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Are Gold Miners About to Explode Higher?

Phoenix Capital Research's picture




 

 

Is it time to buy Gold miners?

 

The precious metals mining sector was slammed with Gold’s sharp drop in prices in April. Mining companies are more “pie in the sky” than owning actual bullion, so mining shares typically move much more sharply than Gold does (see the figure below charting the price performance of Gold against the Gold mining ETF).

 

 

What’s interesting is that the Gold smackdown occurred just a few weeks before the Fed leaked that it was considering tapering its QE program. We know for a fact that the Fed has a tendency to leak critical information to its cronies and connected insiders. Looking at how Gold moved just a few weeks before the word “taper” was picked up by the media, one wonders if the Fed hinted what was coming to the connected few before the rest of us.

 

 

Regardless of Fed shenanigans, the Gold smackdown hit mining companies the hardest. As a result of this, numerous mining companies were trading at only slight premiums to their cash levels. With no debt on their books you were essentially getting their Gold reserves and infrastructure for free (provided there wasn’t too much political risk).

 

All you needed was for mining companies to bottom out… which looks to be happening now.

 

 

Definitely a sector to watch. Given the record number of Gold shorts outstanding, it the precious metal begins to pick up again, the rally could be absolutely explosive.

 

For more market insights and inflationary investment ideas, visit us at:

 

http://gainspainscapital.com/the-inflation-secrets-your-broker-wont-tell-you/

 

Best Regards

 

Graham Summers

 

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Thu, 05/30/2013 - 16:14 | 3611407 Quantum Nucleonics
Quantum Nucleonics's picture

The problem with the mining stocks remains the same.  Expenses.  A company's gold reserves are just one side of the equation.  The other is what it costs to get the gold out of the ground, and those costs are exploding higher the last couple years.

Thu, 05/30/2013 - 18:45 | 3611836 russwinter
russwinter's picture

Mining Costs fall for Gold Producers;

http://winteractionables.com/?p=1306

Thu, 05/30/2013 - 16:38 | 3611471 SilverIsKing
SilverIsKing's picture

Those higher costs will underpin higher gold prices.  When everyone wants to own gold, they will have to pay to cover these costs.

And we know, the day is coming when everyone will want to own gold.

Thu, 05/30/2013 - 14:44 | 3611153 marathonman
marathonman's picture

Saw this video from OtterWood Capital showing the Yen carry trade and Abenomics taking out gold prices.  When the Yen carry trade unwinds, gold will be in it to win it.

http://www.youtube.com/watch?v=AR3TyfKTeNE

Thu, 05/30/2013 - 14:36 | 3611128 Fuh Querada
Fuh Querada's picture

1. No

2. ZH should rename the leaderboard space to Pivot Farm and Phoenix Capital Research.

Thu, 05/30/2013 - 14:24 | 3611085 Clowns on Acid
Clowns on Acid's picture

Could be a pop with miners off of lows but.... environmental costs are killing their bottom lines.

Thu, 05/30/2013 - 13:51 | 3610972 Going Loco
Going Loco's picture

Watching Kitco right now I am getting very interested in this.

Dan Norcini

Mauldin/Casey

However my most recent call took the opposite view.

I might have to change my mind.

Thu, 05/30/2013 - 13:27 | 3610883 butchee
butchee's picture

GDX June 27 Put has 128k open interest.  Highest call open interest is just over 4k  on the 30 strike.

Thu, 05/30/2013 - 13:15 | 3610849 Flakmeister
Flakmeister's picture

Yep... lots of shares have been puked up on the cheap. Does anyone here still have the stones to commit to the miners though?

Thu, 05/30/2013 - 16:32 | 3611453 auric1234
auric1234's picture

I'm all in. Everything I own that is not already in physical metal is now on miner stock. And I don't plan to sell them no matter how low the price goes, because I know the sellers are just fooled by the COMEX dirty tricks. Strong hands here.

I only pick small ones, whose mines are 100% in Western countries, and which are 100% free of hedging encumberance.

Right now that's CGR (Claude Resources) and TLR (Timberline Resources). But if someone knows another, I'd be pleased to know :-)

 

Thu, 05/30/2013 - 14:16 | 3611039 oddjob
Thu, 05/30/2013 - 18:01 | 3611700 Antifederalist
Antifederalist's picture

Me too. Sell off way overdone.

Take a look at Aurcana. Mexico and US.

Thu, 05/30/2013 - 16:35 | 3611461 auric1234
auric1234's picture

Atna looks good. 100% in US soil is the kind of thing that makes me feel confident.

Do you know if it uses hedging? I don't buy miner stock if they're stupid enough to hedge their future sales of physical metal at this ridiculous price.

Btw you might want to check similar companies like Claude and Timberline.

 

Thu, 05/30/2013 - 17:20 | 3611598 oddjob
oddjob's picture

No hedges,but they do owe Sprott money,its questionable as to whether Atna can meet the agreed repayment schedule.

http://www.atna.com/s/News.asp?ReportID=507406&_Type=News-Releases&_Title=Atna-Resources-Extends-20-Million-Credit-Facility

 

Thu, 05/30/2013 - 18:03 | 3611707 auric1234
auric1234's picture

Btw do you happen to get a warning every time someone replies to your comments? I review my comment list periodically to see if someone replied. This works but takes a lot of time. I wonder if you know a better way...

 

Thu, 05/30/2013 - 18:16 | 3611753 oddjob
oddjob's picture

I usually like to look back and see how many down votes I can muster, if there is way to get that warning I don't know of it.

re: Atna. The viability of the company soley depends on the price of Gold. It got hammerred today because they pulled their guidance,

Thu, 05/30/2013 - 18:41 | 3611821 auric1234
auric1234's picture

You mean the paper price? I don't think so. If the price gets too low, retail will cut through all the crap and buy directly from the miners.

I don't see the miners closing because they went out of bussiness. Before that, they'll sell out to TPTB and accept to hedge their production in exchange for credit.

Btw reducing production is an option, too.

 

Thu, 05/30/2013 - 18:02 | 3611701 auric1234
auric1234's picture

Fair enough. Thank you!

 

Thu, 05/30/2013 - 14:10 | 3611028 Antifederalist
Antifederalist's picture

I do.

Thu, 05/30/2013 - 13:23 | 3610874 NotApplicable
NotApplicable's picture

They gonna get Chavezed!

Thu, 05/30/2013 - 16:37 | 3611467 auric1234
auric1234's picture

My miners are in US (Timberline Resources) and Canada (Claude Resources). I don't think nationalization risk can be completely ruled out, but it seems much less risky than something in South America.

Someone in this thread mentioned Atna, which I haven't yet looked into but on first sight looks safe too.

 

Thu, 05/30/2013 - 18:18 | 3611754 Antifederalist
Antifederalist's picture

I run a gold stock fund.

Have crushed the averages.

My largest holding is Banro: BAA

Located in Congo, DRC West Africa, but I am comfortable with their political position.

Also own Centamin , Egypt . Political risk for sure, but EV is 1.4x cash flow.

You really need to pick stocks in gold space. Lots of junk.

BTW, two favorite majors are Kinross and Yamana.

Also own huge position in Silver Wheaton SLW. Best name and model in the space.

Fri, 05/31/2013 - 05:33 | 3612865 Sceptical Scot
Sceptical Scot's picture

Any opinion on Randgold Resources? Have been looking to add this at somewhere between 48-52 GBP range (where its been recently), on the basis seems pretty defensively run, good at exploration and cultivation, low-to no debt, relatively good cash flow, and at a reasonable price. However, bit of a beginner at actual stockpicking, so any info you (or anyone) might have off the top of your head would be appreciated....

Fri, 05/31/2013 - 11:10 | 3613636 Antifederalist
Antifederalist's picture

Rand is a very high quality company.  We own it.  Management is excellent.

Thu, 05/30/2013 - 15:02 | 3611203 Herd Redirectio...
Herd Redirection Committee's picture

Its the only equities I will go near right now.

If premiums for physical continue to increase then miners will start cutting out the middlemen, and reap that premium for themself.  I don't know if I entirely trust Barrick, specifically, but that is another story.

Thu, 05/30/2013 - 18:02 | 3611703 Antifederalist
Antifederalist's picture

Barrick is cheap but Monk is a well known crook.

Thu, 05/30/2013 - 16:38 | 3611472 auric1234
auric1234's picture

Fuck Barrick. Support the small miners. GDXJ but even better to cherry-pick them IMHO. Many examples being mentioned in this thread.

 

Thu, 05/30/2013 - 12:55 | 3610802 MeelionDollerBogus
MeelionDollerBogus's picture

Franco Nevada sure is. Wow. Well... roughly a 2.25 ratio to gold, 1.17 ratio to silver

And by "ratio" I mean log-scale. So from where gold rose whatever % from 1380 (baseline) you'd have that rate, R, to the power 2.25 to figure out R2, so that 42.20 (cdn price) x R2 for the next matching FNV (tsx) price going with gold spot (usd).

Similar math for the silver price, silver/22.3 = R , R to the power 1.17 = R2, 42.2 x R2 = FNV_tsx_price

so this is like ETF multipliers, like how UGL is a 2x ETF bull-fund on GLD / spot

Thu, 05/30/2013 - 22:11 | 3612429 MeelionDollerBogus
MeelionDollerBogus's picture

as it happens, call me crazy if you just can't tolerate the mindless paper games involved in this, but...

with FNV now at 44.13 (tsx, cdn), gold spot now at 1421 (wtf, nice spike there), the math looking like this,

http://scharts.co/15h1ojG , (low today, high 2012 oct 4th, FNV vs GLD),

log ( 44.13 / 60 ) / log ( 136.7 / 174 ) = 1.27x log-scale multiplier,

taking a peek over at the 18jan 2014 call at 50 (cdn) for FNV I see a bid of 2.25. Obviously someone's got to pay fees but let's just say the total hurt brings it to 3.00 difference so you're break-even at 53.

So at FNV = 53 cdn what does this math say about the price of gold at this time?

(53/44.13 ) to the power (1 / 1.27) x 136.7 (roughly 1412 USD spot at close for GLD trading) gets you 157.9 GLD (1631 spot).

So if you think by end of year gold won't meet or exceed 1631 USD, ignore this.

If you think it could go a fair bit beyond it let's look at this:

a profit of $600 would need to to see FNV to somewhere around 59.

59 would see GLD somewhere around 197.6, spot of 2041 USD.

A profit of $300 or 100% return would need to see FNV to 56, putting GLD to 185 (spot at 1911$).

That doesn't look like a very expensive bet but it is a bet.

Thu, 05/30/2013 - 12:54 | 3610798 sosoome
sosoome's picture

Depends on the meaning of "about".

Thu, 05/30/2013 - 12:51 | 3610790 RhoneGSM
RhoneGSM's picture

But he's been right on his timing of everything else so far....

Thu, 05/30/2013 - 12:52 | 3610785 Arius
Arius's picture

interesting ... no comments even in here ... supposedly populated by contrarians .... if this is not a sign i do not know what a sign is.

couple this with "0" % interest on the sector by fund managers, big Guy Soros buying big time call options on mines and you have the whole picture.

good to see it live how the train leaves the station ... everyone goes about his business without even noticing it ... very interesting .... i for one would have never believed it - but i am seeing it live ... we live in interesting times!

Thu, 05/30/2013 - 14:13 | 3611042 Antifederalist
Antifederalist's picture

Yep, it is a pretty amazing set up.  

3x cash flow that will grow.  Works for me.

Thu, 05/30/2013 - 12:47 | 3610774 Motorhead
Motorhead's picture

Jesus Christ, the "pundits" have been saying to buy gold miners for ages...with dismal results.  Ask the pumpers on kingworldnews and other sites loaded with guest "experts".  They'll get it right...some day.

Thu, 05/30/2013 - 16:42 | 3611479 auric1234
auric1234's picture

Fuck the bears. I will sit on my shares and wait.

 

Thu, 05/30/2013 - 12:57 | 3610812 Arius
Arius's picture

thats it ... the boy who cried wolf too many times ...

Thu, 05/30/2013 - 12:38 | 3610747 BlankfeinDiamond
BlankfeinDiamond's picture

Like a jackass, I bought ABX at $47. I aint doubling down.

Thu, 05/30/2013 - 12:30 | 3610725 longwind
longwind's picture

I'm long gold miners and flat tires.

Thu, 05/30/2013 - 13:42 | 3610921 The Juggernaut
The Juggernaut's picture

Kinda not enough info from what you're showing here,

Thu, 05/30/2013 - 14:47 | 3611163 tankster
tankster's picture

Just when the sector is beginning to turn, G.S. gives it the kiss of death...

Thu, 05/30/2013 - 14:03 | 3611003 Pladizow
Pladizow's picture

This question has been asked every month for the past 3 years!

Dont know of a bigger value trap.

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