Tag Archives: mining stocks

Mining Stock Daily: Western Copper & Gold Is Undervalued

The Mining Stock Daily, a collaboration between ClearCreekDigital and Investment Research Dynamics, interviewed the CEO, Paul West-Sells, to learn more about Western Copper & Gold (WRN on both the NYSE and TSX). But first, here’s background on WRN:

Western Copper & Gold is advancing the Casino Project, a world-class copper-gold porphyry deposit, in the Yukon. The deposit contains 4.5 billion lbs of copper and 8.9 million ounces of gold reserve and 5.4 billion lbs and 9 million ozs of inferred resource.

Western Copper was a spin-off from Western Silver after Glamis Gold acquired Western Silver in May 2006 (three months later Goldcorp acquired Glamis). WRN acquired the old Lumina Resources in September 2006 for Lumina’s three copper properties, one of which was Casino. WRN spun-off the other two properties.

WRN only has 106.4 million fully-diluted shares outstanding (including options/warrants), which is remarkable for company that has been developing a massive copper-gold project for 11 years. Insiders own 8% of the stock. A small group of high net worth private investors who have made a lot of money on companies run by WRN Executive Chairman, Dale Corman, own 48% of the stock and institutional/retail own the remaining 44%.

WRN raised $32 million in 2012 selling a Net Smelter Return royalty to Orion Capital. That NSR was sold to Osisko in June 2017 when Osisko acquired a portfolio of royalty assets from Orion.

With a market cap of US$70 million (fully-diluted basis), WRN is extraordinarily undervalued on a risk-return basis. This is especially true considering the recent wave of copper-gold porphyry project M&A activity. Recall that Newcrest invested approximately US$14 million for a 19.9% stake in Azucar’s El Cobre, which valued that early-stage copper-gold project at US$74 million. In 2017, Goldcorp paid US$185 million for Exeter’s Caspice copper-gold project high up in the Chilean Andes.

There have been several other transactions in the copper-gold space, including Zijin’s (Chinese company) acquisition of Nevsun for $1.41 billion (September 2018) for the Timok copper-gold project in Serbia and the recently closed sale of the Malmyzh copper-gold project (Freeport, EMX Royalty) to Russian Copper Company for US$200 million.

WRN’s project is not as large or as high-quality as Malmyzh, but it’s several years closer to being converted into an operating mine. At this juncture, with the current price of copper and gold, the “asset value” of WRN, based on the roster of comparable transactions, is at least US$140 million. I would not be surprised to see one of the companies with projects near Casino make bid a for WRN at some point in next 6-12 months. There’s also a list of other potential acquirers, including RioTinto, BHP and Freeport.

Click on the graphic below to hear Trevor Hall’s interview with WRN’s Paul West-Sells (you can also download the interview on your favorite app by clicking here: MSD platforms):

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The analysis above on WRN is from the November 8th issue of the Mining Stock Journal. To learn more about this newsletter, click here: Mining Stock Journal information

Mining Stocks Have Not Been Cheaper In The Last 78 Years

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:

The chart above, sourced from Incrementum (the October 2018 chartbook update to the “In Gold We Trust” 2018 report), shows the ratio of Barron’s Gold Mining Stock Index (BGMI) to the price of gold (gold line) and the S&P 500 (blue line) going back to 1950. As you can see, gold mining stocks are trading at their lowest level relative to gold and the broad stock market in 78 years. The two dotted lines show the median level for each ratio since 1950.

As you can see, mining stocks do not spend much time below the median ratio. I strongly believe that the chart reflects a high probability of a major move higher in precious metals and mining stocks that is percolating, if not imminent. Certainly the global economic, financial and geo-political risk fundamentals support this assertion.

Unless the precious metals mining business is going away, that chart implies that now is one of the best times since World War Two to buy mining shares. Not surprisingly, industry insiders must agree with that assertion, as mining stock acquisition deal-flow has picked up considerably in the last few months. Most of the deals have been concentrated in the junior mining stocks.  But Barrick’s acquisition of Randgold, announced September 24th, is the largest precious metals merger in history. I strongly believe Barrick bought Randgold out of desperation to replace its rapidly depleting gold reserves.

Fundamentals aside, I believe gold is technically set-up to make a big move:

The chart above shows GLD (used a proxy for the price of gold) from late 2004 to the present on a weekly basis. I’ve sketched a trendline that goes back to 2004. 2004 is when gold finally pushed through $400 for good. It was right before that event that Robert Prechter, of Elliot Wave fame, predicted that gold would fall to $50. While I’m not a big fan of analysis based on lines drawn on charts, this particular tend-line has held intact since gold bottomed in December 2015.

Notwithstanding chart analysis, the COT technicals have never been more bullish. This assertion assumes, of course, that the track record of hedge funds being wrong when positioned long or short at an extreme level remains intact.

Precious Metals, Mining Stocks, Housing Market – What’s Next?

“The housing market is 100% a function of the Fed’s money printing.  Half the money the Fed printed, $2.2 trillion, went directly into the housing market.”

Analysts and financial media meatheads look at the $4.5 trillion created by the Fed and truly believe that it wasn’t money printing because it’s “backed” by Treasury bonds and mortgages.  But this is pure ignorance.  Not taken into consideration is the amount of credit and debt issuance enabled by using the $4.5 trillion as the “reserve capital.”  It’s fractional banking on steroids.

As the U.S. financial system reaches its limit on the amount of debt that can be serviced from the current level of wealth output, what happens next?  We’re already seeing what happens in the housing market per the fact that the homebuilder  stocks are in an “official” bear market, with some of them down over 30% since late January.

Then what?  The Fed will have to print multiples of the original amount it printed or face systemic collapse. At that point the precious metals sector will soar beyond anyone’s imagination at this point in time.

Phil Kennedy (Kennedy Financial) invited me to discuss these issues on his podcast.  Phil’s podcasts blend truthseeking, facts, humor, humility and sarcasm.  It’s  well-worth the time spent to listen:

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If you are interested in ideas for taking advantage of the inevitable systemic reset that  will hit the U.S. financial and economic system, check out either of these newsletters:  Short Seller’s Journal information and more about the Mining Stock Journal here:  Mining Stock Journal information.

Gold And Silver Are Set-Up To Soar

Per the latest COT report (note: this references the August 21st COT Report), the hedge fund (Managed Money) net short position in Comex paper gold was 90,000 contracts – by far a record short position for the hedge fund trader category. Conversely, the bank net long position (Swap Dealers) in Comex paper gold was close to an all-time high. It’s not quite as high it was in December 2015.

The hedge fund long position in US dollar futures is also at an extreme right now, with the banks taking the other side. Unless there’s something devious going on behind the scenes in the reporting of this data (possible but not probable), the banks are positioned for a huge move higher in gold and a sell-off in the dollar. The only question is timing. The commercial category of the COT Report (banks + producers/merchants/processors/users) is net long silver futures for the first time in at least 25 years. In combination with the gold COT Report structure, this is the most bullish set-up for the precious metals in history.

Note: Per the latest COT Report, positions as of August 28th, the hedge funds reduced their net short by 16,000 contracts and the banks reduced their net long by 2,700 contracts. The hedge fund covering explains why the price of gold rose roughly $20 between August 21st and August 28th.

The chart below illustrates the extreme positioning by speculators in gold, interest rates and the stock market:

The graphic shows the net short position of non-commercials (managed money, other institutional pools of investment money and retail traders) in gold futures, 10yr Treasury futures and VIX futures. It’s the largest bet in history by speculators that gold and 10yr Treasury bonds will go a lot lower and the stock market will go a lot higher (volatility declines as stocks rise so a short-VIX bet is a bet stocks go higher).

When positioned at an extreme like this, speculators are always wrong.  It may not seem like it right now, but I would also suggest some type of development is percolating that will trigger an unexpected and substantial sell-off in the dollar.

Based on looking at the increase in the hedge fund net short position in the gold futures COT report between the end of June and the latest report as of August 21st, it would appear as if most hedge fund short-interest contracts were sold short between July 31st and August 21st. During that stretch, the price of gold dropped from $1224 to $1170. I’m guesstimating that the average price on the hedge fund net short position is between $1215-$1220. The is a rough estimate but I would bet it’s pretty close.

This is important because it tells us the price-level at which we might see a big short-cover move higher begin. Last Friday gold shot up from $1194 to $1212. From this past Monday (August 27th) through Tuesday just before the Comex floor opened, gold ran up close to $1221. About an hour into the Comex floor hours, gold fell off a cliff quickly down to $1207. This price-hit occurred in the absence of any news or events that would have triggered a selloff. In fact, the yuan rose sharply vs the dollar on Tuesday, which throws cold water on the theory that the Chinese have pinned gold to the yuan.

The point here is that the hedge funds will be motivated to defend the $1220 price level. Above that price the hedge funds will start to lose a lot of money on their net short position. This is the only way I can explain the waterfall hit on the price of gold on Tuesday. If the price of gold can climb over $1220 toward $1230, it will likely trigger a short-cover move. But keep in mind that, as the price momentum heads higher, the hedge fund position will swing from net short to net long.

This is likely what will the drive start of the next move higher in gold. A move that will be reinforced by the start of the big seasonal buying season in India and China. Based on the numbers I see on a daily basis, the Indians and the Chinese are taking advantage of the lower price of gold and have already ramped-up their gold buying. When the Fed is forced by the economy to fold on rate hikes, gold will really begin move.

The junior mining stocks are trading at one the lowest valuation levels over the last 18 years in relation to the price of gold. US Gold Corp (USAU) traded briefly below $1 last week in the absence of any news or events that might have affected the stock price. The market cap is close to 50% below the intrinsic value of its Copper King Project. The stock jumped 14% on Friday and Mining Stock Journal subscribers had an opportunity to buy shares ahead of this move. You can learn more about this newsletter and why USAU is absurdly undervalued here: Mining Stock Journal information.

A Coming Flood Of Treasuries And An Epic Gold Rally?

“When it starts to happen, I think it could happen a lot more quickly than people realize.” The rest of the world is methodically “weaning” itself off its dependence on the U.S. dollar. Perhaps the latest EM collapse will accelerate this reset. At the same time, the U.S. Government is on track to issue a record amount of Treasury bonds to fund its rapidly expanding spending deficit. Who is going to buy these Treasuries? When the bid for Treasuries disappears, the dollar will begin to collapse, gold will soar. Demand will far exceed supply as the price rises and the paper gold shorts will be slaughtered.

My colleague Chris Marcus invited me on to his Miles Franklin podcast to discuss what appears to be an extreme version of the 2008 de facto financial system collapse and a likely “reset” of the global monetary system:

In the next issue of the Mining Stock Journal, I analyze the latest COT report and present the price-point at which hedge funds will start to cover their large short position.  I also update my favorite junior mining stock ideas and present my favorite shorter term trading plays. You can learn more about this here:   Mining Stock Journal information.

WTF Just Happened: Gold Forms A Bottom And 420-Time For Elon Musk

Perhaps the most baffling aspect of the Elon Musk “Funding Secured” tweet is the number of financial media outlets and so-called “analysts” that are taking it seriously. The idea is a complete joke. Any valuation in excess of potential asset value minus the debt and other liabilities (included in “liabilities” will soon be a flood of lawsuits). Some bucket-shop stock analysts issued reports explaining why a buyout of Tesla could occur at an even higher price. We’re beginning wonder if the Tesla buyout idiocy will mark the end of the valuation insanity that has permeated the entire U.S. stock market…Meanwhile, hedge funds assumed a record short position in Comex paper gold futures. This along with the worst sentiment toward the precious metals since early 2001 and late 2015 suggest the potential for a bottom in gold, silver and mining shares.

In this episode of “WTF Just Happened?” we discuss these issues plus offer a view on the correlation between the dollar-price of gold and the $/yuan (WTF Just Happened is a produced in association with Wall St. For Main Street – Eric Dubin may be reached at  Facebook.com/EricDubin):

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Tesla is on its way to bankruptcy.  I don’t know how long it will take that to occur but the Company will be insolvent if it can’t raise money before the end of the year.  I explain why a buyout of the Company is next to impossible in the next issue of the Short Seller’s Journal and offer several ideas for using put options to express a bearish view of Tesla stock.

Visit these links to learn more about the Investment Research Dynamic’s  Mining Stock Journal and Short Seller’s Journal.   

WTF Just Happened: President Trump, BLS & MSM Still Lying About The US Economy

The BLS (Bureau of Labor Statistics) released its “hey man, lots of jobs open” report last week.  The problem is that the credibility of the report is only as good as the credibility of the organization that prepares the report.  In this case, the BLS and Census Bureau, both of which are notorious for highly suspect data collection and data “adjustment” techniques (true story:  sometimes Census Bureau agents just make it up if they don’t have time to keep canvassing after lunch).  Our take is that most of the job listings spit out by the BLS sausage grinder are fictitious.

In addition to this, and interpreted by the media spin-meisters and Government propagandists as evidence that “Trump’s trade war is working” and “the economy is running full bore,” the trade deficit report for April showed a large percentage drop in the trade deficit.   Indeed, the trade deficit fell month to month the most since 2008. If you buy into the narrative that the economy is strong, you don’t want the trade deficit to decline in correlation with a similar decline in 2008. In truth, the trade deficit declined because imports fell more than exports rose. Imports are falling because personal consumption spending is now contracting per the latest GDP revision. It used to be, a long time ago, that the trade report was called the “U.S. International Trade in Goods and Services” report. Now it’s simply referenced as “the trade deficit report.”

Final, we believe that the best time to accumulate a winning investment is when no one else wants to hear about it. The U.S. investor sentiment toward the precious metals and mining stock sector is almost as bad as it was in late November 2015, which is when the 5-year bear cycle – which followed an 11-year bull cycle – came to an end. We explain why the next leg in the secular precious metals bull market is about to take off this week episode of, “WTF Just Happened?“:

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Visit these links to learn more about the Investment Research Dynamic’s Mining Stock Journal and Short Seller’s JournalThe mining stocks are historically cheap and percolating for a big move higher.  I recommended shorting Hovnanian at $2.88 in January  – it closed at $1.95 on Friday and has been as low as $1.70.

Gold And Silver Are Extremely Undervalued

Patrick Vierra of Singapore Bullion invited me to discuss precious metals, the stock market and the fiat currency-fueled asset bubbles that will blow-up sooner or later.  I explain why investing in gold requires a long term perspective on investing and wealth preservation, why gold and mining stocks are extremely undervalued right now and why the world wants out of the U.S. dollar.

Singapore Bullion is Singapore-based bullion dealer and bullion storage facility with a wide-array of products and services – the podcast is ad-free:

01:37 Gold – A Long Term Perspective
08:14 Was 2015 the bottom for gold price?
13:14 Gold – One of the Best Performing Assets
14:45 Bullion vs Mining Stocks
17:10 Gold is very undervalued right now
19:20 The COMEX cycle that impacts the gold price
21:47 Silver will outperform gold
25:00 How overvalued are the stock markets
30:11 How every U.S pension funds will ‘blow up’
32:40 The ratio of paper to physical gold
35:01 Housing bubble rearing its head again
39:51 “Trump loves debt!”
41:09 Fed rate hike to prick the housing bubble?
45:25 The world wants out of the dollar

You can learn more about my research and stock idea newsletters here:

MINING STOCK JOURNAL                                     SHORT SELLER’S JOURNAL

The Mining Stock Journal is twice per month, every other Thursday evening. The Short Seller’s Journal is weekly, every Sunday evening. The last mining stock purchase recommendation (May 17th issue) is up 10.5% in the last five trading days. It’s going higher – a lot higher.  My Short Seller’s Journal subscribers have been raking in the profits in my homebuilder short ideas.

WTF Just Happened? Gold, The Dollar And Interest Rates

What’s going on with gold, the dollar and interest rates – especially gold?  All of the variables that fundamentally support much higher gold prices are lined up perfectly.  Why isn’t gold moving higher?  The popular narrative in the mainstream financial media would leave one to believe that the dollar is soaring.  Eric and Dave put a big dent in that notion.  Additionally, in a long-term historical context, the recent rise in interest rates is tiny, yet marginally higher interest are already wreaking havoc on the economy (retail, auto and home sales).   What’s going to happen to the economy when the 10-yr Treasury hits 4%, which is still well below its long-run historical norm? (click on image to enlarge)

Eric Dubin and Dave Kranzler dig into these topics in the next episode of WTF Just Happened (WTF Just Happened is a produced in association with Wall St. For Main Street – Eric Dubin may be reached at  Facebook.com/EricDubin):

Visit these links to learn more about the Investment Research Dynamic’s Mining Stock Journal and Short Seller’s Journal.  I recommended Almadex Minerals at 28 cents in April 2016 – it closed Friday at $1.13.  I recommended shorting Hovnanian at $2.88 in January  – it closed at $1.89 on Friday and has been as low as $1.70.

Are The Precious Metals Percolating For A Big Move?

Since the beginning of 2018, gold has been stuck in a trading range between $1310 and $1360.  Silver has ranged between $16.20 and $17.50, though primarily between $16.80 and $16.25 since February.   So what’s next?   While most analysts base their views largely on chart technicals, I have found – at least for me – the Commitment of Trader “tea leaves” is a more reliable forecasting tool.  Friday’s COT report showed a continuation of the trader positioning pattern that I believe will support the next big move higher.

Elijah Johnson and James Anderson invited me on to their weekly Metals and Markets podcast to discuss why I believe the metals may be bottoming.  In addition, we discuss the why Amazon.com and Tesla are horrifically overvalued:

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