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Sprott Shifts From Gold Bullion To Gold Stocks, Explains Why

Tyler Durden's picture




 

From Eric Sprott and David Baker

Gold Stocks: Ready, Set,…

Last week, the HUI Gold Index marked a new all-time high as it surpassed 600. Recent gold equity investors were undoubtedly happy with this move, but for longer-term holders, the recent strength is actually somewhat disappointing. If you review the chart below, you’ll notice that while the gold price has almost doubled since early 2008, the HUI Index has appreciated by a mere 22% over the same period (see Chart A). If the HUI was justified at 500 in early ’08, it should surely be justified at 1,000 today, given the appreciation of the gold price over that time. So why have the equities lagged?

Chart A

Source:  Bloomberg

First and foremost: the sell-side’s abysmal gold price estimates. Table 1 shows the average gold price that analysts are using to value gold equities today. While the futures market is comfortably forecasting a continuation of today’s levels, the majority of sell-side analysts refuse to update their gold price estimates to reflect its recent strength. A rising gold price is normally a bad sign for the broader equity markets, and generally indicates a bearish trend. As bears ourselves, we’re completely fine with this, and invest accordingly. But the sell-side has difficulty pairing bearishness with new underwriting opportunities. It doesn’t mean you have to believe their price forecasts however.


 
The second reason is gold’s volatility. The amount of paper gold and silver contracts that trade on the futures and equities exchanges still dwarf the amount of actual physical trading that takes place. Paper markets continue to set price discovery – thereby allowing for dramatic volatility with little or no influence from actual physical fundamentals. In the LBMA market, for example, market participants traded an average 19.6 million ounces of gold PER DAY in July 2011.1,2 Keep in mind that the total gold mine production in 2010, globally, was approximately 86.5 million ounces. Global gold mine production is not expected to increase significantly year-over-year, so the LBMA is essentially trading a year’s worth of production in less than a week. And this is just ONE market. When you add the COMEX futures and gold ETFs, the paper trading volume becomes absurdly high. When price discovery is dictated by levered paper contracts with no physical backing, it’s extremely easy and relatively inexpensive to jostle the spot price around. The result for gold has been many days of extreme downside volatility, despite a strong and consistent overall upward trend. Investors don’t like volatility – and the constant whipsawing has probably kept many of them away from the gold equity sector as a result.

Thirdly – investors still remember how badly gold equities got crushed in 2008. There was a reason they sold off so aggressively however – they were the most profitable positions investors owned going into the ‘08 crisis. Gold equities had enjoyed a strong bull trend going back to 2001, with the HUI Index appreciating by 980% from its November 2000 low through to August 2008. Investor behaviour is fairly consistent – when panic hits, you sell your winning positions first.

Something has changed recently, however. A new divergence has arisen in the precious metals equity market – a subtle, but plainly evident shift in recent daily performance. On Wednesday, August 10th, for example, the Dow dropped 4% while gold stocks rallied 3%, for a delta of 7% on the day. That is significant outperformance, and not what we have come to expect on an equity market down day. Gold stocks, as represented by the HUI Index, also seem to be breaking away from their traditional correlation with the spot gold price. On August 29th, spot gold dropped 2.16%, while the stocks fell by only 0.81%. On September 7th, gold fell by 3.09%, while gold stocks rose by 0.33%. These small differences indicate a new trend forming. While gold’s daily volatility is expected to continue, we may be entering a new phase where the stocks react less harshly on gold down days, and outperform gold on days of strength.

The gold equities’ recent divergence has played itself out even more prominently against the financials, with the HUI Index outperforming financials by a stunning 49% since the beginning of July (see Chart B). As we wrote in "The Real Banking Crisis" two months ago, there appears to be a run on European banks, and financial stocks are reflecting that. IMF Managing Director, Christine Lagarde, recently confirmed as much in her Jackson Hole speech, where she warned about the banks’ need for urgent recapitalization: "They must be strong enough to withstand the risks of sovereigns and weak growth. This is key to cutting the chains of contagion. If it is not addressed, we could easily see the further spread of economic weakness to core countries, or even a debilitating liquidity crisis."3 Investors aren’t waiting around to see if they’ll pull it off, and as the chart below suggests, at least some of them have reinvested their former bank equity capital into the precious metals sector.

Chart B

Source:  Bloomberg

As a side note, Chart C symbolizes the great wealth redistribution that has taken place since 2000. Those investors who have owned precious metals equities have prospered, while those who have invested exclusively in the broader equity market or financials have little to show for it. We clearly see this trend continuing, and even accelerating, in the coming years.

In many of the funds we manage at Sprott, we’ve transitioned out of gold bullion and into gold equities to better participate in the continuation of the trend indicated above. As long-time investors in this space, we can assure you that the production growth rates will be significantly higher in the junior stocks. They continue to trade at discounted valuations, and we believe they offer the best opportunity to build exposure. Margin expansion is the key metric for this industry, and the market is now acknowledging the miners’ improvement in margin capture – which has occurred despite the increase in capital and operating costs (see Chart D). We meet with a large number of gold mining management teams on a weekly basis, and based on those meetings, it appears that the average cost of producing an ounce of gold today, all in, is now around $800. At $1,200 gold, these companies can capture roughly $400 in EBITDA. At $1800 gold, however, they’re now capturing $1,000 per ounce in EBITDA - representing an increase of 150% in profit margin. That is significantly far above what any other equity sector has been able to generate over the past year.

Amazingly – despite this new reality for gold producers, we are still finding opportunities in select gold and silver mining companies that can be purchased today at 2-3 times their 2-year-out forecasted cash flow. These multiples are based on the current gold and silver spot price, and if these companies hit their production targets, and gold and silver continue their appreciation – we may discover that these stocks were trading at less than 1 times 2-year-out cash flow today. Having been in the business for many years, we can tell you that investing in a stock at 1 times 2-year-out cash flow tends to be a winning proposition – let alone in an industry that literally mines the world’s reserve currency out of the ground.

Chart C

Source:  Bloomberg

Chart D


Source:  BMO Capital Markets

In our view, gold stocks represent a bona fide growth sector in an otherwise dreadful equity market. All other equity sectors are weakening due to sovereign uncertainty and the reemergence of soundly weak economic data. The recent disconnect between gold equities and bullion isn’t new either. We’ve seen it before over the past decade, and the returns generated after previous divergences have averaged around 26% (see Table 2). Given the recent performance correlations, the HUI’s breakout above 600 and spot gold now firmly above $1600, we expect this rebound in gold equities to be prolonged and much more significant in percentage terms.

Equity investors shouldn’t let $1800 gold dissuade them from participating in precious metals equities. The world is still dramatically underexposed to gold, and we firmly believe it should represent a higher percentage of investors’ total portfolios today. The fact remains that both gold and silver continue to trade well below their inflation-adjusted highs in nominal terms, and the market is now beginning to acknowledge the profit potential that precious metals equities offer at today’s bullion prices. We believe the equities will offer more upside than the bullion over time.  Many of the smaller names are well priced and have momentum behind them. The prospects for gold stocks look extremely bright. 

 

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Wed, 09/14/2011 - 16:35 | 1670222 ShowMeTheTime
ShowMeTheTime's picture

Gold bitchez!

Wed, 09/14/2011 - 16:47 | 1670265 SGS
SGS's picture

"let alone in an industry that literally mines the world’s reserve currency out of the ground."

 

aahhh yes, Sprott and Embry are so dead on with words...love it.

Wed, 09/14/2011 - 16:53 | 1670294 markmotive
markmotive's picture

One look at the GDX to bullion ratio and you can see that gold stocks have lagged in a major way. But I wouldn't throw in the towel on bullion - gold miners need funding and get killed when credit markets seize up.

http://seekingalpha.com/article/292652-time-for-gold-miners-to-outperform

Wed, 09/14/2011 - 16:57 | 1670305 spiral_eyes
spiral_eyes's picture

only gold is money.

gold stocks are not money.

if you're looking for potentially large fiat-denominated gains (and also potentially large losses) look to the stocks.

if you want hard money look to the physical.

http://azizonomics.com/2011/09/10/can-bernanke-print-gold/ 

Wed, 09/14/2011 - 17:10 | 1670353 jekyll island
jekyll island's picture

Agreed Spiral, no one is suggesting that gold stocks are money, they are not.  They have traded at a historical 30% upside to gold price and as such are a good vehicle for speculating on gold market.  I personally feel that this is a good place to look for return after you have established a base in physical.  Mining stocks are risky and should perform well, why would you want to be in this market for a 10% return?  The key is to take profits when they are there and convert it into physical or use it to buy other mining stocks.  Risky, yes, rewarding, absolutely.  Recommend to everyone?  Absolutely not.  

Wed, 09/14/2011 - 17:29 | 1670398 spiral_eyes
spiral_eyes's picture

I myself am sitting on a few junior miners. (Kaminak, bitchez)

But nobody should ever sell an ounce of physical to get into them.

Thu, 09/15/2011 - 00:38 | 1671961 FreedomGuy
FreedomGuy's picture

They are also much quicker and easier to buy and sell than physical. The physical has the insurance aspect but the stocks are a better investment vehicle. Gold prices could freeze where they are and mining stocks still skyrocket based on margins.

Thu, 12/01/2011 - 09:28 | 1934522 Freddie
Freddie's picture

The Bernank and the Dem's muslim are destroying fiat.

Wed, 09/14/2011 - 21:27 | 1671420 fasTTcar
fasTTcar's picture

If you do not hold it, you do not own it.

My shiny bars would never do this to me:

 

http://www.theglobeandmail.com/globe-investor/silvercorp-ceo-vows-fight-...

 

 

Wed, 09/14/2011 - 18:22 | 1670688 Strider52
Strider52's picture

IF I had any money in Sprott, I would liquidate it and buy physical right now.

Thu, 09/15/2011 - 02:45 | 1672147 Snidley Whipsnae
Snidley Whipsnae's picture

Are the mining shares going up because they are a good spec investment or because of the intense PR campaign that has been waged in the recent past?

Sounds like a pump and dump coming. A gold mine is still a liar standing next to a hole in the ground.

If you don't have physical you don't have the best form of money.

Thu, 09/15/2011 - 18:24 | 1675082 GoinFawr
GoinFawr's picture

`Intense`? `Recent`? How so? Usual suspects saying the usual things as far as the eye can see, as far as I can tell; and been making fiatscos all the while too, I might add...

 "A gold mine is still a liar standing next to a hole in the ground."

Remind me again, in what century was that sentiment expressed? `Cuz today it ain`t that hard to figure out whether or not a mine is actually producing or not, `cous`. SC was an excellent chronicler of his time,  and much of his wisdom still rings true to this day, no doubt, but it's obvious that he was never very skilled at speculatin`, ol`hoss.

"If you don't have physical you don't have the best form of money."

Yeeeaaah, I don`t see you getting much of an argument from many on ZH about that, but where I see a big disconnect here is in the acquisition of said real money... I mean, do you actually get paid in bullion? Or do you run a creekside panning operation in Africa? Because if you don`t you`re getting fiatscos first like the rest of us and then converting them into real money.

 Now I can think of a number of ways of building ounces;this article just goes over one of them, and you`ve been up and down this thread ripping on it.

So what exactly is your agenda SW?

PS Not to rub salt in an open wound or anything, but have you had a look at today`s tape? It makes this post look positively prescient.

Wed, 09/14/2011 - 16:38 | 1670230 reader2010
reader2010's picture

My strategy has been buying gold bullion by taking profits from selling gold stocks. You're saying fuck me? I say you're a whore of paper.

Wed, 09/14/2011 - 16:45 | 1670257 jekyll island
jekyll island's picture

Gump, you're a fucking genius!!!  I've done the same with silver.  Bought 1000 ounces with paper profits realized by selling half of my positions when they doubled.  That is a sweet trade,  get bullion and keep exposure to company upside.  You probably shouldn't tell people about this, they may realize that this is a good idea.  

 

 

Wed, 09/14/2011 - 16:53 | 1670293 LongBalls
LongBalls's picture

I have been doing the same thing. 1/2 my stash has been realized due to paper gains. I was lucky enough to sell at $48 silver and convert into gold. Just don't get to greedy. You will still need to get your hands on the phyz. Keep an eye on the margin's for the phyz. I presume they will start to grow at the dealers. Plan accordingly and prepare to loose some fiat in the machine when the SHTF.

Wed, 09/14/2011 - 17:06 | 1670341 reader2010
reader2010's picture

The open secret is that you're STILL able to buy physical using paper. To my little pea-sized brain, that's a wonderful bargain while gold is still as cheap as dirt. 

Wed, 09/14/2011 - 17:13 | 1670357 jekyll island
jekyll island's picture

Long Balls, you have big cajones to sell silver at $48.  Excellent call, very well done. 

Fri, 09/16/2011 - 20:44 | 1679078 LongBalls
LongBalls's picture

I would never claim to be that smart dude. I was lucky enough to catch the CME margin hike article on this site Friday afternoon. My local coin dealer is open on Saturday's. So I made the trip first thing in the a.m. I knew is was coming down hard since it's such a small market and the rise was parabolic. I owe my realized profits in silver and since gold to ZH. Ever since that moment I come here daily.

Wed, 09/14/2011 - 20:18 | 1671170 clymer
clymer's picture

seems to be what a lot of folks on this blog do:

 

http://marketwatching.freeforums.org/gold-f3.html

 

I don't have the savvy or the liquidity to trade - but I do put a set amount into physical, religiously and monthly (have been since 07 - initially Gold, and now silver)

Wed, 09/14/2011 - 22:43 | 1671634 FEDbuster
FEDbuster's picture

Marc Faber calls the monthly buying physical strategy "becoming your own central bank".  Lately I have been buying "the other precious metals, brass and lead".

Thu, 09/15/2011 - 01:34 | 1672062 jekyll island
jekyll island's picture

I think you are ahead of 90% of most people in that you understand the risk, the limitations you have on capital and the amount of time needed to stay on top of speculative positions.  Bravo to you to be diligent in building a physical position, it will serve you well in the coming storm.  

Wed, 09/14/2011 - 17:25 | 1670268 X.inf.capt
X.inf.capt's picture

there maybe some logic to this, reader

MAYBE THEY DONT WANT TO GET RAIDED LIKE,

lrag

ejypt

NORFED

ft. knox

libya

etc.

Wed, 09/14/2011 - 16:49 | 1670279 SGS
SGS's picture

He is NOT saying to sell your phyzz.  He saying sell GLD lol, and buy miners lol, fuck the morgue!

Wed, 09/14/2011 - 16:39 | 1670234 Motley Fool
Motley Fool's picture

My condolences in advance to Sprott.

Wed, 09/14/2011 - 17:01 | 1670310 Motley Fool
Motley Fool's picture

Junk me all you like. :)

You really think governments will allow companies that dig money outta the ground the profits ( after it has become recognized as money)?

 

Yeah. right.

 

ps. I really shouldn't use the term money. Gold isn't money it's wealth.

Wed, 09/14/2011 - 17:57 | 1670565 Hephasteus
Hephasteus's picture

Sprott is simply interested in positioning himself as the new bank when comex explodes. He's trying to be london gold pool part III.

Wed, 09/14/2011 - 18:19 | 1670674 jimmyjames
jimmyjames's picture

ps. I really shouldn't use the term money. Gold isn't money it's wealth

*************

I didn't junk you but I also never marked you up-

Gold is money-it is a currency the senior currency and that's all it's ever been-

http://bit.ly/o0t0vp

 

Wed, 09/14/2011 - 20:18 | 1671168 Shell Game
Shell Game's picture

Agree, MF, the government cannot realistically confiscate citizen gold, but they sure as hell can confiscate gold below ground.  It will suck to be a miner/miner investor when that day arrives.

Wed, 09/14/2011 - 21:26 | 1671417 Doña K
Doña K's picture

Let's not forget that they carry risks of nationalization also and hedging which may not be visible.

Wed, 09/14/2011 - 16:40 | 1670238 jekyll island
jekyll island's picture

Just bought Silvercorp SVM at friggin' 6.08/share this morning due to the coordinated short attack they are experiencing.  What a gift!  They will be producing 10mOz of silver in the next 1-2 years.  Their closest comparison is First Majestic, trading at $20/share.  This stock is going to double or triple when miners catch up to bullion.  

Wed, 09/14/2011 - 16:52 | 1670291 Buckaroo Banzai
Buckaroo Banzai's picture

SVM's mines are in China. Have you thought that all the way through?

Wed, 09/14/2011 - 17:01 | 1670319 jekyll island
jekyll island's picture

Yes, China not nearly as risky as Peru, Bolivia or Venezuela, I must say.  Can't have all your eggs in one basket, Silvercorp is just part of the portfolio.  None of the mining stocks are buy and hold forever, you have got to take profits or you will get burned.  

Wed, 09/14/2011 - 17:04 | 1670333 A.W.E.S.O.M.-O 4000
A.W.E.S.O.M.-O 4000's picture

I dunno. The Chines strike me as fairly honest and transparent operators, no?

 

I mean it's not like they would lie or anything.

Wed, 09/14/2011 - 17:22 | 1670383 jekyll island
jekyll island's picture

Like I stated earlier, it's a calculated risk.  By the way, SilverCorp is a Canadian mining company, they are not nationalized.  Don't think I would touch a Chinese mining company.  China doesn't have the technology or the expertise to explore and develop new projects.  They need the junior miners like SilverCorp to come in and do it for them.  Costs are much lower in China, SVM built their mine for less than $15 million, 3-4 times less than it costs in the West.   Fortuna Silver just built a mine in Mexico for $50 million.  Mining stocks have been described as burning matches, if you hold on to them to long, well you can figure it out.  

Wed, 09/14/2011 - 18:23 | 1670696 drivenZ
drivenZ's picture

who cares where the company is located...If the mine is in China then your SOL if they decide they want it. Same as everywhere else of course but China is, well, China. 

Wed, 09/14/2011 - 18:05 | 1670612 DosZap
DosZap's picture

Buckaroo Banzai .

Yep, and last report was they were not ALLOWING in Gold or Silver exports.

Have a bud tried to get me into it, and almost did.He made reall good % for  a while, then he lost 90% of his profits overnight.

Buying any kind of commod shares in any Chinese controlled country, is akin to suicide.

Wed, 09/14/2011 - 16:54 | 1670296 bigkahuna
bigkahuna's picture

I too have been buying SVM in quantity. At least "quantity" for me -- lol!

Wed, 09/14/2011 - 17:04 | 1670332 jekyll island
jekyll island's picture

It's a calculated risk, but at this price it is easy to see a 100-200% return.  Selling at $15-$18 would be tremendous and reachable IMO.  Good luck to you.  

Sat, 09/17/2011 - 15:47 | 1680254 bigkahuna
bigkahuna's picture

I agree, when it crosses the $15 mark, half of my new position is going into something like the dreaded COP or XOM.

 

- and likewise, good luck! 

 

Oh yeah...

 

http://www.reuters.com/article/2011/09/15/silvercorp-buyback-idUSS1E78E0BZ20110915?feedType=RSS&feedName=marketsNews&rpc=43

 

 

Wed, 09/14/2011 - 17:02 | 1670323 Whalley World
Whalley World's picture

Sold all of ours at $8.40 and am staying away.  Looks like it could be another TRE. 

Wed, 09/14/2011 - 16:40 | 1670241 alien-IQ
alien-IQ's picture

while I tend to agree with this post in theory...the reality is a different story all together.

this analysis is good. the problem is that analysis and fundamentals and facts simply do not matter any longer. all stocks move as one now a days. I'm not saying this is a good thing...I'm just saying it is what it is.

perhaps it's worth keeping an eye on some gold stocks...but investing on "fundamentals" in this market is a dangerous thing because fundamentals require facts and as we all know...the facts simply do not matter any longer.

Wed, 09/14/2011 - 16:58 | 1670311 SIOP
SIOP's picture

alien-IQ, Wrote: "..but investing on "fundamentals" in this market is a dangerous thing because fundamentals require facts and as we all know...the facts simply do not matter any longer...."

I couldnt agree with you more. +100

Wed, 09/14/2011 - 18:00 | 1670350 GoinFawr
GoinFawr's picture

"...all stocks move as one now a days. I'm not saying this is a good thing...I'm just saying it is what it is."

Erm, I'm not endorsing any strategy one way or the other, but I think you may have overlooked the following paragraph:

"Something has changed recently, however. A new divergence has arisen in the precious metals equity market – a subtle, but plainly evident shift in recent daily performance. On Wednesday, August 10th, for example, the Dow dropped 4% while gold stocks rallied 3%, for a delta of 7% on the day. That is significant outperformance, and not what we have come to expect on an equity market down day. Gold stocks, as represented by the HUI Index, also seem to be breaking away from their traditional correlation with the spot gold price. On August 29th, spot gold dropped 2.16%, while the stocks fell by only 0.81%. On September 7th, gold fell by 3.09%, while gold stocks rose by 0.33%. These small differences indicate a new trend forming. While gold’s daily volatility is expected to continue, we may be entering a new phase where the stocks react less harshly on gold down days, and outperform gold on days of strength."

You say 'anomaly', Mr.Sprott says 'tell'.

Anyway, I expect Kidd Dynamite will be on this thread any minute now 'expertly debunking' the whole article, promoting the verity of SLV and GLD physical holdings, and pointing out how unwarranted in his mind PSLV's premium is. While you have his attention I suggest you repeatedly ask him how his whole 'short PSLV/long SLV' play is working out...

Disclosure: None of the above Funds has ever been on my books. (No reason)

Wed, 09/14/2011 - 18:00 | 1670584 cynicalskeptic
cynicalskeptic's picture

I've noticed this divergence as well.   When gold and silver are getting slammed, you don't see the same level of drop in the miners and at times actuially see up moves.  I suspect you're seeing a divergence in markets.  The paper metals markets no longer reflect the physical market - the manipulation is clear and transparent - predictable drops before COMEX monthly close, drops before bad economic news.  Gold gpoing DOWN after the CHF uis linked to hte Euro?!?!?!    That mekse NO sense - unless you view it as a deliberate effort to make gold look bad - tho head off any 'flight to safety' (to the one last refuge) after the Swiss killed thier currency.

There is (IMO - and that of many others) a concereted effort to portray gold and silver as irrelevant and not worthy of 'investment' - this despite central bank buying and a continual upward price trend (or should I say downward paper money trend?).  Gold is predictably slammed in off hours with massive selling after major up days and before major news breaking.  If it looks like manipulation and smells like manipulation..... because no SANE seller is going to dump a huge position under circumstances that guarantee the WORST price.  But as a deliberate effort to drop prices and trigger stops - these raids are very effective.  But the raids are less and less effective lately with bounce backs being quicker.  

You DO see concerted manipulation in mining stocks as well - part of an overall effort to downplay gold - but this does not seem to be as widespread.  You do see large volumes at end of day on GDX, SLW and others to drop the price at close - seems like some don;t want any upward trend line looking too regular.  Premiums on physical have been going up - with momentary panic in physical markets duriong the recent silver and gold run ups.  AS mere coincidence that Gold had one heck of an uptick on a Monday when NY and London were closed AND when the budget crisis was peaking.  'Market intervention' efforts by govt had been suspended - no cash available.  

Individual holders of gold/silver - bullion, ETF's and mining stocks is still miniscule compared to years past when gold stocks were a small but consistent part of any holdings.  Despite all the 'BUY GOLD' ads on radio and TV pandering to the inexperienced and fearful (with way too high premiums) the masses are still more likely to be selling.

I suspect that smart money is moving into miners - indeed it seems like the Chinese and others are doing all they can to convert paper holdings into TANGIBLE assets.  China is trading paper $US for African farmland, long term energy contracts all over the world and Australian and South American mining companies.  If those miners produce gold and silver - all the better.  Anyone notice the CDE deal where China is buying gold ore concentrate from China? 

The disparity in price between physical and the miners has caught the attention of a number of analysts lately - this has been getting more and more coverage.  Common sense would say ther HAS to be a breakout at some point given the continual upward trend in these metals.

Wed, 09/14/2011 - 18:40 | 1670661 KidDynamite
KidDynamite's picture

I have the same trade on as Sprott - it's been disclosed in all of my blog posts about the subject. He sold PHYS to buy miners - I bought GDX and shorted GLD. 

Also disclosed was that I took off my short PSLV vs long SLV trade in relatively short order, as the borrow costs were too high.  However, if you're long PSLV, you will absolutely outperform over the next year by switching to SLV and saving yourself the 20% premium - bet on it.  Quote me.  Of course, shorting PSLV and buying SLV (which is a very expensive trade to carry) is not the same trade as selling your PSLV to buy SLV (which, yes, is a slam dunk trade)... I can explain it to you more if you really want to learn - leave a comment on any one of my PSLV posts for a free lesson.    ps - Sprott is doing this same trade too! Swapping out of PSLV and into bullion at spot (minus the 20% premium)

 

pps - almost forgot: I'm long OCT GLD calls too

Thu, 09/15/2011 - 02:58 | 1672165 Snidley Whipsnae
Snidley Whipsnae's picture

Goin... There has been an enormous sales campaign recently aimed at 'buy gold stocks, they are dirt cheap'...

Simply because something is cheap does not mean it's a good value.

The games that small companies can legally play with stocks would make your hair stand up...especially if YOUR money is invested in them.

Get in the water with these sharks and you will get eaten alive... Sprott isn't a multi billionaire because he spends his time helping the small investor. 

Thu, 09/15/2011 - 14:03 | 1673470 GoinFawr
GoinFawr's picture

"Simply because something is cheap does not mean it's a good value."

Once again, I'm not advocating anything one way or the other. But,

You're taking the word 'cheap' completely out of context. Sprott is not comparing a shovel sold at Malwart to one you'd get at Lee Valley and saying the Malwart spade is the better deal solely because it cost less, he's suggesting that if you're smart you might be able to pick up a high quality Lee Valley shovel at a Malwart price. Big difference there.

"The games that small companies can legally play with stocks would make your hair stand up...especially if YOUR money is invested in them."

Right. Due diligence, do the due dude; I doubt as many posting here were 'born yesterday' as you seem to think. Oh and 'small' could be 'med', 'large' or even 'ginormous' in that sentence. Indeud, if you've been following the PM mining sector over just the last few years you should have noticed that `bigger isn`t necessarily better`.

 "Sprott isn't a multi billionaire because he spends his time helping the small investor."

Bollocks!  Are you seriously trying to tell me that anyone, even the small, who invested in PM`s or their proxies over the past decade hasn't benefited from Sprott's actions and advice? How much physical metal has he taken off the market in the last ten years? I`m not saying he`s been acting out of a sense of altruism, but it`s not like his success has been based on making bad calls that hurt small investors either.

Is this a 'sour grapes' thing? I mean it's hardly Mr.Sprott`s fault if you haven't tagged along for the ride of your life.

Wed, 09/14/2011 - 17:21 | 1670382 caerus
caerus's picture

imo this is the problem with relying solely on "fundamentals" it is too difficult (for me at least) to identify/quantify the relevant facts and establish causality between these facts and share price...this is why i find it more useful to be aware of the fundamental backdrop, including the state of the broader equity market, and observe the price action (in the miners in this case)

i do not want to own equities in the current environment but it's hard to ignore the action of NEM for example, bumping up against what i consider key levels despite the terrible tape...for example, 9/2,9/8,9/9 NEM performed relatively well in some really bad ES action

haven't bought anything yet but still watching

Thu, 09/15/2011 - 03:02 | 1672168 Snidley Whipsnae
Snidley Whipsnae's picture

caerus... Start up gold miners are tiny. Their stock prices can be moved easily by the wealthy investors.

IOWs the small mining company can have their 'tape painted' easily. Once a bunch of fools are lured in the big operators that got huge stock options to fund the start up can dump their stock and the price plunges.

Better think a long time on this one...

Wed, 09/14/2011 - 17:58 | 1670571 TheFourthStooge-ing
TheFourthStooge-ing's picture

this analysis is good. the problem is that analysis and fundamentals and facts simply do not matter any longer.

Bingo! The analysis is good, yet the game has changed. The casino has made the use of marked cards, loaded dice, crooked roulette wheels, and rigged slot machines a standard practice rather than a hushed exception. It's openly flaunted because the sheriff and his boys are bought and paid for with their cut of the take.

There are occasional winners in order to keep the tables full of suckers. Naturally the payouts consist of the casino's chips; this is fine as long as there are people willing to accept the chips for tangible goods and services.

perhaps it's worth keeping an eye on some gold stocks...but investing on "fundamentals" in this market is a dangerous thing because fundamentals require facts and as we all know...the facts simply do not matter any longer.

I could see it making sense as a short- to medium-term investment strategy for the purpose of making some quick fiat clownbux to retire a debt. The investment would need to be limited to maximum acceptable total loss, as profit could only be realized by bailing out well enough in advance of the system falling apart.

 

Wed, 09/14/2011 - 16:41 | 1670243 GeneMarchbanks
GeneMarchbanks's picture

Made some $ in Redback but they got bought out. Still have a few juniors under-performing I decided long ago I'm going to ride it out over the long term.

This comes as a pleasant surprise...

Wed, 09/14/2011 - 16:43 | 1670251 unky
unky's picture

Hello, confiscation and taxation of your paper gold equities. I prefer the physical stuff.

Wed, 09/14/2011 - 16:48 | 1670272 alien-IQ
alien-IQ's picture

if (when?) the jack boot thugs decide to kick down your door and start the confiscation...it won't matter if you've got physical, paper or unicorn gold. the only thing that's gonna keep them from taking your shit is a good dose of M.A.D. backed by a nuclear weapon. the shotgun and 20 boxes of shells ain't gonna cut the mustard.

Wed, 09/14/2011 - 18:19 | 1670675 GoinFawr
GoinFawr's picture

Ever actually fired a shotgun?

Wed, 09/14/2011 - 16:49 | 1670280 Buckaroo Banzai
Buckaroo Banzai's picture

My thoughts exactly. Political risk in gold stocks is going to be huge, IMO. I don't expect governments to try to confiscate gold coins or bullion this time around... but I DO expect one (or several) of the following:

-- gold mining companies will be heavily (HEAVILY) taxed

-- gold shares will be heavily (HEAVILY) taxed

-- gold mines will be seized outright (a la Venezuela)

Don't think that gold mines can't be seized here in the US of A? Well, what do you think happened to General Motors? The same thing, more or less.

Wed, 09/14/2011 - 17:06 | 1670338 Whalley World
Whalley World's picture

Not in Canada, safe jurisdiction, great companies (especially amongst the Abitibi Greenstone Belt in Ontario/Quebec.  The Cadillac trend has pumped out more gold than you can count and Canada relies upon gold mining so, buy mid tier producers in Ontario and Quebec (well researched) and get set to hear Ka Ching

Wed, 09/14/2011 - 17:33 | 1670401 jekyll island
jekyll island's picture

The reality is that the government can tax or confiscate whatever they want.  Remember the pictures of the police in California raiding the dairy farm that sold unpasteurized milk?   Overwhelming force and guns drawn - WTF? - are the cows gonna shoot back?  

The question you should ask is WHY mining companies will be taxed and countries demand higher royalties on the production?  Because it is profitable.  If the company is profitable, stock will go higher, you will make money.  It's OK if you don't want to do it, physical gold and silver will do just fine and there is no counterparty risk.  BTW, our gold can be confiscated and capital gains tax is 28%, looks like the US Gov't has already been here too.  

Wed, 09/14/2011 - 17:48 | 1670495 NotApplicable
NotApplicable's picture

It will only be profitable though, until they are windfall taxed/royalteed to death. With the entire world expecting to live off of each other, jealousy will ensure this outcome.

The idea that the Canadian gov. (et al.) will remain "mining friendly" in the face of the rioting crowds demanding more handouts, well, that's yesterday's thinking. Once enough stuff breaks down, those attitudes will change over night.

Wed, 09/14/2011 - 22:42 | 1671630 pain_and_soros
pain_and_soros's picture

I think there are a couple of things to keep in mind on the subject of govt confiscation.

1. After the collapse of the global financial system based on paper fiat, in particular the COMEX & LBMA and the accompanying explosion in the value of bullion, I suspect the governmental & financial institutions that helped create the mess will be discredited & replaced by new political & financial institutions that won't be permitted to engage in fractional reserve bullion banking, etc. but instead will be much more bullion (i.e., honest money) friendly

2. Gold will become national currency (or at least back the paper/electronic) - so governments will want to encourage gold mining simply to increase domestic wealth vis a viz other countries (as Sprott says, gold miners will literally mine the world's reserve currency out of the ground). Taxing them to death or confiscating them would turn them into inefficient, bureaucratic arms of the government, which would be counterproductive & vehemently opposed by voters who would have a very different view of gold & see domestic gold deposits as a national treasure to be used for the benefit of everyone.

It is possible that dictatorial governments may try to confiscate, but I suspect the transformation of the global financial system after collapse of the current one will change a lot of perceptions about gold among those who consider it nothing more than a barbarous relic to the point where they may not take confiscation lying down...

Thu, 09/15/2011 - 01:28 | 1672056 jekyll island
jekyll island's picture

Two very good points,  P&S.  I would add that almost all the new discoveries are done by junior miners who are then bought by the big boys.  If a country did confiscate all the mines, they would get the reserves of the working mines, but no explorer in their right mind would come and invest millions to prove up a new resource and have the government take it away.  What would happen is that the proven reserves would go to the government but they would not be replaced and the mining industry would quickly dry up.  Countries like Peru and Mexico where a significant percentage of the countries GDP is tied to mining may initially benefit from nationalization but it would deteriorate into riots as the working mines reach the end of their lifecycle and are not replaced. Tens of  thousands of workers would be out of a job and have hungry families.  It would be an interesting case study to see what countries would realize how important a healthy mining industry is to their nation and act to protect it.  My opinion is that countries would impose higher royalties (taxes) rather than overt nationalization, in fact many analysts are factoring this into their future projections.  Mining industry CEOs obviously don't like it, but being awash with cash does make them a fat target for increasing government revenue and they will pay it.  

Wed, 09/14/2011 - 17:49 | 1670503 Solaxun
Solaxun's picture

Yah, um, except GM wasn't profitable and was not "confinscated", it was bailed the fk out.

 

Do you guys all feed off eachothers bullshit without doing any thinking?  When is the next asshat going to say "PM's, bitchez!".... so i can bitchslap them?

Wed, 09/14/2011 - 16:43 | 1670255 scatterbrains
scatterbrains's picture

I'd like to see China or some other sov. wealth fund come in with a hostile take over of one of these miners to really light a fire under this sector... any chance of something like that happening ?

Wed, 09/14/2011 - 16:48 | 1670264 GeneMarchbanks
GeneMarchbanks's picture

Bolivia could nationalize its silver mines along with several Latin American countries. South Africa could start taxing exports of platinum. Anything could happen...

Wed, 09/14/2011 - 17:14 | 1670359 NotApplicable
NotApplicable's picture

Wow, I had to go this far down the thread to find the word nationalization. I don't understand why people like Sprott (and my favorite 'which-dictator-is-mining-friendly' analyst, Doug Casey) fail to consider this when it is obvious gov's around the world will seize these assets in order to secure funding for bread and circuses.

Let's see, administration X is staring at inevitable bankruptcy, paper currency is collapsing, yet there are national assets just sitting there for the taking. But no, somehow I'm supposed to believe that miners not named Barrick or Anglogold will be allowed to profit during this time?

Riiiiiiiiiiiiggggggghhhhhhht!

They will be beaten about the head with the Socialism stick until they too, succumb.

Wed, 09/14/2011 - 18:21 | 1670687 MrSteve
MrSteve's picture

Guys, with all the unknown geopolitical factors compounding with all the uncertain sunrising crossover credit-market contagion dilemmas, you know the average investor must be diversified: that means GDX and GDXJ.

I worry more about the wolves taking in fleets of fleece in the home-job Vancouver market, now being ghosted by BOM sponsorship and indexing operations.

Do stocks still get watered so their current holding investors get soaked? Excuse me, the term now is "diluted", an upgrade from when they were formerly "raided". Didn't ABX have a huge forward overhead load due to gold "leases"? There are at least as many ways to devalue gold shares as there are for any other paper currency.

The strategy of rolling profits from paper into physical is older than Gresham's Law. Coin traders, dealers and collectors trading in bullion and coins have always kept "upgraded" profits stored in more valuable, numismatic quality rare coins. Paper is for trading.

I  really miss Giant YellowKnife, my old favorite Canadian gold stock.

The gold boom won't go to bubble phase until the "colored gemstones as a store of wealth strategy" starts getting pitched to "gold investors". Watch for it, it's part of the food chain with sheep, wolves, then ravens and buzzards.

 

Wed, 09/14/2011 - 21:10 | 1671362 Al Gorerhythm
Al Gorerhythm's picture

Trust is conditional on a government's honor in dealings with its citizens, judicially and monetarily. Not much love coming from citizens on this thread for them.

Wed, 09/14/2011 - 16:48 | 1670273 SilverIsKing
SilverIsKing's picture

Any big acquisition would be a game changer and perhaps could sound the gun for nationalization of mines.  Not just in the U.S.

Wed, 09/14/2011 - 17:07 | 1670343 Life of Illusion
Life of Illusion's picture

 

 

What’s  the top 3 potential companies?

Names anyone??

 

Wed, 09/14/2011 - 22:03 | 1671517 mc_john
mc_john's picture

three juniors with big potential are pretium reources, hellix ventures and abbington resources

Wed, 09/14/2011 - 22:11 | 1671549 mc_john
mc_john's picture

Agnico eagle (AEM) is the blue chip of blue chips. often said to be the best mining company in the world.

Wed, 09/14/2011 - 22:11 | 1671550 mc_john
mc_john's picture

Agnico eagle (AEM) is the blue chip of blue chips. often said to be the best mining company in the world.

Wed, 09/14/2011 - 17:49 | 1670502 Whalley World
Whalley World's picture

Ever heard of Aurillian, saw it go from .40C to $40 in a week, after talk of nationalization back to .40C

 

Wed, 09/14/2011 - 16:46 | 1670258 caerus
caerus's picture

GDX flirting with 64ish for third time (dec '10, april '11, sep '11) not surprisingly, similar behavior exhibited by shares of GDX components...i'm wary of an across the board sell-off as i am still looking for an es break but watching closely

Wed, 09/14/2011 - 16:45 | 1670259 Fate
Fate's picture

Best of luck, Herr Sprott.  Physical for me and mine.

Wed, 09/14/2011 - 18:42 | 1670783 GoinFawr
GoinFawr's picture

He is here to help thee and thine.

Wed, 09/14/2011 - 16:46 | 1670261 equity_momo
equity_momo's picture

At the risk of telling Eric how to suck a egg , this isn't 2008.

Good luck with the paper circle jerk , I understand he has to justify a fee but KISS

Wed, 09/14/2011 - 16:49 | 1670277 Bicycle Repairman
Bicycle Repairman's picture

'Buy gold stocks' is yet another way of saying 'don't buy physical gold'.

Thu, 09/15/2011 - 02:11 | 1670794 GoinFawr
GoinFawr's picture

No sir, 'buy gold stocks' is just another way to accumulate paper that is exchangeable for physical gold...

Not everyone is in a position to operate a placer mine, you know.

Wed, 09/14/2011 - 16:49 | 1670278 Catch-22
Catch-22's picture

"When did the cogs of fate begin to turn?"   ... in the other direction!    Back to paper now???

Wed, 09/14/2011 - 16:51 | 1670282 Lester
Lester's picture

Figure your shares are gonna appreciate while the world crashes and burns?  Rather doubtful any Nation ain't gonna nationalize the gold mines if they confiscate gold?

Again, the headlines are shouting at us.  Sprott probably cannot get delivery in  quantity worthwhile or is encountering heavy overhead and shepherding costs to get a deal done...  The investors who buy his shares probably won't mind.  They are chasing return on their money, still not concerned with return OF their money...

Anybody buying a PM that don't take delivery of physical is just buying another Promise To Pay. 

Not like this isn't an alarm bell either...   If you live within driving distance of your gold mine investment, then maybe in times like these you can have some confidence; otherwise, if want invest gold, buy physical.  Wonder how many are going to have that I could've had a V-8 bang forehead type moment in the weeks ahead?

Wed, 09/14/2011 - 16:52 | 1670292 Mad Max
Mad Max's picture

I want a gold stock that pays its dividends in physical gold.  Are there any?

Wed, 09/14/2011 - 17:03 | 1670331 FubarNation
FubarNation's picture

GORO

Wed, 09/14/2011 - 17:04 | 1670335 Pladizow
Pladizow's picture

Better yet, a private equity firm needs to go around nationally and gobble up all the local coin stores, and then go public.

I know they have done this with funeral homes and pawn shops.

Wed, 09/14/2011 - 17:27 | 1670395 Voluntary Exchange
Voluntary Exchange's picture

MM:

GORO is a super buy right now. Shorts have been trying to smash the stock recently with bogus press. The market is 5.3 million short on a very limited public float.  Many brokers are unable to offer more shares to short and shorts have failed several times to drive the price much lower. 

Production is growing rapidly, they are paying over a 2% dividend right now, and that is expected to grow rapidly as well. The management are major holders of the stock. It has very high instituional investor ownership that is also growing. It is possible the short attack may have been an attempt at more institutional accumulation. Even the "retail" investors in the stock hold their shares very tightly! The "weak" hands have already sold. High price earlier this year was over $31

GORO is planning to offer dividend in kind (gold or silver coins).  I strongly urge you to carefully check out this company and project its earnings into 2012, 2013 --- this stock could be over 100 in 2 years and is currently at about $21.5. Learn about the high esteem shareholders have for the management team. You better hurry though, a short squeeze could develop at any time as many sharesholders have been making their shares unavailable for lending recently in the last few days, and the shorts seem to be out of shares they can borrow.  

 

http://www.goldresourcecorp.com/

 

There is also an excellent private board with many knowlegeable posters at Yahoo groups:

 

http://finance.dir.groups.yahoo.com/group/goldresourcecorp

 

 

(disclosure, I have a very small stake: 300 shares).

Wed, 09/14/2011 - 17:49 | 1670500 Voluntary Exchange
Voluntary Exchange's picture

Forgot to mention, GORO has one of the lowest cost per ounce in the industry. It has rich mineralization of silver, copper lead AND zince in the the arista gold veins.  This year they are running about $120/oz cost so far when applying the base metal credits as cost offset. Projected cost per ounce in 2012: 0$/ounce, yes you read that right, ZERO! There is so much base metal in the deposits that they should be able to get down to 0$/ounce next year. They are one of the lowest cost structures in the industry, they have no debt, and the mine geology is some of the best for mining purposes. Just do your DD and I think you will like what you find.  This stock is still largely unknown but you best hurry. Amex: GORO

Wed, 09/14/2011 - 18:00 | 1670573 FranSix
FranSix's picture

GORO will likely prove a swindle.  The shorts have done their homework. Stop pumping.

Wed, 09/14/2011 - 20:24 | 1671187 Central Bankster
Central Bankster's picture

Even though I posted the 10k filing as a negative, I think its unfair to say the shorts "know" something.  There are several high quality miners out there with huge short interests:  Hecla Mining for example.  Zero debt, huge cash flow and a large proven deposit.  As with every company.  Do your own due diligence and read the filings.  There is always the risk that the filings are inaccurate or fraudulent, but that is the speculative nature of paper investments.

Thu, 09/15/2011 - 01:19 | 1672040 FranSix
FranSix's picture

Bear in mind that I cannot provide any form of financial advice and that my opinion does not constitue financial advice in any way.

Sorry, I used to be a GORO fan.  Not any more.  The shorts have done their due dilligence on the company, providing detailed analysis of the 10K reports.

I'm personally dismayed, because a hint of falsehood in the reporting of a gold mining company anywhere is bound to reflect badly on the whole industry.  But any company that claims they are a gold miner with zero costs when they're actually a silver miner are to be scrutinized very closely.  

The shorts may be correct for the wrong reasons, because GORO has outperformed gold considerably and is bound to have a correction, solely based on the overvalued share price.  I presume this is as a result of the mania in silver prices and not related to gold.

http://seekingalpha.com/article/289368-will-goro-ever-find-that-magic-pot-of-gold

Google Search On GORO story:

http://ow.ly/6uTKY

 

 

 

Thu, 09/15/2011 - 08:24 | 1672180 Voluntary Exchange
Voluntary Exchange's picture

This is what I meant by bogus press. Yes the shorts are very nervous right now, find out why. AS above stated do your own due dillegence.  When big money wants in, some of them often want to cheat the little guys, and you get nasty stuff like the above disinfo. (Welcome to wallstreet, where the press is the "tool" of the super rich).

AS I stated above, institutional investor's holdings are increasing, and there are good reasons for that. The largest institutionals have had their own geologists on site. They are satified to remain in the stock. That should tell you something. I have evaluated the bad "press" and I have remained in as well (with my entire gold miner stock investment - modest as it is).  But again do your own DD, I also am not claiming to be a financial adviser and so I can't give you investment advise either, you should base your decision on  your own reseaserch, consultation with your advisers, and sec fililings.

 

I think the reason GORO had outperformed before the short attack  was because of sharholder's trust in management - due to past personal experience, size of resource that is projected at 8 years and could easily double with  only 1 percent of properties explored, the stated and proven track record being very stock holder friendly and of paying 1/3 of gross as dividends, and very importantly such low cost means you command the appropriate premium. But at the price it now is at, where the shorts have knocked it down about 33%,  a great value (in my opinion). 

Thu, 09/15/2011 - 09:19 | 1672727 Voluntary Exchange
Voluntary Exchange's picture

FS, the cost structure is not misrepresentation. Just their gold deposit alone is economicly viable given their scale of operation and justifies the name.  They just hapen to have a very large amount of silver, copper, lead and zince as well.  You want to gripe about that?  One of their deposits up north is mostly gold based on dollar value (El Ray) and they will be going into production shortly on that, trucking it down to the main mill and using the presently idle agitated leach circuit for additional boost to production.  So you want them to pretend they don't have any gold rich deposits?Look at their drill results, and look at the grams/ton, the Gold designation of the company is clearly justifiable.  (See http://www.goldresourcecorp.com/project-er.php). I am sorry you fell for the short attack con job if you sold at the wrong time. Who's fault would that be? Why not look more carefully, figure out if you made a mistake, and act acordingly given the lower price today?

Were you a stock holder and did you buy high and sell low?  If so you have only yourself to blame and I hope you learned a valuable lesson about Wall Street.  It cost me quite a bit to learn a similar lesson.  I am still kicking myself for net getting my orders filled for a thousand shares of GORO at about $11 (failed by a few pennies) about 14 months ago mostly due to crappy execution by my broker (Etrade) on a then  BB stock and ended up being taken to the cleaners shorting the wrong company just before the FED detonated their QE bomb, instead of going back to GORO and bidding a little more a few days later. I learned something from that too about foolish stubbornness wanting to dicker over pennies and ETRADE trying to screw me on the spreads on a BB stock! I decided to wait till AMEX listing went through for GORO (big mistake). 

Thu, 09/15/2011 - 14:22 | 1674147 FranSix
FranSix's picture

GORO's share price is overvalued when divided by gold.  And its a silver miner, not a gold miner.

You're a pumper.

Wed, 09/14/2011 - 19:29 | 1670992 Central Bankster
Central Bankster's picture

From the SEC 10K filing I copy and pasted this disclosure on GORO:  http://www.sec.gov/Archives/edgar/data/1160791/000107997311000188/goro_10k.htm

 

ITEM 1A. RISK FACTORS
   This report, including Management's Discussion and Analysis of Financial Condition and Results of Operation, contains forward-looking statements that may be materially affected by several risk factors, including those summarized below: Risks Relating to Our Company    We have incurred substantial losses since our inception and may never be profitable. Since our inception in 1998, we have never been profitable, and we have very limited revenue from operations. During the fiscal years ended December 31, 2010, 2009 and 2008, we have reported net losses of approximately $23.1 million, $34.1 million, and $26 million, respectively. We had an accumulated deficit of approximately $97.9 million as of December 31, 2010. We expect to continue to incur losses unless and until we generate sufficient revenue from production to fund continuing operations including exploration and development costs. There is no assurance we will be profitable for any quarterly or annual period. Our failure to report profits may adversely affect the price of our common stock and you may lose all or part of your investment.    We have no proven or probable reserves, and any funds spent by us on exploration or development could be lost. We have not established the presence of any proven or probable mineral reserves, as defined by the SEC, at any of our properties. In what is known as Industry Guide 7, the SEC has defined a “reserve” as that part of a mineral deposit which could be economically and legally extracted or produced at the time of the reserve determination. Any mineralized material discovered or produced by us should not be considered proven or probable reserves.  In order to demonstrate the existence of proven or probable reserves, it would be necessary for us to perform additional exploration to demonstrate the existence of sufficient mineralized material with satisfactory continuity and then obtain a positive feasibility study. Exploration is inherently risky, with few properties ultimately proving economically successful. Establishing reserves also requires a feasibility study demonstrating with reasonable certainty that the deposit can be economically and legally extracted and produced. We have not completed a feasibility study with regard to all or a portion of any of our properties to date. The absence of proven or probable reserves makes it more likely that our properties may never be profitable and that the money we have spent on exploration and development may never be recovered.   Since we have no proven or probable reserves, our investment in mineral properties is not reported as an asset in our financial statements which may have a negative impact on the price of our stock. We prepare our financial statements in accordance with accounting principles generally accepted in the United States of America and have reported substantially all exploration and construction expenditures as expenses until such time, if ever, we are able to establish proven or probable reserves, and expect to continue that practice in the future. If we are able to establish proven or probable reserves, we would report development expenditures as an asset subject to future amortization using the units-of-production method. Since it is uncertain when, if ever, we will establish proven or probable reserves, it is uncertain whether we will ever report these types of future expenditures as an asset. Accordingly, our historical financial statements report fewer assets and greater expenses than would be the case if we had proven or probable reserves, which could have a negative impact on our stock price. Estimates of mineralized material are based on interpretation and assumptions and may yield less mineral production under actual conditions than is currently estimated. Unless otherwise indicated, estimates of mineralized material presented in our press releases and regulatory filings are based upon estimates made by us and our consultants. When making determinations about whether to advance any of our projects to development, we must rely upon such estimated calculations as to the mineralized material on our properties. Until mineralized material is actually mined and processed, it must be considered an estimate only. These estimates are imprecise and depend on geological interpretation and statistical inferences drawn from drilling and sampling analysis, which may prove to be unreliable. We cannot assure you that these mineralized material estimates will be accurate or that this mineralized material can be mined or processed profitably. Any material changes in estimates of mineralized material will affect the economic viability of placing a property into production and such property’s return on capital. There can be no assurance that minerals recovered in small scale metallurgical tests will be recovered at production scale.
Thu, 09/15/2011 - 04:15 | 1672247 Voluntary Exchange
Voluntary Exchange's picture

 

The above losses cited  prior to 2011 are backward looking, not forward looking.  You expect a loss until you get to substantial production levels. CB you do know that's how start up mining projects work at the start don't you?! So should I not conclude you are citing currently irrelevant negatives to create the appearance of negativity when we shareholders are well aware of the present and have confidence in the future? This is what I call slanted posting, no profits till you ramp up production is STANDARD for new miner startups. You should know that, or you have no business posting backwards looking statments as a basis for current or future expectation. 

Yes, last year they had losses as they were just begining commercial production and still ramping up production and due to no 43-101 yet - because of accounting rules, they were booking as expense many items that other companies would capitalize  (the 43-101 is being worked now and may be out as early as year end).

A 43-101 is a major cost for a startup miner and can delay initial production a year or more. Managment and initial investors were confident in the geology and the company's drilling results and thus were quite willing to go forward and generate cash flow first in 2010 to help finance the company going forward before going to the added expense of the 43-101 statement. Again major long term backers of management, both outside and inside institutions, were well aware of this strategy and why it makes sense given the start up size and the confindence in their own on site geology and drilling work. Now that the cash is rolling in the 43-101 is coming out to further expand the investor community into the Canadian exchange, and to benefit from the capitalization accounting that they will eventualy  be replacing for the substantial developmental expensing they have been incuring at the start due to no outside resource certification. Yes no 43-101 is a risk factor. One way an investor can mitigate that risk is by going on site and doing their own geology and DD. The key start up investors did this. They are not fools.  The currently increasing institutional investors are not fools.  They know what they have.  If you do your own homework you will see why some of the predatory institutions have reasons for trying to shake out the weak hand's stock with coordinated short attacks and slanted postings such as the above. 

If you look at 2011 there has been a huge increase in revenues and they are profitable, based on their quarterly filings. This, I think,  is why shareholders familiar with the stock and it's management bid it up to over $31 recently. Because of the future and present, not because of the past. 

You have to decide what risks you can live with. But if you want GORO in the $20-$25 , I think it is highly unlikely you will get it after the 43-101 comes out. Then it will be too late. Given the other positives, the stock will be out of the twenties for good. If you want greater returns, you have to do a lot of work and get the correct miners before production, or as production is in the early phases proving out its potential. Once everyone else can see the quality without much digging, it will be too late and most of the price rise will be factored in already in the stock price.  

Thu, 09/15/2011 - 15:00 | 1672290 Voluntary Exchange
Voluntary Exchange's picture

Those wanting to see the recent institutional ownership increases in GORO can go here:

 

http://www.mffais.com/stock/gold-resource-corp.html

 

This alone should peek the interest of inquiring minds!

Wed, 09/14/2011 - 21:57 | 1671498 mc_john
mc_john's picture

AEM pays a dividend

 

Wed, 09/14/2011 - 16:56 | 1670304 kito
kito's picture

here is a guy warning the worlds banks are on the brink, intimating a total meltdown of the financial system, and he wants us to buy equities? i mean, really!? 

Wed, 09/14/2011 - 19:33 | 1671009 Central Bankster
Central Bankster's picture

The world isn't going to end just because you're rightly bullish on precious metals.  If you have any common sense you will see that there is speculative merit to owning massively undervalued, proven reserves in the ground as a complimentary position to physical metals.

Thu, 09/15/2011 - 01:43 | 1672079 falun bong
falun bong's picture

check out gold stock performance during the great depression fer chrissakes...

the two are not mutually exclusive

Thu, 09/15/2011 - 11:54 | 1673603 passwordis
passwordis's picture

"here is a guy warning the worlds banks are on the brink, intimating a total meltdown of the financial system, and he wants us to buy equities? i mean, really!? "

 

 Yes, Really and it makes complete sense!  

 

Gold and silver do not appear magically out of thin air. It needs to be located and extracted and the companies that do this will likely expand and grow.    Buying stock in mining companies is EXACTLY what I would expect  someone who is "warning the worlds banks are on the brink" to do.

 

 

Wed, 09/14/2011 - 16:57 | 1670307 Bokkenrijder
Bokkenrijder's picture

So for Sprott it's obviously all about the fiat. He doesn't care about the physical, he switches to goldstocks because he figuers he can make more fiat that way.

Fiat bitchezzzz?

Wed, 09/14/2011 - 17:02 | 1670324 kito
kito's picture

yep, his true colors shining through...... and it aint gold and silver, seems more like hues of green................

Thu, 09/15/2011 - 11:45 | 1673566 passwordis
passwordis's picture

  You guys don't understand what Sprott does. He never cared about Gold for Gold's sake. He is an INVESTMENT manager. His job is to make MONEY (not gold) for his clients. Fiat is the medium of exchange. Know one here cares about Gold for gold's sake. We hope Gold goes up so we can trade it for fiat and buy things.

 Everyone here who owns gold or silver in any form, owns it for the exact same reason that Sprott owns it. -- To make money. Even if you believe that the dollar is about to implode and gold will act as money, you are still holding gold to make money. Even if you think WW3 is around the corner and gold and silver will be used to barter... You are still buying gold and silver now in order to increase your buying power.

  I'm not buying stocks because I don't know the first thing about which ones to buy and I honestly don't have the wherewithal to research it but if the price of gold/silver keeps rising, someone is going to make a fortune in stocks, that's a guarantee. 

I like owning physical because it's secure, safe, private, simple to buy and easy to count.

Wed, 09/14/2011 - 17:15 | 1670366 Bokkenrijder
Bokkenrijder's picture

So what will happen to gold when Sprott starts to sell his physical and the other guy (Paulson) needs to sell as well to cover his Sino Forrest losses?

Will there be a rush to the exit?

Wed, 09/14/2011 - 18:15 | 1670658 arkel
arkel's picture

You're buying stock in the company, not fiat. Just because it's priced in dollars does't mean it's fiat. 

We price gold in dollars, but is gold fiat?

I'm surprised at all the negativity in gold stocks. Sure, there is risk of nationalization, but they could confiscate gold too. Do you not buy it? 

And for the people who say they nationlized GM as an arguemnt to not buy PM stocks, they did that because they GM was bankrupt, not because they were too profitable.

I'm not saying physical should not be your core postion, but dabbling in PM stocks, especially at these values, sounds prudent to me.

Thu, 09/15/2011 - 12:03 | 1673652 passwordis
passwordis's picture

 And you don't want fiat, correct?

You and me and everyone here is after whatever it is that will buy us things.  Fiat will buy you things for the next few years at least. Gold is not going to buy you anything. 

  I have no sentimental relationship with gold or silver and you are fooling yourself if you think you do.  The medium of exchange is fiat.  When gold hit/s $10,000 and silver $1000 people here won't be able to sell their stuff fast enough.  You're only holding physical so you can get more fiat later and buy stuff.

 

 

 

 

 

 

Wed, 09/14/2011 - 17:00 | 1670314 Piranhanoia
Piranhanoia's picture

Shorter version;  We can't find any more above ground supply.

Wed, 09/14/2011 - 18:26 | 1670706 Hephasteus
Hephasteus's picture

Even shorter version. Hostile takevoer of your mining bitches bitchez.

Wed, 09/14/2011 - 17:01 | 1670315 FubarNation
FubarNation's picture

Jesus, Juniors?  I mean I usually like what Sprottecks has to say but......

 

http://www.youtube.com/embed/Jc7lPwfQAKk

 

Not sure he and his shareholders will be happy as little girls though.

Wed, 09/14/2011 - 17:02 | 1670322 Habspurg
Habspurg's picture

So the miners fell behind the metal during the equity crash of 2008. Time to get behind them for equity crash of 2011? No thanks.

Wed, 09/14/2011 - 17:03 | 1670329 Corn1945
Corn1945's picture

I'm not sure I trust our broken markets to price the gold stocks correctly.

Wed, 09/14/2011 - 17:06 | 1670339 monopoly
monopoly's picture

No, no.. Stay away from paper gold, but buy physical on dips for wealth protection. I too have a bunch of miners and when fortunate and they move up nicely I take some off and purchase more physical. I try to balance both and it has worked well so far.

This article just confirms my long standing convictions. I sleep well at night knowing I don't give a shit what happens to BAC or the rest of the thieves in the den.

Wed, 09/14/2011 - 17:06 | 1670340 Richarda2
Richarda2's picture

Phyical AG/AU offers no counter party risk , no ones knows you have it and allows one operate outside of the "Grid".

I always question when a figure with lots of attention talks there position,they ussually have another angle they are working.

 

Ricka2

Wed, 09/14/2011 - 17:08 | 1670349 Segestan
Segestan's picture

Sprott is correct. Mines will be the source of real money. Physical of course is great,  but supply must come. Nationalization won't happen that would destroy production and a whole industry.

Wed, 09/14/2011 - 17:13 | 1670358 Catch-22
Catch-22's picture

"Nationalization won't happen that would destroy production and a whole industry."   

Wow, where have you been...?

Wed, 09/14/2011 - 17:37 | 1670434 NotApplicable
NotApplicable's picture

Driving to Citibank in his new Chevy Volt?

Wed, 09/14/2011 - 17:54 | 1670544 FranSix
FranSix's picture

I don't think nationalization of the mines is the huge issue ppl. make it out to be.  Permitting issues are huge, much bigger than any nationalization concern, imo.

Wed, 09/14/2011 - 18:06 | 1670614 Segestan
Segestan's picture

Nationalization is nonsense; sure some tin head dictator might try it, but in the real world a none starter.

Wed, 09/14/2011 - 18:36 | 1670747 honestann
honestann's picture

Every single country on earth is now controlled by "tin headed predators".  Thus nationalization (or something even worse) is quite possible, even in the USSA and Canada.  Not this year, but within 2~5 years, definitely possible.

Wed, 09/14/2011 - 18:39 | 1670767 FranSix
FranSix's picture

No, nationalization is nowhere near a possibility either in the U.S., Canada, Austraiia.  But it has already happened in countries run by tin pot dictators.

And it might be possible in South Africa.  Check your facts.

Wed, 09/14/2011 - 20:50 | 1671292 honestann
honestann's picture

Check YOUR facts.  The relevant facts are not what you claim.

Consider this factoid:  gold is an element on the periodic table, a simple, inert metal with extremely little crucial or military application.  Yet in 1933 the federal government STOLE every ounce of gold coins from everyone in the USSA.  No precident.  No valid justification.  They just did it.

To turn around and claim that today, when the predators are INFINITELY more arbitrary and powerful, that "nationalization cannot happen"... is 100% pure self-deception.  Period.

We can argue about probabilities alright, but not about the possibility.

Thu, 09/15/2011 - 01:36 | 1672067 FranSix
FranSix's picture

I understand.  

Americans are dismayed and deeply and personally embarassed at the corruption of capitalist ideology with distorted policies of social democracy in nationalizing the banks in your country privatizing profits for the few and socializing debt for the many.  What's even more embarassing is that it all happened under the supposedly watchful eye of a Republican president.  

Fortunately for Americans, they have choices where to invest and can invest in neighbouring countries which have the mines and are not subject to American legislators. Newmont is a very strong example of taking advantage of NAFTA and investing in viable mining projects north of the border.

But, unlike the banks, gold companies have survived the downturn, consolidated properties and initiated production without any assistance from governmental institutions and on their own dime.

From my perspective, there is ZERO possibility that gold mines will ever be nationalized.

ZERO

Thu, 09/15/2011 - 20:52 | 1675706 honestann
honestann's picture

IF that was up to the gold companies, of course.

But it is up to the predators-that-be, who are utterly unconstrained PREDATORs.  If you think you can trust utterly uncontrolled predators, you are delusional.

But I sure hope you are correct.

Wed, 09/14/2011 - 18:39 | 1670769 Segestan
Segestan's picture

So you're saying global mine nationalization? They can't agree on lunch and armies are for war. No way.

Wed, 09/14/2011 - 20:46 | 1671274 honestann
honestann's picture

Maybe.  But no, I wasn't saying "coordinated global nationalization".

I was saying any ONE might nationalize mines, or do something of similar effect that technically isn't nationalization (require to sell only to government at some fixed price in fiat paper).  In other words, NO government is trust-worthy now.

I don't expect this to happen in the USSA or Canada until those dollars start falling against gold in a much more dramatic way.  Then it very well might.

Wed, 09/14/2011 - 17:49 | 1670498 Segestan
Segestan's picture

Wow... I guess you don't understand Fiat death?

Wed, 09/14/2011 - 19:41 | 1671042 DosZap
DosZap's picture

Segestan,

Nationalization won't happen that would destroy production and a whole industry.

And, jus ask'in, since when did WE give a shit,(The head dik?).

He's made it a national sport.When a group of SBO's were asked what can WE do to help you create jobs?, the answer was Wonderful.

GET OUT OF OUR WAY!.

Since that will never happen (unless the Lord smiles on us) and we get the Destroyers removed,look for more and more destruction of the Upper/Middle class.

Wed, 09/14/2011 - 17:14 | 1670361 Sgt.Sausage
Sgt.Sausage's picture

Nationalization, bitchez.

Wed, 09/14/2011 - 17:15 | 1670363 mc_john
mc_john's picture

pretium resources - barron's article 9-10-2011

 

Is There Gold In Them Thar Hills? By ROBIN GOLDWYN BLUMENTHAL

Feature | SATURDAY, SEPTEMBER 10, 2011

 http://online.barrons.com/article/SB500014240527023042514045765569723093...

Wed, 09/14/2011 - 17:18 | 1670369 hunglow
hunglow's picture

She likes the hard stuff, who am I to complain.

Wed, 09/14/2011 - 17:21 | 1670377 free_as_in_beer
free_as_in_beer's picture

Public companies are run for the benefit of management, not shareholders.

Wed, 09/14/2011 - 17:28 | 1670396 Sequitur
Sequitur's picture

Beware deflation. I continue to see this as a risk across all asset classes, including gold/silver, and more now than I envisioned even as of last week. I fully expected homes to decline further, stocks/bonds to sell off, etc. But some of this deflationary pressure may hit gold at these levels as well. No harm in taking at least a little profit at these levels.

Wed, 09/14/2011 - 18:53 | 1670817 jimmyjames
jimmyjames's picture

Beware deflation. I continue to see this as a risk across all asset classes, including gold/silver, and more now than I envisioned even as of last week. I fully expected homes to decline further, stocks/bonds to sell off, etc. But some of this deflationary pressure may hit gold at these levels as well. No harm in taking at least a little profit at these levels.

***********

Deflation is a decrease the money and credit supply and we are certainly seeing a decrease in the credit side of it-

If you believe Gold is money like I do-it only makes sense that Money should do well in any Deflation-

It did marvelous in the last Deflation-i hold Gold because of Deflation-

http://bit.ly/huHhx1

http://bit.ly/dJaHAY

 

Wed, 09/14/2011 - 17:38 | 1670439 Internet Tough Guy
Internet Tough Guy's picture

Gold comes back to the center of the monetary system at much higher prices. Mines get nationalized because private companies aren't allowed to print money. Sprott so sad then. :(

Thu, 09/15/2011 - 13:52 | 1670852 GoinFawr
GoinFawr's picture

He'll always have Canada....lol, nothing is impossible, but can you even imagine a scenario where Canuckistan would nationalize anything? With the Bilderbergian Cons in the majority 'til at least, what, 2014? Bonne Chance! 

Trudeau's 'Liberals' attempted to nationalize their energy program awhile back, how did that go? Oh right, now they pay more per gallon right where they pull it out of the ground than you pay almost anywhere in the US. Hell, as I type this the Harper Cons are far along the process of completing a deal with smirking Europeans that will sell the rights to Canadians' fresh water right out from under them, undermining their sovereignty in the process; Bolivia style. 

No, I wouldn't worry too much about Canadian oligarchs suddenly deciding their polite colony of debt/wage slaves are more important than foreign investors anytime soon, regardless of geopolitical events.

JMHO

Wed, 09/14/2011 - 17:39 | 1670441 FranSix
FranSix's picture

The whole problem within the bullion markets is that the gold has to be mined, refined and sold into the market before it can be swapped out or confiscated.

Looking at the GDXJ portfolio, these ppl. seem to have a very good idea just where to place their bets.

The banks are now in the business of poaching mining expertise:

http://business.financialpost.com/2011/09/13/cibc-reaches-out-for-mining-expertise/

 

Wed, 09/14/2011 - 17:40 | 1670448 Undecided
Undecided's picture

Anyone know why TXG.to is getting killed...looks like a good entry point.

Wed, 09/14/2011 - 17:44 | 1670471 bigelkhorn
bigelkhorn's picture

Gold is the hottest commodity in the market now a days...Since 2008 , it doubled in the value as compared to Equirties...And as US credit ranking was downgraded , people started hunting for the safe havens which is obviuosly the gold,,,which will give assured returns woithout much of a risks like those in equities

To avoid the risks, I follow http://www.forecastfortomorrow.com/ they give an accurate predictions about the market and other happenings

Wed, 09/14/2011 - 17:47 | 1670488 DosZap
DosZap's picture

Sprott,

Lost me @ "and if these companies hit their production targets"

Juniors are notorius at circumcism,PLUS, Sprott is a Multi Billlionaire.

Sadly, I am not quite at his RISK level.(meaning losing my ass).

Surely he is NOT out of Physical, if he is(exept for his G & S Funds),which are not his,but shareholders, he is making a sad statement.

Wed, 09/14/2011 - 17:48 | 1670494 zerozulu
zerozulu's picture

I did not read the article. I believe one in hand is batter than two in the bush.

Wed, 09/14/2011 - 17:58 | 1670558 xtop23
xtop23's picture

I did enjoy reading the end of the 3rd paragraph ......"pulling the world's reserve currency out of the ground".

Wed, 09/14/2011 - 18:14 | 1670654 Belarus
Belarus's picture

This all means sprott's expecting an 80-90 bagger in silver stocks, right? he just said silver could go as high as 1200 an ounce for a 40 bagger. 

Let's hope so. : - )

 

 

Wed, 09/14/2011 - 18:16 | 1670662 lolmaster
lolmaster's picture

That's nice ... Until the local banana boys seize the gold/levy taxes.

Looks like Sprott will go BK Paulson style on this one

Wed, 09/14/2011 - 18:44 | 1670689 honestann
honestann's picture

I respect Sprott, and believe everything he says based upon normal history.  And I made some really good gingle when I purchased CGR in late 2008 for under $0.20 per share and sold at about $2.50 a few months ago, so I know great profits on PM stocks is possible.

However, I no longer trust paper ANYTHING, including paper stocks, even when a company is mining physical gold at ever-higher prices.  Consider this.  The reason I was able to purchase tens of thousands of CGR shares at $0.20 was... because they price got absolutely TRASHED when the overall stock market got clobbered in the financial crisis.

Now that the world economy is headed over the edge of an even bigger cliff, the chances of such an overwhelming collapse in PM stocks is... significant.  Therefore, I have decided to remain 95% to 100% in physical gold and silver indefinitely.  By "indefinitely" I mean "until the world goes back on the gold standard", or "the purchasing power of gold becomes so utterly insane that prudence forces me to switch to undervalued physical assets".

To be sure, if the stock market totally collapses and PM stocks drop by a factor of 10x to 100x, then I would convert 5% to 20% of my gold into gold stocks.  We'll see how it works out.  At this point, I need to be offered enormous potential to accept any paper asset or counterparty risk.  This is my decision, and I'm on record again.  We'll see how this works.  I am comfortable with this decision.

Sprott might be right, but I won't be wrong... if you get my point.

Wed, 09/14/2011 - 18:54 | 1670824 DeltaDawn
DeltaDawn's picture

Sounds like some level-headed thinking to me. What do you think of GoldMoney?

Sat, 09/17/2011 - 20:18 | 1670867 honestann
honestann's picture

What I've heard sounds okay, but honestly I haven't looked carefully enough to be confident. 

But I am very clear that every company on earth will do whatever the government tells them to do, regardless of whether it is unethical or not, even when the owners want to be ethical.

Thus I tend to be incapable of trust in anything but real, physical goods under my direct control (hidden where nobody will ever find them in a trillion years --- GPS is a wonderful technology, hint, hint, hint).

Wed, 09/14/2011 - 19:22 | 1670958 DosZap
DosZap's picture

DeltaDawn ,

Gold Money?.

Like Bullion Vault.

READ the fine print.

Cannot stress it enough.

Wed, 09/14/2011 - 22:12 | 1671553 pain_and_soros
pain_and_soros's picture

GoldMoney & Bullion Vault only make sense if you have some serious coin since their monthly storage & conversion charges will eat small shrimps alive. You pay those storage & conversion charges in kind, i.e., in gold or silver (minimum 1.2 grams/year for storage & you get dinged 4 grams on converting goldgrams into a 100g gold bar, which is the minimum amount you can take for delivery). And if you store some in Zurich, London & Hong Kong, you get dinged with separate minimum storage charges for each location.

May not be a bad option if you already have enough physical in your possession & looking to diversify location of your holdings

Wed, 09/14/2011 - 18:27 | 1670716 Habspurg
Habspurg's picture

I fail to see what the big deal is about Eric Sprott. I don't need a guru to tell me why gold is important. Nor do I need PHYS to help me invest in it, when GTU is better established and trading closer to NAV. Hey, who wants to buy some molybdenum?

Wed, 09/14/2011 - 18:31 | 1670728 WilliamShatner
WilliamShatner's picture

Been doing the same here, sold a bit of my physical holdings when bullion prices went nutso (sold around 1875) and have been piling into my favorite mining companies.  So far NGD and Sandstorm Gold are doing the best in the past couple of months.  Also picked up some Jan '13 calls on the big miners like NEM, ABX and AEM.

So far so good.

As long as bullion prices don't fall by 20 or 30 percent these stocks will really start to make significant gains over the next 6 months.

Wed, 09/14/2011 - 18:40 | 1670765 PulauHantu29
PulauHantu29's picture

Last time Sprott announced his plan--move out of silver bullion into silver miners-- silver plunged from $49 to below $35 and the miners plunged even more. Silver bullion and miners have not recovered yet.

I am not sure the gold miners are  a better bet given the piss poor management of some of them, rising oil prices, and civil unrest in many mining locations.

The only miner I have seen perform steller is FCX.

JMHO.

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