Tag Archives: Junior mining stocks

Gold Going Higher – Mining Stocks Are Historically Cheap

It’s important to keep in mind that the mining stocks have been sold to levels well-below their intrinsic value – in the case of larger-cap producing miners. Or their “optionality” value – in the case of junior mining companies with projects that have a good chance eventually of converting their deposits into mines. “Optionality” value is based on the idea that junior exploration companies with projects that have strong mineralization or a compliant resource have an implied value based on the varying degrees of probability that their projects will eventually be developed into a producing mine.

In relation to the price of gold and silver, the mining stocks generically (i.e. the various mining stock indices like the HUI or GDX) have rarely traded at cheaper levels than where they are trading now.

Bill Powers invited me on to his Mining Stock Education podcast to discuss why the price of gold and silver is going higher and why the mining stocks are historically undervalued:

In the next issue of the Mining Stock Journal, I dissect my favorite junior mining stock ideas. These are stocks that have unreasonably sold-off and have at least 10-bagger potential. You can learn more about this here:  Mining Stock Journal information.

Mining Stocks Are Historically Undervalued

The mining stocks are more undervalued relative to the S&P 500 than at any time since 2005:

The mining stocks, especially the juniors, are more undervalued relative to the price of gold than at anytime in the last 18 years except late 2000 and December 2015. The poor sentiment and the constant price-capping of the sector by official entities has destroyed investor sentiment toward the sector. But the good news is that there are some incredible to be found right now. One of the stocks I recommended in my Mining Stock Journal is up 35% since May 17th, when I recommended purchasing it.

Bill Powers of MiningStockEducation.com invited me on to his insightful podcast show to discuss, among other topics, the precious metals sector and some specific mining stock ideas:

I truly believe that investing in certain stocks right now is the equivalent of buying into the internet stocks that survived the Dot.Com bubble. You can learn more about the Mining Stock Journal by following this link –   Mining Stock Journal information.

A Quiet Bull Market Move In The Mining Stocks

This analysis is an excerpt from the opening market commentary in my April 19th issue of the Mining Stock Journal.

I was looking at some charts with a colleague two weeks ago and was startled to discover that a very quiet bull move has begun in the miners. Like the move that began in late 2015, it seems that some of the junior miners per GDXJ have gotten the party going. As you can see in the chart above, GDXJ is up 12.8% since December 7, 2017. GDX is up 9.5% since March 1st. Some individual stocks are up quite a bit more than the indices: AEM up 18% since March 1st, EXK up 49.7% since Feb 9th, Bonterra up 25% since March 1st, etc.

The chart below is two weeks old but the bull pattern in GDX (and GDXJ, HUI, etc) has continued after a brief pullback (which in and of itself is bullish):

In my opinion, the charts in the sector are beginning to look quite bullish. I would like to see the Comex gold futures open interest drop 70-80k contracts – it was 499k as of Friday’s close. However, if a bigger move than has occurred already starts now, the big Comex banks will be forced to cover their large short position in gold futures. This will “turbo-charge” the move [in fact, per the latest COT report, the Comex banks continue to cover shorts and reduce their net short position and the hedge funds continue to dump longs and add to shorts – historically this shift in trader positioning has preceded big bull moves in gold/silver].

Silver is also starting to form a very bullish base:

Wholesale silver eagle premiums are creeping higher, as are retail premiums. Perhaps the big inventory overhang that had formed over the last year is starting to clear out. Also, silver mining stocks, especially the ones that actually produce and sell silver, have been quietly outperforming just about every stock sector (I have had a buy recommendation on a smaller silver producer since early October 2017 – the stock is up 20% since that buy recommendation (I own it) and it’s up 47% since it bottomed in December.

From a fundamental standpoint, given the deteriorating financial condition of the U.S. Government and the escalating rate of inflation and geopolitical risks, the planets are aligned for a big move in the precious metals sector.   If the banks continue to reduce their net short position in Comex paper gold – and concomitantly the hedge funds continue to reduce their net long position – then both the planets and the stars will be aligned for a move in the sector that I believe will take a lot of market observers and participants by surprise.

The Mining Stock Journal is a bi-weekly (twice per month) newsletter that offers in-depth precious metals market commentary and, primarily, junior mining stock ideas.  My goal is to find the hidden “gems’ ahead of herd.  You can find out more here:  Mining Stock Journal information.

Wow great report…by the way I have cancelled most of my precious metal subscriptions except your’s…. You do a treat job for us! – from “Robert,” received last week

The Mining Stocks Do Not Want To Go Any Lower

It feels like were at the point in the “correction” cycle in which the mining stocks are reluctantly going lower. I also believe that aggressive hedge funds looking to buy at this level are trying to push the stocks down in early trading in order to induce remaining weak hands to sell in their bids. Tuesday (March 20th) is a perfect example. Several of the stocks I own were hammered early and then snapped-back during the course of the day. As an example, USAU opened at US$1.84 but was slammed down to $1.75. It rebounded to close down only 2 cents at $1.80. This was despite sideways movement in gold after gold was hit in early morning trading.

The graph above is a 1-yr daily of the GDX. You can see that it’s been trending sideways since early February this year. You can see also that it’s managed to hold the 52-week lows on several occasions. It just “feels” like the miners do not want to get lower. Similarly, the sentiment regarding, and interest in, the mining stocks is at a low level seen at cyclical bottoms in the precious metals sector (Oct 2008, Dec 2015):

I sourced the chart at the bottom of the previous page from Turd Ferguson (TF Metals Report). It shows a timeline of Google searches on “gold mining stocks” over time.

The trading patterns and sentiment indicators are thus at levels that is typically associated with market bottoms. The best time to buy into a stock sector is when it’s at its most unloved. I would argue that were are at that point right now.

As far as the timing on when the sector will begin to take-off again, I’m loathe to assign a time-frame other than that I expect a big move to begin before the end of the summer. A subscriber emailed me to discuss the sector and expressed frustration over the fact that the enormous physical off-take in the eastern hemisphere has not stimulated a big move in gold. I responded by explaining that I’m not relying on the Chinese to squeeze the market.

I think the market will move higher on its own accord. As things fall apart more quickly in the west, gold will soar. Look at Wednesday’s FOMC rate hike event. Gold’s response to the Fed’s rate hike completely surprised me. We put on a trading hedge this morning thinking that gold would get hammered when the rate hike news hit the tape. Gold did just the opposite. This is bullish.

The commentary above is from the latest issue of the Mining Stock Journal. My goal is to find junior mining stocks with huge upside potential before the get discovered by the “heard.” You can learn more about the MSJ using this link:   Mining Stock Journal.

MSJ to the rescue! (of my mining stock portfolio). I’m up 198% currently on a significant stake @ .18 cents.
Thank you for all you do!
– Subscriber “Phil,” in reference to Mineral Mountain Resources, which I presented July 7, 2016

Almadex Minerals Is A Potential 5-Bagger

I first presented Almadex (AXDDF, AMZ.V) in the April, 14th 2016 issue of the Mining Stock Journal at 27 cents.  After announcing  on Monday an investment from Newcrest Mining in its flagship El Cobre Project, the stock traded as high as $1.31.  I present the case for Almadex to be at least a 5-bagger from here in this Seeking Alpha article just released.   As soon as I have time to analyze the new “Spinco” stock that will be spun-off from Almadex to shareholders, I’ll present a detailed analysis to MSJ subscribers.

Almadex Minerals (OTCQX:AXDDF) was formed as a spin-off from Almaden Minerals (AAU) in mid-2015. Almadex is comprised of several exploration properties plus Net Smelter Royalty interests on projects managed by other companies. The idea behind the original transaction was that the value of the parts was greater than the sum of the parts under one corporate umbrella.

The crown jewel transferred to Almadex is the El Cobre copper-gold porphyry project in Veracruz, Mexico. A porphyry deposit is a deposit in which minerals like copper, gold and molybdenum are disseminated in a stockwork of small veinlets within a large mass of hydrothermally altered igneous rock. World-class copper-gold porphyry deposits can be worth several billion dollars.

Follow this link to read the rest: Almadex Minerals Is Extraordinarily Undervalued

The Stock Market Is Setting Up For A Historic Collapse

There is no history to suggest this is sustainable. This price move remains the most extreme technical disconnect in the $DJIA ever.   – Northman Trader

The U.S. dollar has had the worst January since 1987.  There’s a lot of reasons why the stock market crashed in October 1987, but the declining dollar was one of the primary catalysts.  The rest of the world, led by China, is methodically and patiently removing the dollar as the world’s reserve currency.  The cost for the U.S. Government to fund its rapidly expanding spending deficit is going to soar. Absent the ability to print unlimited quantities of electronic dollars, the U.S. Government’s credit quality is equivalent to that of a Third World country.

Silver Doctor’s invited me to join Elijah and Eric Dubin for their weekly Metals and Markets podcast.  We discuss the issues above plus have a little bit of fun:

The cost to buy down-side protection has never been cheaper.  No one, I mean no one is short or hedged this market.  When slide starts, it will quickly turn into a massive avalanche.  You will have to be set up with hedges and short positions or you will miss the money that will be made from taking a lonely contrarian view of the market.

My subscribers who shorted my homebuilder stock idea two weeks ago are now up 17.7%. That’s if they shorted the shares. They are up even more if they used puts. If you are interested in learning how to take advantage of the coming stock market crash, you learn more about the Short Seller’s Journal here:   Short Seller’s Journal information.

Is Gold Ready To Move Higher?

The simple answer to that question is: who knows, eventually it will. I like to look at the Commitment of Traders report for signals. I think the COT offers better information than looking at charts, although I like to use my COT analysis in conjunction with charts. My fund partner keeps a database of COT gold and silver data going back to May 2005. Over this time, there’s been a strong correlation between the direction of gold, the net long position of the hedge funds, the net short position of the banks and the total open interest in gold (silver) futures.

Over this time period (Since May 2005), the total open interest in Comex gold futures has averaged 429k contracts. The hedge fund net long position in gold futures has averaged 142.8k and the bank net short position has averaged 168.1k contracts. Since 2015, we’ve had two price cycles starting with the low in December 2015. At the December 2015 low in gold, the hedge fund net long position was 9,750k contracts and the bank net short was 2.9k contracts.  The December hedge fund net long was an extraordinary low net long position and the bank net short was extraordinarily low. This makes sense given that mid-December marked the bottom of the nearly 6-year bear cycle within the secular gold bull market.

If we go back July 2016, the open interest in Comex gold has declined 206k contracts – a staggering 26 million ozs – 737 tonnes (25% worth of gold produced annually).   The Comex banks were short an eye-popping 340k contracts – 34 million ounces, or 964 tonnes of paper gold. This represents an undeniably enormous effort by the Fed via the Comex banks to cap the price of gold.

As of the last COT report (Dec 12th, the hedge fund net long was 107k and the bank net short was 119k. The overall open interest was 446k, about 20k contracts above the average open interest since May 2005.  In a “horsehoes and handgrenades” context,  we should have seen the bottom a week ago.

The open interest report thru Tuesday (Dec 19th) showed 446k open interest. Assuming most of that drop in o/i was decline in the hedge fund net long and bank net short, we should start to head higher, but don’t expect this happen continuously, in parabolic crypto-coin fashion.  The gold bubble is yet to occur.   I can’t promise that gold will move higher from here.  The best we can do is assess probabilities based on historical data relationships as they apply currently.

I want to mention briefly that Dennis Gartman has exited the long position in gold in his theoretical portfolio. Gartman’s market calls have a spectacular track record as a reliable contrarian indicator. I kid you not. This would suggest that the gold market is at or near a bottom.

Back in the September, I advised my Mining Stock Journal subscribers that I suspected the coming sell-off in gold – manipulated sell-off, of course – would take gold down to mid-$1240 area.   It hit $1241 on December 12th.  Sometimes the coin does indeed land on “heads” when I call “heads.”  I also discussed the hedge we were implementing on our mining stock portfolio and provided details on the my opinion of best way for subscribers  to hedge a junior portfolio.  The hedge easily saved us at least 7% (700 basis points) of performance this quarter.

The stock I presented in the last issue (Dec 14th) is up 12% and it’s still highly undervalued, especially given that it will start producing in late 2018.  You can learn more about this stock and subscription details using this link:  Mining Stock Journal.

The Paper Gold Price Attack Cycle Is Almost Over

As students of the gold market know, the paper gold markets in New York and London function as price manipulation mechanisms used by the western Central Banks in their effort to control the price of gold. As the physical demand from the eastern hemisphere pushes the price higher, the operators of the LBMA and Comex print large quantities of paper gold (gold futures, forwards) in order to satisfy the demand of hedge funds, which use futures to chase price momentum (up and down) in gold and silver.

Gold had been trading in a sideways pattern since mid-September between $1320 and $1260:

The graph above is derived from the Comex “continuous contract” end of day price. The continuous contract is not an actual contract. It is rather a price measure that “splices together” the front-month contracts over time for charting purposes.

As you can see, gold has formed a nice uptrend from late December 2016 that seems to have “stalled” since mid-September.  I watch the Comex gold futures open interest level and the COT “structure,” where COT structure is the big bank net short position vs the hedge fund net long position, in order to form an opinion on where I think the price of gold is headed. When the open interest in gold futures is at an extreme high level, combined with a bank net short position that is also extremely high, it almost always implies a price-takedown is coming.

Since mid-September, however, the gold futures open interest has stubbornly persisted above 500,000 contracts until the last week. Similarly, the big bank net short and the hedge fund net long positions have persisted at extremes over this time period. This is because, contrary to the “fake news” anti-gold propaganda spewing from U.S. financial media (Bloomberg and reuters specifically), physical “consumption” in the eastern hemisphere (India, China, Russia, Turkey, etc) has been unexpectedly strong.   Evidence of this is in direct data that comes from these countries and from the unusually high level of Privately Negotiated and Exchange For Physical transactions occurring on the Comex and the LBMA. These are “off exchange” contract settlement transactions that are intentionally opaque in nature.

Historically, extremes in these metrics tend to correct in much less time than the current period.   We have maintained a hedge on our mining stock portfolio for about 80% of the time between mid-September and now. We pulled it off about two weeks ago on a Friday thinking that maybe the ability of the banks to slam the market had diminished this time because of the strong physical demand from the east. Literally about 30 minutes after we took off the hedge the price of gold was slammed (I’m not kidding).

My thinking has been that, if we abide strictly by the COT and open interest, the Comex o/i needs to decline to the low 400k area before the next move higher takes place. When I “eyeballed” the gold chart in early September in the context of historical price-takedown operations, I figured it would take a move down to the $1230-1240 area to wash out enough open interest to rebalance the net short/net long set-up. But the open interest has persisted above 500k and the attacks on the gold price during the paper trading Comex hours have been short-lived in duration and shallow relative to historical intra-day attacks. The banks couldn’t  seem to get gold below $1260-$1270 until this week.

My best guess is that the unusually high demand for physical gold from the eastern hemisphere has prevented the banks from taking the price down enough to trigger one last hedge fund open interest wash-out. The 34,896 contract plunge in gold futures open interest last Tuesday (November 28) was the third largest one-day decline in o/i since the beginning of 2011 and it is a move in the right direction in order to break the “log-jam” in open interest on the Comex.

That said, the eastern hemisphere will go into temporary hibernation in mid to late December thru early January. I suspect that one last “shock and awe” price attack orchestrated in the paper market will be attempted in order to get the open interest down into the low 400k area. I thus expect the bull trend in gold/silver will resume in mid-January. We put the hedge back on this week, though we’ve been trying to trade in and out of it on price swings. In all likelihood, unless I see something that suggests otherwise, we’ll likely go through the Christmas/New Year’s period with a hedge.

One last thought, it’s going to be interesting to watch the Bitcoin bulls squirm and panic when the CME banks wrap their tentacles around Bitcoin futures.  Contrary to the untested notion that the supply of Bitcoin is capped, the supply of paper Bitcoin (futures contracts) is theoretically infinite…

The commentary above is from IRD’s Mining Stock Journal, which focuses on undiscovered gold and silver junior exploration stock ideas as well as presents relative value trading ideas in mid-cap mining stocks.  You learn more about this newsletter hereMining Stock Journal Information.

I wanted to thank you again for explaining to me how you put a hedge on it has saved me a great deal of money  – subscriber feedback received this morning

The Big Money Grab Is “On” As Middle America Collapses

The stock market rejoices the House passage of the tax “reform” Bill as the Dow shot up 187 points and the S&P 500 spiked up 21. The Nasdaq soared 1.3%, retracing its 3-day decline in one day. The tax bill is nothing more than a massive redirect of money flow from the Treasury Department to Corporate America and billionaires. The middle class will not receive any tax relief from the Bill but it will shoulder the burden of the several trillion dollars extra in Treasury debt that will be required to finance the tax cuts for the wealthy. The tax “reform” will have, at best, no effect on GDP.   It will likely be detrimental to real economic output.

The Big Money Grab is “on” at the highest levels of of Wall St., DC, Corporate America, the Judiciary and State/local Govt. These people are grabbing from a dying carcass as fast and greedily as possible.  The elitists are operating free from any fear of the Rule of Law.  That particular nuisance does not apply to “them” – only to “us.” They don’t even try to hide their grand scale theft anymore because the protocol in place to prevent them from doing this is now on their side. This is the section in Atlas Shrugged leading up to the big implosion.

“When you see that money is flowing to those who deal, not in goods, but in favors–when you see that men get richer by graft and by pull than by work, and your laws don’t protect you against them, but protect them against you–when you see corruption being rewarded and honesty becoming a self-sacrifice–you may know that your society is doomed.” – Atlas Shrugged

Speaking of the economy, as with inflation the GDP report does not reflect the true level of real economic activity in the U.S. because the Government report is not designed to measure real economic output. Instead, the GDP is yet another Government economic report constructed with blatant statistical manipulation and outright fraudulent data sampling. How am I so certain of this? The “tell” on the true condition of the economy lies with the fact that Fed is “normalizing” neither interest rates nor its balance sheet. In fact, if the Fed were to “normalize” monetary policy, it would quickly hike the Fed funds rate up closer to 6% and it would be reducing its balance sheet and removing at least the $2.1 trillion in printed cash sitting in the banks’ excess reserve account.  The problem is that this “normalization” would pop the enormous asset bubble created from money printing.  It would also interrupt the ongoing wealth confiscation.

Elijah Johnson at Silver Doctors invited to discuss the above issues as well as the stock, bond and housing bubbles. And of course gold and mining stocks:

I’ll be releasing the latest issue of my Mining Stock Journal this evening. It will have an emerging junior gold exploration company that has been described at “Gold Standard Ventures 2.0.” You can find out more information here:   Mining Stock Journal info.

Is Novo Resources Worth $600 Million At This Point?

In the July 27th issue of the Mining Stock Journal, I discussed briefly the run-up in Novo Resources‘ stock (NSRPF, NVO.V). At that point the stock, which had gone parabolic, was trading at US$1.93 for a $225 million market-cap. In defiance of any type of fundamental valuation logic, Novo continued straight up, high-ticking at $4.71. Currently as I write this, the stock is trading at $3.26.  At $4/share on a fully diluted basis (the warrants and options are currently well in the money) the stock sports a $656 million market cap. This is absolute insanity for a company which does not have any proved resource beyond 495,000 of indicated/inferred resource at a project (Beatons Creek) not related to the news flow from the project (Karratha) that is driving the run-up in the stock. Investors are throwing money into this stock with little to no understanding of the meaning behind the contents of the news being released.  (Click in image to enlarge):

To be clear, I’m not suggesting that Novo is not for real. It very well could be. What I’m stressing is that very little is known about what Novo may or may not have at Karratha based on the information that has been gathered by the Company and released to the public. Just like the pretty pictures of beautiful gold nuggets from outcroppings at Karratha that Novo has put in its corporate presentation, I can show you pictures given to me from the management at Eurasian Minerals from its Koonenberry project in Australia of beautiful gold nuggets collected from “coarse gold” samples. That was eight years ago and the project has not been advanced from that time.

In general, it is unlikely that anything above an inferred mineral resource can be estimated from surface sampling and assaying that has been on Karratha’s coarse gold environment. While coarse gold can be indicative of a high-grade gold-bearing system beneath the surface, the presence of very high grade nuggets of coarse gold do not guarantee it. Economic grades of gold are generally contained within discrete ore shoots and are surrounded by low-grade material. The presence of coarse gold can complicate the exploration process.

I exchanged emails with a senior officer at another mining company with an Australian presence to see if he had any knowledge or thoughts on Novo’s situation. He said that Quinton Hennigh (Chairman) “has a real nose for this stuff.” But, as I have suggested above, he admitted that only underground drilling (much deeper than the couple of bulk samples produced from trenching) will tell us where the real source of the gold is, assuming it’s there to be found.

This is a project that will take years to explore and assess. I’m guesstimating at this point the project would be 8-10 years away from transitioning into a commissioned mining operation. Between now and then there’s is a substantial amount of expensive exploration and de-risking that needs to occur. Again, the presence of high-grade course gold-bearing nuggets does not guarantee that an economically mineable resource exists below the surface.

I’m not trying to discourage anyone from taking a shot at Novo. But the odds that it’s the next large deposit discovered (in excess of 10 million ozs) is small. My view is that this would be a great risk/return proposition if the stock were still under a $30-50 million market cap. For my risky investment allocation, I think Precipitate or Mineral Mountain represent better risk/return speculative bets than Novo at a $600 million market cap.

NOTE – Subsequent Event: It was announced on September 5th that Kirkland Lake (KIRK, KL.TO, market cap of US$3.4 billion) would be investing up to $56 million for up 7.7% of Novo’s stock in a private placement. While this is a positive event in terms of providing the Company with additional funds for drilling, we still need to see drill results – and a lot of drill results. This does not change my overall view that the stock price has run ahead of itself given what is known about the potential mineralization on the project. I would sell into the move higher today and wait for the stock to pullback to a lower level before taking a longer term position in the Company’s stock.

The stock closed at US$3.26 today (Thursday). In the last issue of the Mining stock Journal I recommended selling it at US$3.76. The stock is down 25.4% from its high-close (US$4.33) and 30.7% from its all-time high trade ($4.71). I’m not recommending avoiding the stock at all. This could be a very interesting speculative play. But it’s a function of the cost to invest. At $600 million, I will let others bear the exploration risk. If the stock were to pullback below $2 – and it might not – I will probably talk to my partners about putting some in the fund. I think the $1.40 area is a good entry point but it may never trade that low again.

If you want to learn more about Precipitate Gold or Mineral Mountain, or several other promising junior exploration companies, please follow this link for information about subscription newsletter: Mining Stock Journal