RPG, and the RPG is not dependent on a rising ‘NPG’, or nominal price of gold. It is dependent upon what happens on the economic counter-cycle, like what appears to be setting up now in the economy. This is when gold out performs other markets and tangible assets.”"
Full link here…..http://www.kitco.com/ind/Tanashian/20120510.html
@forwill
I would add, late though it is now, that gold stocks and indeed mining stocks in general tend to have very short periods of huge returns that are book-ended by poor if not horrible performance. The problem is all in the timing … it can be nearly impossible to buy right before a big rise and sell before it pops (or is it poops) on the far side (right hand part of the chart). Certainly if one rides over the top without taking heed (i.e., most everybody in the market), that mistake is being compounded if that person then subsequently sells out of exhaustion. There is even a regular feature of the markets that uses such phenomena as a powerful contrary indicator….so I guess what I’m saying is that the RPG or NPG aren’t what really matters, it is merely the psychology of the market and shifts in sentiment.
On a very positive note, since the start of the Midas gold rally (4th quarter of 2000) the HUI Index has double the advance of gold…
I am delighted I have that fact in hand…
@Hans
Don’t forget too that the HUI is basically a bunch of hooey when it comes to gold stocks as a sector … it shouldn’t take much luck or success to beat it handily with an actively selected portfolio if given enough time.
Everyone should keep a weary eye on the CRB Index…
Is it sending a signal?
@Hans
What do you see in it Hans?
Forwill, check out this list of Comods:
http://www.indexmundi.com/commodities/
When the leading gainer is Urea, in the past 12 months, then perhaps we are flushing away past stock appreciations.
To be more concise, Forwill, in many cases the decline in the CRB Index is a forerunner of economic slowdowns…Whether this is merely a dip and recovery remains to be seen, nevertheless, the current decline is four to six weeks old and as such, may hint of a declining growth of world economic activities…
All eyes should also focus on goo pricing, supply and demand and inventory levels…
Several members of EuroLand have already entered the recession zone, I believe they will be more to follow..This will at minimum, effect growth in the USA and the emerging markets, as well…
If America enters a recession, the stock market will decline and take the miners with them…This may present a golden opportunity, because WDC remains broken to the core.
@Hans
I frankly don’t see it … commodities in my experience actually tend to rally early in a global recession for various reasons. If they do happen to go down in response to minor private sector contraction, that in itself could be a self-healing fix given lower input prices will generally forestall labor and production line reductions. Therefore I rather view the current episode as a fluctuation so far and not a change in direction. Not to say that it cannot develop into something much more serious but we need to consider that anemic economic growth in the first place means that some econ indicators can easily switch from negative to positive at the margin (and vice versa) without really having much meaning. And then let’s note that most of what we see are really lagging indicators … so for example going back to the present commodity price softness, it could actually be reflecting conditions from late last year. when China started putting on the breaks. At the moment China is likely putting pedal to the metal again but we may not see the impact on commodities for several months.
Hi Silveraxis,
i would like to hear more of your thoughts on China, and what you meant by ‘pedal to the metal’
At least none of us were dim enough to take positions in FaceBook, who did their own mining.. When the stock reaches $19, the refrain will be, which shaft did you get?
@Hans
Every social media IPO has followed this type of path and I don’t expect FB to be different. I could easily see it going down to the high 20′s and then later rallying to say 50. In any case, it is likely going to be the first serious play on platform domination (mobile, smart phone, tablets, etc.) and not really about monetizing eye balls per se in the short term … and so that means it can still try to achieve early-days-blue-sky valuations not bound by the realities of financial performance.
Survey says:
SLW – July 6, 2005 $3, six years later, $37
Silver over this time period was $11 – $35
HL – May 27, 2005 $5, nine years later, $8
Silver over this time period was $5 – $38
EXK – Jan 25, 2007 $4, four years later, $11
Silver over this time period was $13 – $27
As one can see (numbers rounded) Wheaton was a great performer and Endeavor beating Ag as well.
Helca, was an extremely poor performer…
What this tells me, we now favor is either SLW or SLV, the ETF or both…
Going back nine years, Ag has advanced 7 1/2 fold (2011)…So the very simple questions should be – what has your minor done?
@Hans
Let’s not forget that past performance is not a perfect … or often even very good … indication of future results. We’d much rather use our valuation model to point out opportunities (that is, whenever we finally get it updated).
@Hans
You shouldn’t forget that zinc, a very important byproduct for most silver miners, was much higer then. In 2006 it was above $2 per lb and now it’s $ 0.86.
Silverax, your points are very valid…We would use your valuation models as well, as they are brilliantly done…However, as I have stated before, the miners need to perform to the bottom line; with no more dependency on drilling results or increases in mineral reserves, as it has done nothing for shareholders..
The PMs community has spoken, taking billions in Marcap from the industry.
The GDXJ index performance has been a nightmare…Essentially, we are culling our list of miners and within a few months if needed, we shall take positions in either ETFs or the physical…
We urge all readers to make comparisons between miners and other PMs investments…It is no longer strictly a miners game…
Tweetie, good point as well…Silverax or Dr Zubo, reminded me that New Gold is heavy dependent upon the price of Ac…
@Hans
Producers don’t rely on drilling results though there is obviously an effect if reserves grow since that will usually increase mine life and that is important if the mine currently has a short life. Frankly the PM community are typically a bunch of skittish fools so them having spoken is somewhat irrelevant in that usually the best thing to do is the OPPOSITE. That said, we need to be careful about claiming to be right and the market wrong … there is that thing about the market being able to outlast you… as for GDJX, many of those companies are not producers.
Look, frankly I feel you are totally wrong about thinking the metals (ETF or physicals) are going to outperform the miners or quality explorers in the next couple of years. Sure you would have been right about that in the past 18 months but now is today and not 18 months ago! I think we need to seriously consider the possibility that the metals will make a higher bottom than most miners are expecting (or investors are fearing) and that more than anything could bring money back into this sector. Of course it won’t hurt if the profitable miners use their war chests in the meantime to buy resources but right now the sector is so beat up that there is actually a reluctance to make deals for fear of being accused as a predatory takeover. Should we get values back a little bit more in line with historical levels, that will not be a problem and companies like IAMGOLD will no longer have to make silly desperate purchases like Trelawney because they are one of the few actually willing to sell at current prices…
“fear of being accused as a predatory takeover”
You make it sound as if that is bad? In my view company management should strive to use shareholder funds as efficiently as possible, If that means an unfriendly takeover to get some cheap assets, so be it.
Why wait until prices have doubled befor starting M&A activity? Capitalism isn’t a popularity contest.