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The risk in mining stocks is that you might have to sit on a loss for quite some time. You have to be right in your assumptions here, but you also have to make money.
In owning bullion, you can dismiss any loss you might have sat on and point to asset price appreciation as if it were your own virtuous circle.
But the mining stocks are part of the gold markets. At one time you could not dissuade anyone that the larger miners were part of the gold price manipulation conspiracy. They survived the gold price collapse and Bre-X by hedging. It was a welcome sight to see that shareholders could cower self-aggrandized CEOs of these big gold companies into writing down their hedge books.
The smaller miners survived through the same era and consolidated properties. But you either had massive share dilution or grade dilution or both. It would be a welcome sight if shareholders could cower these self-aggrandized CEOs of these small cap companies into providing a dividend return for their shareholders, as it was during the depression era.
A great article. Loved it. I was disappointed, though, that it didn't show itself to be current thinking by referencing that the world is full of PIS-r*. PIS-r* has more power to affect the dynamics of precious metals miners than do templates based on modelling the past. Because of PIS-r, we have little by which to guage mining companies for the immediate future. If the warring talk heats up in the middle east, or if another PIS-r* war indeed becomes a reality, the first thing we'll see is $300 a barrel oil and THAT WILL CRUSH precious metals miners and many other producers. I'd say that oil, ethanol-biofuel companies, [dirt cheap right now], would be a great place to park one's money. If no NEW war, you'd likely still get some stock price appreciation between now and then. Can't say the same for gold mining companies which are basically stalled out and losing their safe-haven status. If oil does go to $300 a barrel, oil companies and biofuels / ethanols will likely be a far, far better place to have parked your money.
*PIS-r: Pakistan, Iran, Syria - Russia with a little "r" since we know Putin wants to re-establish Russia as a powerhouse, but we don't yet have clear markers to the extent of his likely Russian-lead eco-politico block.
If you know mining and are willing and able to do your homework (and by that I mean going to the mine) then it is hard to beat grossly under valued pm mining stocks.
Just to refute some gross generalizations posted above, I have a 250% gain on one silver miner and a 500% gain on another and both of these companies are still grossly under valued based upon their mining costs and proven reserves. Both of these companies have net margins in excess of 40%.
If you do not know mining then do not buy mining stocks...buy the metal, but don't just grandly dismiss mining stocks as a bad idea. I have been investing in miners for 40 years and would not be around today if one could not make money buying and selling them.
What the author failed to stress is that there is going to be a wave of buyouts coming in the pm miners. They are loaded with cash and the bigger ones will buy the smaller ones that have proven economic reserves because that is a far cheaper way for them to expand than by doing greefield prospecting. Once a few buyouts happen, then we will see some pretty great moves in this sector.
"(and by that I mean going to the mine)"
Surely you jest! If one could afford to visit all the mines AND be given liberty to the assays, then I posit that one probably already has enough money and influence to not have to visit the mines.
Its not hard. You buy a ticket and you go to the shareholder's annual meeting, or you got to a mining conference.
You get to meet the swindlers face to face, and will have had a stomach's fill and you spleen will be incredulous in your first couple of tries.
Its part of the education. If you're serious enough about making returns, you can actually head out to the mine.
Buying ounce sint he ground is a direct attack on the Evil empire.
Uh, is anyone paying attention to the cantalevered S&P vs raw industrials?
This looks eerily similar to end of 2008 only worse.
Eventually, with recessions looming everywhere the S&P is coming down.
The trouble with the minors is twofold...When the metals move down, the minors generally move down...When equities move down, the minors generally follow equities...Still waiting for the decoupling or massive outperformance of metals over equities...Quite simply...Minors are caught in a box!!
As the end game approaches, there is no question that mines will be nationalized or expropiated. Does anyone really think otherwise? Just look at the recent actions by many mining countries to keep production in house and deny exports and the reports that the uber wealthy are trying to acquire tons directly from producers. And and, has everyone forgotten that one of Obama's first Executive Orders was to give the FEDS total control of the resources of millions of acres of Western US land?
My favorites are FCX and GG.
Instead of Printing $ they actually dig it out of the ground.
I prefer $ilver for its many utilities aside from being true
exchange worthy metal.
Buying quality shares that pay dividends and carry good balance
sheets provides great down side protection.
I would not consider Barrick to be one of my picks.
At some point in time the same folks that are putting the boot on the neck of the Seniors and especially the Juniors will pump these same stocks and then those of us that are holding the shit sanwich now will be in for an epic moonshot hard to imagine here and now.
The trick will be to sell incrementally and know what to buy with all those FRN's.
I used to agree completely with this eddiebe. But I think what you may be missing is if your epic moonshot actually happened they would change the rules and you would still lose. I admire your optomism however and hope you are right. I tend to agree with Gordon.
Sometimes I think it's a sinWhen I feel like I'm winnin' when I'm losin' again.
Something fundamental that I do not understand about what seems to be the majority opinion at ZH ( and among my acquaintances ) is -- how can we talk about the relative value of different sectors of the stock market -- even post-paradigm-shift sectors like precious metals mining -- when we know that the market itself is not protected by the rule of law?
You guys who are still in the market -- why are you still there? Of course these companies will be nationalized. Of course your accounts will be stolen.
It's one thing to play a crooked game because "it's the only game in town" -- but this is more like playing a crooked game in a saloon that is obviously on fire.
Why do you stay? Is it an article of faith? An addiction?
At all times throughout history the shit has been and is about to hit the fan. Granted, the situation globally is becoming more dire, but this could and probably will just drag on and on and morph into more of the same for the rest of our and our childrens lives. The more 'things' change, the more they stay the same. Markets will have their ups and downs, but they will operate.
Ah, OK. An article of faith, then.
All this analysis is informative and probably accurate. That being said if you want to either lose money or watch the value of your investment stay put while the metal you thought you were leveraging increases you should own mining stocks. Anyone on here can now jump on their pedestal and share their trading success and how they time these stocks and rabble rabble rabble. If you want to own gold just buy gold. Stop f'ing around with these manipulated shit sandwiches.
Selling puts on mining stocks and using the proceeds to buy physical is just about the most rewarding trade out there. Having a zero cost basis for any physical pm's in your possession really throws a wrench in the system, for somebody else.
real allocated ownership of metal is in your hand.
paper? Paper? PAPER? /are we laughing yet?/
About four years late to the party are we?
One simple insight I gleaned from the article is that the banksters have been much more successful in suppressing mining stock prices than physical prices, so any interruption of that suppression scheme should result in a greater price appreciation in the stocks than in physical.
I don't think confiscation of PMs is in the cards, but nationalization of these companies is a possibility, especially in countries that are late to the party and don't have huge gold reserves. In other words, be careful where those mining stocks have their assets, and don't put all your eggs in one basket.
Only if the mine is in Canada or the U.S.
What a load of crap. Mining stocks carry way to much risk.
I won't touch them.
they'll sore once the bullion is no longer avaliable
The failure of MF Global should tell you that gold is not necessarily available on the futures markets for delivery at the appointed time. The surest way to obtain gold is to head down to the coin dealer and buy coins or bars with cash, not stand for delivery with options.
The next surest way to obtain gold is to mine it out of the ground. It doesn't just appear magically in the futures markets, it comes from Johnson Mathey or some other refiner. Doré bars are provided by the miner.
@ sudden debt
You are correct insofar as the mining stocks are at least as volatile as the underlying metals, and are subject to political risks in the countries where the mines are located.
However, if you stick to the major producers and avoid the juniors they are a useful diversification in my opinion. You are buying gold or silver in the ground or close to the surface, no storage costs for your metal, less risk of forgery or non-delivery by ETFs like GLD, SLV, and probably less likelihood of confiscation by desperate governments.
Wasn't there a Dutch pension fund that was prohibited to invest in physical gold?
You can minimize risk by a small investment in a widely diversified fund like Tocqueville (also available in EUR), or royalty streams like Franco Nevada, Royal Gold or Silver Wheaton. Dividends are an additional plus.
Agreed ... but he covers that at the end of the article.
Pennies in front of the steam roller (or silver nuggets in front of the steam roller), for those who are stupid enough to be holding paper during the current time of extreme market danger - unless they can afford to lose it. Beware the Celente Put.
Good post. The crux is whether fundamentals will be allowed to establish themselves. Could be so - the big banks are accumulating physical metals every time they crash the paper market (and can the record mint coin sales be accounted for only by private individuals?) why not the shares too? A big hedge fund move into the mining stock sector beyond a few isolated cases up to now (Greenlight) would be difficult for the banks to short, but the question is if and when that will happen. One scenario that hasn't been played through yet is to what extent the mining shares afford protection in a physical gold confiscation scenario.
Very comprehensivearticle,Mr. Kim is no doubt correct in his assumptions. He adds a very strong and frightful caveat at the end of the article, which at least in terms of fear about gold and it's stocks being suppressed in perpetuity I would like to refute.
The reason being: The banksters and mega manipulators themselves don't trust each other and know much better than most investors and hedgies etc. the true value of gold, and are no doubt hoarding it and accumulating it. The secret to success here is patience and plenty of intestinal fortitude.
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