Wouldn’t it be nice to have a list of high quality exploration or mining companies at the fingertips so that it is easy to construct long-term portfolios or do some short-term trading when the right opportunity comes along? With all the silver producers, gold explorers, copper developers, etc. out there, how is one to keep track of the ones that potentially deserve investor attention? An incomplete list or partial view of a given group of resource stocks can easily leave the best ones out of a portfolio. It can even lead to poor investment decisions in a worst-case scenario. Our solution: find the companies that are different from their peers in a good way and put our effort into studying and following this elite group, the “Peerless” companies.
The Peerless Concept
What is a Peerless company?
Peerless companies have an important advantage –whether management or project — over the others in their peer group, thereby improving the odds of success while providing a greater margin of safety for investors.
For example, let’s assume there are ten generic juniors exploring for gold in Peru and none of them have made a major discovery or have defined a resource. How would we pick a Peerless company, if any, from this group? Well, one way would be to consider management strength — especially prior experience in Peruvian gold exploration. Another could be a project that lies on strike to a major gold deposit and appears to have a similar geology. The “Peerless” factors would be different for each peer group but would still be based on objective considerations.
Depending on what the Peerless considerations are, a particular Peerless company may interest one type of investor but not necessarily another. For example, one investor might be looking for near-term buyout candidates just entering production whereas another is willing to take on the risk of a long-term holding associated with an early stage development story. Our Peerless company universe will ideally contain companies that would satisfy all but the most exotic investor demands. It is in this adaptability where the true advantage of the Peerless approach lies compared to having a “model portfolio” or “basket” of stocks … of which we do have several for Metal Augmentor subscribers.
Please note that Peerless status is not eternal, and Metal Augmentor will not be the final arbiter of the Peerless universe. Therefore we will be encouraging subscribers to provide us with feedback on our selections as well as submit their own Peerless candidates for consideration.
It’s also important to understand that we will not own every Peerless company — or even most of them — in our model portfolios or personal accounts. Peerless is not equivalent to favorite, undervalued or “most likely to double in a year”: it is an attempt to pick and stay focused on a subset of the resource company universe on the basis of quality (however that is defined). Although tempting, nobody can own every company that has something interesting or prospective in the offing — that would still be a majority of the companies and their performance over the long term would not look very different from the index.
One particular problem we face at Metal Augmentor is to easily trade in and out of positions as opportunities emerge or fade since this usually involves a detailed explanation of our investment or trading thesis. This can be time-consuming and counterproductive. There’s also the unfortunate fact that selling a stock is interpreted as no longer liking the company. These issues will largely go away when we concentrate our efforts and trading primarily on the Peerless companies — our thinking and observations will already be documented in advance and that means we can get down to the business of making money buying, holding or selling the stock.
The Peerless Silver Producers
Since we have been focused on updating our valuation model of the silver producers, it was natural to create the Peerless Silver Producers list first. Although we have approached the selection process using qualitative factors, it is always useful to have some quantitative measures as well. Therefore you will find below a valuation range chart of the silver companies currently in our proprietary model. An important disclaimer is that our valuation model is not fully updated and thus for several projects and companies the data may be a bit out of date (not updated since our early 2011 silver producers report and subsequent qualitative analysis.) For the most part the data is substantially correct but the chart is for illustrative purposes only and not to be taken as a highly accurate reflection of silver producer valuations.
Notes: Hecla -- assumes no production at Lucky Friday during 2012; First Majestic -- assumes 5 year mine life at Del Toro
Note that several silver producers are not included in our model. These are primarily companies that are producing less than 1 million ounces per year (on a pure silver, not silver-equivalent, basis) as well as a few companies we have yet to model: Impact Silver (TSX-V: IPT), Silvermex Resources (TSX: SLX), Silvercrest Mines (TSX-V: SVL), Dia Bras Exploration (TSX-V: DIB), Mandalay Resources (TSX: MND), etc.
Not all the companies included in the above valuation chart qualify as Peerless in our opinion … and for now we are not going to consider any that we have not yet modeled (mainly Dia Bras). This shortcoming will be rectified soon. In the meantime, the Silver Producers that made our Peerless group are listed below in alphabetical order along with a brief “Peerless” description. These descriptions along with various company and project-specific factors will be detailed as we document and keep track of the companies in the Peerless groups.
Ideally this would be silver...if only Photoshop would cooperate!
Peerless Silver Producers
Aurcana (TSX-V: AUN; Pink Sheets: AUNFF)
Endeavour Silver (AMEX: EXK; TSX: EDR)
First Majestic Silver (NYSE: AG; TSX: FR)
Fortuna Silver (NYSE: FSM; TSX: FVI)
Fresnillo PLC (LSE: FRES; Pink Sheets: FNLPF)
Hochschild Mining (LSE: HOC; Pink Sheets: HCHDF)
Pan American Silver (NASDAQ: PAAS; TSX: PAA)
Silver Wheaton (NYSE/TSX: SLW)
Silvercorp (NYSE/TSX: SVM)
Aurcana (TSX-V: AUN; Pink Sheets: AUNFF) – An emerging mid-tier silver producer with low jurisdictional risk (US/Mexico) and good potential for both resource and mine life expansion. The appointment of Dr. Peter Megaw as exploration consultant increases the odds for new discoveries in Aurcana’s carbonate replacement deposits (CRDs) given Dr. Megaw is the preeminent CRD expert. There is still execution risk at the Shafter project (Aurcana’s key valuation driver), and we plan to conduct a site visit soon to better evaluate the likelihood of a smooth transition from development to production during 2012. Disclosure: Aurcana is an institutional client of Metal Augmentor.
Endeavour Silver (AMEX: EXK; TSX: EDR) – One of the lowest cost silver producers with 8 years of consistent growth and apparently more to come. This outfit knows how to exude quality and has done a great job keeping a tight share structure. The silver-gold production profile is also quite attractive.
First Majestic Silver (NYSE: AG; TSX: FR) – An emerging top-tier silver producer in Mexico with exceptional properties and growth plans, low operating costs and one of the purest silver production profiles. Well followed by institutions with the company trading on the NYSE since 2010.
Fortuna Silver (NYSE: FSM; TSX: FVI) – A well-managed, growing silver producer with consistently profitable operations and broader investor exposure than most through its listing on the NYSE.
Fresnillo (LSE: FRES; Pink Sheets: FNLPF) – The world’s premier silver producer with significant gold by-product production — on track to produce ~50 million ounces of silver (plus gold and base metals) per year by 2015! It’s a well-oiled cash flow machine, sporting cash costs on par with Silver Wheaton thanks to fat by-product credits and ready access to smelting and refining facilities.
Same caveats apply as in the above valuation chart, i.e. info in our model is not fully updated at this point.
Hochschild (LSE: HOC; Pink Sheets: HCHDF) – The operator of several world-class silver assets including most notably its Arcata mine in Peru (8 million ounces of silver per annum) with “deep” expertise in underground mining. Struggling a bit with rising costs, but still ranks among the lowest cost producers not named Fresnillo or Silver Wheaton. Hochschild is also on the hunt for heap leachable gold deposits to develop (isn’t everybody though?) and we would not be surprised if they announced a number of deals in the near future considering their roughly $1 billion war chest* and what is an otherwise somewhat limited growth profile. *consists of cash + shares of Gold Resource Corp (AMEX: GORO). We believe the biggest upside for the share price could be simply accomplished by dual-listing in the U.S.
Pan American Silver (NASDAQ: PAAS; TSX: PAA) — Even before accounting for the Minefinders (AMEX/TSX: MFN) acquisition Pan American is on track to be producing well over 40 million ounces of silver per year when the massive Navidad project comes on line (est. 2015). Unfortunately there’s currently a ban on both open pit mining and cyanide use within the Chubut province of Argentina where Navidad is located, which adds some binary risk to the investment (although Navidad is being given minimal valuation by the market at present). The move to acquire Minefinders may even be a sort of signal that the Navidad timeline will need to be stretched … however, Pan American still makes our cut for having operating prowess, a diversified mining profile, strong current cash flows, and a high proportion of silver to base metal production.
Silver Wheaton (NYSE/TSX: SLW) – The purest, lowest-cost silver “producer” with almost non-existent overhead, a nearly zero percent income tax rate, and exposure to several long-lived, world-class mining operations. Silver Wheaton is a cash flow powerhouse at anywhere near current silver prices and its royalty streaming business model is capable of growth even in a weak commodities market (since mine developers would be struggling to obtain traditional financing).
Silvercorp (NYSE/TSX: SVM) – A silver-lead-zinc producer with a strong foothold in China that should translate into future growth as it is given preference to acquire, modernize and expand existing small-scale operations throughout the country. Also looking to expand into high-grade silver production outside China in order to utilize its development expertise and diversify the production profile — but the world-class Ying mine is the reason this low-cost silver producer makes the Peerless list.
The Non-Peerless Silver Producers
Here are a few words about some of the companies that didn’t make it into our Silver Producers Peerless universe at this stage:
Alexco Resource (AMEX: AXU; TSX: AXR) — Production is humming along, but there’s still plenty of questions about what happens when the current ore body is exhausted and mining shifts to other areas. This is a mining district that was made by grade and grade is what will make Alexco fly (or sink as the case might be). Future production estimates seem little more than guesswork based on sparse drilling and the plans rely on quickly blocking out and bringing small, high-grade ore bodies into production. From the company’s most recent February 2012 presentation we’re told the goal is 5 million ounces annual silver production in 3 years (from est. 2.2-2.5 million ounces in 2012) and then 7-10 million ounces in 5 years. Maybe, but we would need to see specific plans for getting from Point A to Point B … if achievable then Alexco should easily make the Peerless list.
This is straying a bit from what qualifies or disqualifies something as Peerless, but we think investors are being done a disservice when charts like the following are prominently displayed in a company’s presentation:
The red arrows and circles were added by us to illustrate where some of those bubbles should roughly lie in the chart when using correct data. We only annotated the 3 most extreme errors, but plenty of the other bubbles need adjusting as well. Even if you assume Alexco meant market cap instead of enterprise value, some of these data points are still way off base. Yes there is some correlation between enterprise value and silver production, but it’s not nearly as neat as is being illustrated and that’s exactly what we would expect. After all it’s obvious that a company with more production should trade at a higher EV, all else equal … but things aren’t equal! Charts like these make zero attempt to account for differences in production cost, by-product credits, mine life, or production growth/decline. Taken together these other variables can in most cases adequately explain the outliers.
Coeur d’Alene Mines (NYSE: CDE; TSX: CDM) – Coeur boasts a history of underwhelming performance and questionable decision-making. The financial and operating results are somewhat misleading: San Bartolome is by far the most valuable (if not quantitatively then qualitatively) of Coeur’s mines, but it is located in Bolivia.
Excellon Resources (TSX: EXN; Pink Sheets: EXLLF) – On and off troubles at its Platosa mine have led to inconsistent and high cost production. The modeled mine life is short and dependent upon additional exploration success. Although there’s always the potential they discover a larger system, for now Platosa is too small an operation to provide much positive cash flow beyond covering exploration and overhead costs.
Great Panther Silver (AMEX: GPL; TSX: GPR) – Production declined at both of Great Panther’s mines during 2011 compared with forecasts for significant growth. It’s a high cost producer and grades are creeping lower. The company desperately needs to increase its teeny tiny reserve base and make a more convincing case that it will be capable of significantly increasing production … much less maintain it.
Hecla Mining (NYSE: HL) – Hecla didn’t make the Peerless cut due to its troubles at Lucky Friday and the related stigma that’s likely to linger during 2012 and perhaps beyond, even though the current valuation is arguably fully supported by Greens Creek. Once the path to resolution at Lucky Friday is visible, we would consider Hecla for the Peerless list again especially since it is one of the longest continually listed companies on the New York Stock Exchange. Most silver companies don’t make it to a decade much less a century!
International Minerals Corp. (TSX: IMZ) – International Minerals has too much exposure to Ecuador and most of its silver-related valuation comes from joint ventures with Hochschild … which does not have exposure to Ecuador and is therefore the obvious Peerless choice.
Revett Minerals (TSX: RVM; OTCBB: RVMID) – With Revett there’s simply too much riding on the eventual development of environmentally-challenged Rock Creek where forward progress has been very slow.
Scorpio Mining (TSX: SPM; Pink Sheets: SMNPF) – A newly-invigorated silver-zinc-lead producer with room to grow production meaningfully under the direction of ex-Vale hotshot Parviz Farsangi. Despite the new operational competence and good financial performance, some of the company’s disclosures (in particular the silver-equivalent metrics) are deceptive. They need not be so since mine expansion has not been built into the models but could arguably make Scorpio one of the more attractive silver-base metal district plays in the years ahead. Future production guidance supported by technical studies will be the way to unlock value, and to that end we are looking for the following developments: (1) completing all of the optimization and updating the mine plan for Nuestra Senora; (2) developing and disclosing production metrics for the plant expansion; (3) progress on leveraging the regional (Platte River, etc.) silver assets; and (4) aggressive exploration to prove up district-wide resources that could further boost production in the medium term. A focus on operational excellence and developing the regional assets while maintaining a pipeline of expansion projects should deliver the growth that the company’s valuation upside is predicated upon. Given the base of operational competence, Scorpio Mining could easily adopt and deliver upon a similar regional strategy along with insistence on excellence in all aspects of corporate operations that have made First Majestic so successful. Disclosure: Scorpio Mining is an institutional client of Metal Augmentor.
Silver Standard Resources (NASDAQ: SSRI; TSX: SSO) – Silver Standard has so badly bungled Pirquitas that it is unlikely to be called Peerless anytime soon, despite having over $700 million in cash + investments (Pretium shares) versus a $1.3 billion market cap. Other projects add to the apparent value but development plans are less than crystal clear and therefore the company’s valuation in our model should be taken with a grain of salt.
U.S. Silver (TSX: USA; Pink Sheets: USSIF) – U.S. Silver does not publish detailed operating statistics and it is not possible to build a proper mine model of their Silver Valley project. Ore bodies are generally small and spread out, requiring a substantial portion of mining profits to be put back into the ground in the form of drift development.
Conclusion
We are still developing the Peerless concept and so the above Peerless Silver Producers list — or any future one — is not set in stone. We have probably considered more subjective vs. objective factors in this first installment than we’d like and we’ll eventually want to organize our selection process into a more standardized format. Do you have a quibble or substantial point to make about the list? Are we missing any company? Did we fail to consider some critical factor pro or con? Let’s discuss these and other issues constructively in the Comments section below (Metal Augmentor subscribers only) so this Peerless list as well as others in the future will have the benefit of a rigorous review and evaluation.
Thanks!!!
Great info, thanks for all you do!
Thanks. I think “Peerless” is a great concept.
I do like that list a lot and/but have added SSRI, trusting they have learned
from their blunder. I think they are quite undervalued and are going to catch up soon. And a list of Ten isn`t too big.
Thanks! Great idea.
@contango
I agree they are severely undervalued but very specifically the Peerless list does not use that as a factor (since it could very easily change for external reasons such as simply because investors decide to pick up some shares in a hurry). Assuming they did indeed learn from their blunders, it is still going to take some time to shake off market doubts and redeem the reputation of the “Standard”. Looking forward to that!
Re: Pan American Silver
Given your helpful ‘rankings’ and the coincident NR’s from PAAS , I listened to the Q4 and FY11 conference call yesterday with a particular interest in picking up commentary about Navidad, La Preciosa and the Minefinders takeout; and, for me, it was a worthwhile listen.
Apart from that though, whether or not one is interested in PAAS, I highly recommend listening to the replay – Geoff Burns concluding comments after the Q&A and his talking in general terms – but very emphatically – about the huge inflationary cost and importation challenges in Argentina. – I’d locate that segment within the last 10 min of the replay.
Seeking Alpha has a transcript of the conf call and Q&A; but it doesn’t include the concluding remarks.
@joey
Indeed the inflationary and anti-business policy challenges in Argentina must not be ignored. Based on those I would even suggest that projects in Argentina should have a valuation discount … keep in mind though that Pan American gets close to zero value for Navidad in its current valuation.
Great Panther’s (GPL) cost/oz is cited in the article’s bar chart as a relatively awful~$17.75. However, a quote from 3Q11 PR cites “Consolidated cash cost per ounce of silver, net of by-product credits, was US$9.02, a 33% increase from Q3 2010 but a 24% decrease from the second quarter 2011.” A 2X discrepancy is puzzling?
The Peerless article also states that ‘grades are creeping lower’, but I see the opposite in 4Q11 reporting…
“Metal production of 545,294 Ag eq oz, up 13% from previous quarter
Ore grades improved at Guanajuato, to 235g/t Ag and 2.12g/t Au, in November and December, the highest since September, 2010.
Deep Cata development yielded 6,300 tonnes at 482g/t Ag and 1.83g/t Au”
What accounts for the discrepancy?
Also, the new San Ignacio mine, has an Endeavour-style silver-gold mineralization, is nice instead of lead/silver. The mill has excess capacity for growth.
Revisit GPL?
Disclosure: bought a small tranche GPL in Jan.
@Leigh
The cash cost you mention is for silver ounces using the cash costs minus by product credits, while the graph is for silver equivalent ounces and therefore should be on a co-product basis.
Given the percentagewise relatively large gold revenue the difference between the two can be expected.
@Leigh
I would agree we should keep track of the grade improvement to see if it is an anomaly or a sustainable trend. I looked at the Q3 financials (the latest full set of figures) and I’m not convinced Q4 isn’t a blip. I also noted by-product credits are indeed very substantial and that GPR uses “payable” silver sold to calculate cash operating cost and these two factors really make the company’s reported figure pretty much useless. Heck, that’s why we took the time to calculate the comparative numbers and chart them!!! You will also note that Great Panther suffers from a short mine life (in terms of blocked out resources or reserves) and thus has a very poor valuation in our model. That’s not to say the market sees it the same way as independently confirmed objective operating and resource metrics aren’t necessarily the best way to evaluate a mining company … but it is a legitimate way.
@Leigh
I took a quick look at the NR – GPR hasn’t released financials yet – and I would add that they are somewhat disingenuous in their calculation of AgEq;
“For consistency, silver equivalents for 2011 were established and maintained using budget prices of US$1,200/oz Au, US$20/oz Ag, US$0.90/lb Pb and Zn”
This is bullshit! Granted GPR’s gold production is not substantial – but they are inflating the conversion by a factor of about 33 1/3%, using 60:1, when , say 45:1 would be more truthful given the prices they actually got – and know well they got – for full year 2011 Other producers reporting now – the somewhat honest ones – are using actual figures, For example, Minefinders, reporting yesterday – operating also in Mexico – with AG and AU production – disclosed this: ” Gold equivalent ounces sold includes gold ounces sold and silver ounces sold converted to a gold equivalent based on the ratio of actual realized gold price to actual realized silver price. Gold equivalent
ounces sold in the fourth quarter and twelve-month period of 2011 were
estimated using a 54 to one silver to gold ratio and a 44 to one silver
to gold ratio, respectively.”
Also, until we see the financials, we don’t really know how they calculate cash costs – as Zurbo notes in his header, there is no standard on this one; each company has its own ‘version’, which may not include the same set of components.
Awesome graph. Great insights on each of the individual companies.
Peerless report, Dr Zurbo, your Oscar is in the mail! We have been following AG, AWU, EXK, GPL, and HL…
We are removing AWU and GPL, with HL being a value play…We liked AWU, from the prospective of it’s operations being in friendly Canada; so we hope the picture changes in the future…
I must say, that this report is rather timely for us, as in the coming months (July 2012) we may be shifting out of the Au sector and into Ag…Hi-Ho Silver!
It has been some time between significant reports, but it is articles such as this that makes me chop-at-the-bit!
@Hans
Many thanks Hans and strannick. Of course Silverax deserves plenty of credit as well.
How about Mag Silver? Are they not in either group because they are not yet producing or because their majority partner in their main project is already on the list ( Fresnillo)? Or is their some other reason?
@Rich Klein
It’s simply that MAG is not a producer. If/when we get around to doing a report on the silver developers it would of course be discussed. Such a project isn’t next on our list by any means but I would nevertheless expect something long before MAG becomes a producer! After all, the silver developer universe isn’t that large.
This Hecla NR http://money.msn.com/business-news/article.aspx?feed=BW&date=20120227&id=14835139 appears to confirm earlier expectations touted by the company for the Equity vien in the Creede mining district.
From their website…”Significant high-grade intercepts from the intersection of the Amethyst and Equity veins are shown in the latest assay table to the right. These highly anomalous gold and silver concentrations encountered in the veins are very significant as it is the deepest intercept of a major vein structure to date in the northern part of the district. These intersections are well below the historically perceived bottom of the precious metal horizon in the northern part of the Creede District and may indicate a large vertical dimension (over 1,500 feet) for gold-bearing mineralization. This mineralization is also open along strike and may extend for a significant distance. “
Good news from Hochschild Mining too? http://www.kitco.com/reports/KitcoNews20120227AS_hochschild.html
What’s up with some of these underground silver producers bringing more value to the market than many of the open pit boys? Is it a combination of less “envioronmental impact” percieved, thus allowing an easier permiting process as well as the much higher grades? Am I way off base here?
Thank you also, SILVERAXX! I did not mean to diss you…
I have a few questions:
Is a qualitative analysis for subscribers following?
How much value is given to Revett for Rock Creek?
Is really SSRI a lower cost producers than HL and SVM?
What about MUX?
@Giuseppe
No big qualitative analysis planned immediately….though there were plenty of qualitative considerations in this analysis.
I should have disclosed that the cash costs were for the weighted average of producing and development-stage projects. In the case of SSRI especially its development projects sport much lower estimated cash costs compared with producing Pirquitas (>$20/oz).
I don’t have those values readily available for Rock Creek…the valuation range for Revett only considers Troy (another missed disclosure).
MUX as in McEwen Mining? I suppose that could rightly be included within this peer group given its flagship San Jose asset which is about 50-50 / gold-silver producer mix. I haven’t adjusted for the merger of Minera Andes & US Gold yet in the model. Peerless? I don’t think so. It’s another one like International Minerals where it probably makes more sense to choose Hochschild for more direct not to mention purer silver exposure (San Jose is jv with Hochschild as operator).
Dear Zurbo and Silverax, may I know if you have an opinion on these cheap early stage explorers, ASE and NEI? Have you got any other fav in the silver explorers group?
@fg
Hello fg, have not looked at those two Asante Gold and Netco Silver but will try to do that soon and give you my impressions.
@silverax
Silverax or Zurbo
Any thoughts on the valuation of Huldra would be appreciated. They are ready to go into production any day as soon as the permit comes. Amazing grades at Treasure Mountain.
http://www.marketwire.com/press-release/international-minerals-announces-metallurgical-drill-results-from-goldfield-project-tsx-imz-1634142.htm
Big drop for Fortuna today. Wonder what Otto’s thinking now?
@Bart
He is removing Fortuna from his holdings, he already didn’t like the lack of reporting the mine fatality when it took place and apparently really doesn’t like the earnings for 2011 (who would, although San Jose needs to be given some time to demonstrate the asset quality). Generic “cost inflation” being blamed on poorer performance at Caylloma, which I personally don’t like to see as an excuse …. I want to know what in particular is going up in price — electricity? labor? and then give us reference points to see how that is impacting mine performance … otherwise it is too easy to consider “cost inflation” as a poor excuse for “getting harder to mine the deposit”. The declining or at best flat operating performance is not a good thing given the much higher 2011 metal prices (which they are not getting in full due apparently to bad smelter terms … their realized prices are simply horrible and thus cash cost isn’t nearly as good as it might look, this is a similar situation as Silvercorp although they have a government dictated price whereas Fortuna’s poor realized prices seem to be related to their bad smelter terms and one has to wonder if that in turn might be due to low quality concentrates or something else). I note Fortuna actually stopped generated a copper concentrate in 2011 at Caylloma because of the bad smelter terms and that in itself has a major impact on the financial performance. At least at San Jose they are planning to put in a gold plant during 2012 to produce dore and that means they should get close to market price starting at some point in the future, but overall the situation is a bit disappointing and once again demonstrates why mining is a risky business and riskier as an investment. That said, we will remodel the operating assumptions, listen (and participate if necessary) to the conference call tomorrow and then we will determine our approach going forward. (Note: Otto probably has a major bias in that his position in the Peruvian indigenous community … namely his wife/family … means the death of a miner in a Peruvian mine, as happened at Caylloma in February, represents MAJOR baggage for him and thus I think selling Fortuna given the middling financial results was an easy — almost obligatory — thing for him. This is not criticism but simply a reflection of his position, and while I do agree that mine safety is paramount long term for operating performance, as investors we need to use a balanced context when evaluating these scenarios).
@silverax
I’m a bit surprised to see what I assume is subscriber-specific information repeated here.
Worth noting there will probably have been a lot of stops under that channel support line, if it quickly gets back into the pattern and silver catches a bid it could make some quick headway as people get back in.
@silverax
Like Dave I’msurprised to find information from Ottos newsletters directly repeated here on this site.
First of all, I don’t consider it a big secret that Otto has called a “sell” given his almost immediate and inevitable disclosure on his blog (which was required because late last week he was still stating how he had a very long and strong position in Fortuna). So consider this an anomaly and not normal practice. Besides that, I don’t want to encourage anybody to post subscriber-only info from newsletters especially in a public post (which I didn’t realize this was), so you aren’t going to be seeing much of a repeat. But if there is a repeat, it should only come from Zurbo or I since we are in a better position to judge what is acceptable to pass along and what is not.
@silverax
So who guards the guards then? But that is less of an issue to me than Otto’s recent behaviour….
Because of the way Otto wrote up his sell call (not part of the quote on the blog) he has really pissed me off by claiming his “time and price” victory over Quast’s later write-up. Not that I’m holding my breath waiting for a response to the email I sent him.
And actually I’m also pissed that he publicised the sell call so early, and didn’t find the time to issue any subscriber flash updates in the mean time.
@Dave
That’s why we get paid the big money (not!) … we can guard ourselves
In any case, it does look a bit like Otto is trying to have his cake and eat it too…but then again doing what he does and what we do isn’t exactly easy or stress free, you could try it and then let us know how it goes! I guess that’s why I tend to be more forgiving about this stuff (plus in Otto’s case he is exactly right about a lot of the criticism he levels at peers) but I still want to understand the bias …. which Otto clear has, but don’t get me wrong, we have it as well.
We know how Otto loves to lash out and he’ll lash out and offend subscribers too. Been there, caught that on more than one occasion, even when I thought it was totally uncalled for! The man’s got thick skin like a…. politician – no offense intended, LOL. Dave, if he does reply to you I’ll bet you that unsubscribing is one of his offers!
I’m not a regular reader of the blog and I’m not familiar with the Quasi thing nor the specifics of how or when FVI was blogged in as a sell. But I agree that he should have provided a lot of notice on his FVI call. As in weeks and weeks worth, and foregone the bragging rights if and I assume that is what he did.
Subscribers could have gotten out in those days prior to the big boys issuing their reports on the Wed, I believe. So there was like 2 days before that occurred and then we have that one day big sell off and then I’m sure that’s when Fortuna became a real long term hold in a lot of people’s pf.
So while I will again emphasize that I agree that he did his subscribers wrong by not letting them have a reasonable time to get out (and he could have explained the rationale to his blog readers) I do respect that he does what most of the others don’t. To provide that advance knowledge of his intent of what he’s going to do w/ his OWN money. I think it is common knowledge that FVi is a big part of his own holdings so he is down big, big time in his pf.
I am ‘sure!!’ that Moriarity, Grandich et al would have been all out the Monday after the Friday release and their subscribers would have been left holding the bag w/out ANY pre warning over the weekend. Getting in early and getting out early before the interests of subscribers with respect to every thing these guys flog – that IS A KEY PART OF THEIR MO IS IT NOT? So who do you think I will respect about 50 times more than them? Yep rhymes with motto.
PS. this certainly won’t be the first time that subscribers have complained that he should take care of subscribers first and spend less time on the blog.
@31Floors
Frankly, this is a load of BS about Otto and FVI.
FVI came out with results on March 23 (Friday). In Ottos newsletter from March 25 (Sunday) he gave a sell advice. A few days later on Wednesday the big Canadian brokers also came out with their opinions.
This means that there was a window of a few days that Otto subscribers could have used to get out with a minus of 10% as compared to the price before the earnings announcement. And that’s a lot better than the minus 30%-40% of the non-subscribers that heard it from the brokers a few days later.
Note there was no need to send a flash update, since the event was already covered in the regular newsletter.
@Tweetie
Agreed. Subscribers had plenty of time to sell. Otto himself is the one who got screwed due to his self-imposed waiting period before selling
@Robert
Agreed subscribers had plenty of time to sell, but the wording of the rec was not quite that simplistic, hence my annoyance at future claims.
As I sit here contemplating the POG and the price of the companies that have many PM shareholders contemplating something else (i.e. OTHER THAN the POG and the price of companies that many ….!) I’m reminded of an old favorite, ATW Ventures. Don’t bother looking up the quote because ATW Ventures hit the dirt pile of BS Venture stories years ago, losing its shareholders uncounted millions.
This story was promoted by no less than 6 very familiar newsletter writers (including BM, JW, PG, LR….) and multiple brokerages. Here’s my very favorite general public APB:
“I love ATW….” by Bob Moriarity.
http://www.321gold.com/editorials/moriarty/moriarty030609.html
I don’t know the financial arrangements that resulted in such resounding street support for ATW but I’ve read somewhere that cheap initial placements and warrants, and sometimes just plain old monthly compensation enters into the picture with promoting stocks – say what??!
Don’t get me wrong, I actually don’t have a problem if a writer I follow or a brokerage for that matter does some of these things, but I would like to know. The most important thing is, don’t let that get in the way of GREAT analysis, don’t pick it up because it is an easy buck and be fair to your followers on the RISKS. Yup, I like Otto and I’m a fan.
PS I used to own ATW but left in 2009 before the bottom dropped out of it. I simply came across something else that was better on every count – except letter writers and brokerage companies, LOL. And the BM story article above has ALWAYS stuck with me like i read it yesterday .
@31Floors
That was an interesting story in conflicts and one that we had done enough looking at to put on the avoid list. We didn’t even need to visit the project, much less twice (BM: “I’ve seen the project twice and it’s a lot bigger and better than the numbers indicate”). It is very important to not be a cheerleader for a particular investment or speculation, especially in something as inherently risky as mining. I guy like BM with all his experience ought to know better but he isn’t writing to make his readers money, but to make himself money!
Interesting comments regarding, Revett Minerals…
They indicated about 1.04 G/T, which I view as a low rate of concentration..I am of the opinion, that this company, currently needs very high and sustained Ag prices to maintain a profit..
Is this conclusion right or wrong? Thank you for any helf…
I spoke with their IRD; the gal was very pleasant and well informed…They will even make arrangements to provide a tour of their mine…She asked where I go for mining information, giving several names, of which the metalaugmentor was one…She stated the company is very tight with it’s money, especially with marketing.
@Hans
Revett derives about half its revenue from copper at current prices so it’s just as dependent on high copper prices.
For 2011, I calculate a cash cost per payable silver ounce net of by-products of about $11/oz…but that’s using $4/lb copper. So we have to ask, what’s the sensitivity to copper prices?
I calculate very roughly that a $0.10 move up/down in copper is equivalent to about a $1/oz decrease/increase in cash cost profile. This is based on the fact that Revett produced about 10M lbs copper and rounding down 1M ounces silver.
@Zurbo
Thank you most kindly, Oh Great One!
@Hans
Most of the prospective value for Revett is in the Rock Creek project — and so it is essentially a permitting play. Troy is basically one of these numerous mines that is normally breakeven but can generate some decent money when metal prices are high. Quite a few out there like that (most U/G mines actually, and a lot of open pits as well).
Anybody buying Fortuna today? I think I might.
@David
I had a bid in but it was too low and didn’t fill.
I did fill on “starter” positions in SLW and TC.
Also doubled down on SSP @ .71 D’OH!
I’m not sure where an appropriate place for questions about SSH/PPG would be so I just put it here. I did some quick math using SSH’s closing price of .265(ouch) and come up with a figure of 17.9% “premium” if PPG indeed holds at .50.
Before the “amalgamation” I was about 50% down and all said and done I’m still about 50% down.
Finally getting to my question…What are the prospects for this new setup? Does the merge improve any prospects?
@forwill
We like the prospects. Drilling began a month ago and now that amalgamation is complete we should start seeing consistent newsflow with assays every month or so. The sub-$0.30 prices didn’t last long but they were tempting enough for me to add a bit personally given the arbitrage. Volume was very light those days, so it wasn’t all that easy. So far, so good with the Prosperity (PPG) trading above 50 cents.
@Zurbo
Thanks for the quick reply Zurbo. This is one of the few times in the last 18 months where I don’t feel like I got badly hosed in a merger or spinoff. My shares in PPG showed up properly on IB today and all is well. I hope you did well on the arbitrage opportunity that presented itself in the final days. You’ve got bigger balls than me ha, ha.
Does anyone know what retreat mining means? Frank you for your assistance..
@Hans
It means you run like hell away from the miners…..full retreat!
@Hans
Here’s what Wikipedia has to say: http://en.wikipedia.org/wiki/Retreat_mining .. or were you just setting up kjm for the punchline?
@kjm
I just blew pop out of my nose and mouth! Tanks for the belly laugh, KJM!
@Zurbo
NO punchline, Dr Zurbo, as it was mentioned to me on SeekingAuAlphia…
I did not know, I would become a victim of KJM humor! We shall retaliate…
I have now read a piece on it; it is also know as Room & Pillar mining…It only talk about it in mining for coal and how dangers it is, as part of the process is to let the roof collapse..It is done because over 50% of the coal remains in place…The pictures were very helful…
Fascinating read, indeed…
@Hans
It is a bit different from room and pillar — where a portion of the resource stays in place and does not (typically) get removed. Think of a chessboard with the black squares representing the “rooms” and the white the “pillars”. In retreat mining you actually mine a corridor with a continuous wall next to it and when you have finished the “corridor” then you take the wall out next to it (using remote controlled equipment these days) with the net result being eventually mine ceiling subsidence and collapse. You work backwards always having the wall still intact next to you … thus the “retreat” part.
David – did you buy FVI – ? Congrats if you were able to hold off till you posted your comment; come on now, there has to be a base here somewhere and that $3.60 level looks as good as any!
Coming out of the crash of 08 FVI was my largest position for most of the past 3 years. I got out on a very timely, put it that way (phew!). But personally I doubt that I would own it as a core position again. Seems like they’ve lost their growth mojo and cash flow $$ promise.
They talk about acquisitions and stuff but perhaps there is now a much greater possibility that they could be one day on the other side of that type of transaction, just talking nonsense here.
I noticed that FVI neighbor V.AUU is now trading at $.045 so much for selling that property adjacent to Caylloma to FVI. Suspect their bigger problem might be figuring out how to get us to fund their payroll and director’s fees.
@31Floors
Yes, @ 3.61 (FSM).
Do you like anything similar as a core position?
@31Floors
The question on Fortuna remains for us the possibility of improving the sales terms and getting more of the production to show up as cash money — we’ll hopefully get the answer shortly but alas management has been very slow to get back to us. I’d argue Fortuna was a bit ahead of itself until this recent coup de grace. Now it has probably been punished too harshly. Perhaps the closest peers to Fortuna are Endeavour Silver, First Majestic and Silvercorp, and each was already down 35% or more from last year’s highs while Fortuna was still flying high … now they are all back on the same footing and each arguably a good deal (pending this being a one-time even from Fortuna) for its own reasons.
If you believe that mining equities lead the metals, there’s more pain ahead.
If you believe that SMA 50day moving under 200day in equities, silver and most importantly gold is a bearish signal, there’s more pain ahead.
If you believe that deflationary expectations are winning the hearts and minds of the big boys over inflationary expectations, there’s more pain ahead.
If you believe big Ben in that he won’t initiate QE3 unless he absolutely has to(read liquidity crisis and/or market crash), there’s more pain ahead.
I’m holding most of my cards in cash. I think the risks are way too high right now to make a large bet that mining equities are on the verge of a upside breakout.
@forwill
I think this is a reasonable stance for sure and the one counterpoint I would make is that gold and silver refuse to break down here and actually need to trade a bit below the 200dma in order to get them to flatten out — without this flattening the prior trend is not over and the consolidation is not complete. Check the charts, the 200dma’s always go flat after a long trend is consolidated. And if gold and silver are really just biding their time at these relatively high levels, that makes the mining equities at this juncture the cheapest they’ve been since the 2008 low or the start of this whole shebang in 2001. Of course they can get much cheaper and metal prices can still crash from here but for now this looks like a regular market to me and not a pre “event” — thus the normal rules should apply (buy low, sell high).
Dave,
Me, FVI $3.61. I only have two core positions now and that is GMX, which I have to admit was a pretty darn good call insofar as I started buying it in late Jan at $1.20 (today I own a lot at $1.25, buying as high as the mid $1.30s) and at the time I’m ‘on record’ as saying that I didn’t think it would fall below $1.20. So while just about everything has gone really hard the last 2 or 3 months, I think we’ve had 15,000 shares??? traded below $1.20 in all this time. Granted its a very low volume stock, but just the same I’ll take it. That and dumping Fortuna (I told Tom I didn’t want to brag but he says it’s good to brag sometimes, so as hard as it may be (yea,LOL!) and obnoxious too – let’s just say I sold it all early on the Monday, after the Friday and before the Wednesday). I’m gratified for the small % loss, which I’l take happily because I’ve been about 85 to 90% invested throughout….in the pm jrs. Now 20% cash after slowly selling out my other core holding from the crash, RIO. There is an excellent chance I will regret this by the way, especially if I can’t get back on board.
In addition to GMX, my only core holding is GPD. That is more of a reluctant core holding, averaging down when i think it is the bottom, I think we all know that story. They say you should buy enough of a relatively small no. of stocks to make a difference, but I find myself not doing that at this time. I’m guilty of my weakness and stuck on my beliefs that there is beaten down value so this sell off has allowed me to buy a few shares here and there of a bunch of ‘household ‘& beaten down names like NGD, LYD, KAM, RIC,EDV etc. that I hadn’t owned before or maybe owned a long time ago. And to average down on some quality (i think) losers.
Anyway I’m following the GMX story very closely and while I won’t lie (I do not lie) and say the thought didn’t cross my mind to trade some and buy some beaten down ones to more evenly distribute the dough, I haven’t sold a share. Time will tell if that strong faith will be rewarded (or not).
Any one read any good books lately? One of my favorites is Trade Your Way to Financial Freedom by Van Tharp. I’ve read quite a number of books and FWIW I think this is one of the better ones. There’s no doubt if I’d only followed the script from any of the books I’ve read I’d be rich now, LOL. But there are no books that can provide the knowledge that comes from losing in the markets, often and sometimes big, to really learn. So while I believe I’m fully qualified to now make some bucks, but every day is a learning day, and I know my weaknesses. I could never analyze these miners like the experts I follow, so finding trusted sources of info is more critical than ever. Taking full responsibility for your losses is another; I never blame anyone for my losses. Every day is a learning day and there’s so much to learn every day. Reading and feel, in the end you’ve got to make the call. Experience, learn from the mistakes, try to anyway!
Oh, Dave, maybe Aurcana is the closest thing to an FVI that I’m familiar with, I note that it’s a peerless company. I don’t own it and I haven’t got into it due to you can’t have money on every horse. But as a growing and producing silver co. at this time I dont really have that. Look up AUN on the company index page? Another of course is FR which is kind of the growth silver co. that some like to compare FVI to. Very strong pipeline but I don’t know if they are self funding.
@31Floors
Aurcana is not that close to Fortuna since a lot is riding on the success of the pre-production Shafter project, which I still very much would like to visit in the short term. I’ve been too busy with the hassle of setting up a trip but will hopefully have a chance to finally get it scheduled while we are in New York for the Hard Assets show in mid May (Aurcana will be there). Aurcana price has been relatively strong and for now the balance of the risk-reward isn’t favoring new entry very strongly but if the mine visit is very positive or Lenic gets serious about the NYSE listing then we’ll want to put it on the very short list.
@31Floors
good books?
31Floors, I have a whole shelf of Trading methodology books, some of which I’ve even read; but it’s finally occurring to this slow learner that I really am a fundie type. Perhaps I might profit more if I could ignore the facts; but I am an info junkie.
I have a book, which I am just finishing. (No recency bias at work here!) For me, this is and has been a great book which I will continue to reference – a Dummy’s guide to investing in the mining sector when one knows squat about geology, mining, etc.
Robert Stevens, Mining Exploration and Mining Essentials
http://www.miningessentials.com/
Also, I have always found Michael Lewis’ books to be rivetting. I recently read his latest, Boomerang, which I believe is a book reprint of his recent essays published in Vanity Fair: tales of unbelievable financial chicanery.
Brilliant, Forwill, it is the Post-of-the-Month….
I don’t think “self-imposed waiting period” was at issue as I’m fairly certain that Otto too was taken by surprise at the violent, delayed reaction. Normally you get one or two day sell-off and then a Pollyanna rise for at least a short while. The large drop in Fortuna was the result of downgrade(s) on Wednesday March 28, which was probably because the analysts hadn’t done the proper work and thus were using price targets for the stock that were too high to begin with. Our own targets were significantly lower and showed that Fortuna actually had a premium valuation (arguably justified by quality assets and management, which reputation has now been at least slightly nicked).
silverax,
Thanks. Aurcana really seems to be getting around with lots of coverage and marketing, which makes me cautious on it. Just my contrarian sense leads to missing a lot of early good stories – and disappointments. Like my old pal used to say ‘can’t ride em all’.
Your Mawson is starting to move on such low volume, too! It does sound like quite a serious speculation. I was thinking about picking up a few thousand but I didn’t think it would go up so consistently last week.
BTW in my previous comment, I said I’m now “qualified” to make money in the markets – that’s because I’ve done a lot of LOSING over lots of years, including some memorable big losses. Big believer in you’ve got to lose and lose to earn the right to make some.
I like forwill’s discipline. forwill – going to dip into the market here or staying the largely cash course?
@31Floors
You’re too kind. It’s more fear than discipline. I’m at the age where my earned income has ceased and I hope to keep it that way.
Who knew that juniors could fall so far out of favor? I think that a large cash position is a necessity for a person my age investing almost exclusively in this high-risk sector. I believe I was too quick to average down on many of my holdings….a great deal can always get better as we’ve seen over the last year. I’d be ecstatic if the bottom is in! I hope it is. What I don’t expect is a sudden explosion to the upside, so I hope to have time to put more cash to work if market sentiment changes. The MA team always have their ears to the ground listening for opportunity, so I don’t feel like I could be in a better place. I couldn’t be happier with the likes of Hochschild, Dundee, Eastmain.
With respect to Hans, I think forwill’s post above is the post of the month!
Anybody buying NGD today?
@David
Otto wasn’t much help @ IKN or maybe I just don’t understand his comment. http://www.incakolanews.blogspot.com/2012/04/mining-prs-and-ottotrans-part-57.html
It sounds as if it might be a while before all the litigation is resolved
@forwill
I think what Otto meant was it would have been nice for New Gold and/or Goldcorp to mention the Appeals court’s decision in February to invalidate the permit in favor of the indigenous plaintiffs. Instead they decided to wait until now for the Supreme Court’s confirmation of the Appeals court decision hoping for a reversal. While Otto is making a valid point and this signifies problematic disclosure practices, I don’t know what difference the earlier disclosure would have made other than timing — the shares would have been down 10% in a day during February instead of late April. I guess they might have been down another 10% today when the Supreme Court confirmed the Appeals decision…so maybe the thinking was that NGD and GG didn’t want to go through the same thing twice?
I note Dundee also got whacked for 10% on its smelter permitting. In both cases these appear to be temporary setbacks and if anything in the case of Dundee the government actually wants to see the improvements (acid plant) built even SOONER. Neither of these companies are really cheap (today’s drops merely bring them back in line with the pain that lesser performers have seen during the past few weeks) but all-in-all I would consider this a buying opportunity.
@silverax
Thanks for the explanation. I should have figured out the sarcasm. You make a very good point about management avoiding a possible double dip by not having a disclosure announcement earlier, but I think it opens a can of worms regarding their level of integrity.
Re: NGD/GG setback on El Morro:
My irrelevant observation is Yay KARMA!!
I have always viewed the manoeuvre whereby GG loaned NGD the $ enabling NGD to exercise a right of first refusal to preempt Barrick’s purchase from Xstrata of a 70% interest in El Morro, so that NGD could immediately reconvey to GG that 70% interest as being slimey and odious and I have been rooting for an ultimate outcome in favour of Barrick.
http://www.mineweb.com/mineweb/view/mineweb/en/page67?oid=128818&sn=Detail
So, GG, be careful what you wish for!
Hi guys,
Any plans to update the Peerless Silver Producers? Now could be a good time for portfolio additions. Also, with the junior sector pretty much decimated some direction on what you see as the best buys would be much appreciated. Thanks
@SilverKnight
We are working on an update but first we are going to do the golds. In reality not much has changed in the silver space in terms of the Peerless, if anything we may formally demote a couple of the fence sitters we identified last time.