The End of the Beginning
In late 1942 with the invasion of Africa by American and British troops, Winston Churchill uttered another of his many brilliant quotes: "This is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning."
So it is with both the general stock market and the precious metals shares markets. It's not the end but for certain, it's the end of the beginning.
I just returned from the Vancouver gold show held on Sunday and Monday of last week. The show was scary. Upstart gold companies are springing up from nowhere, most probably destined to soon return. Two years ago you could count the scallywags on one hand, now there are hoards of them all pronouncing their glories loudly. Before buying any gold stock, give it the sniff test. There's a lot of moose poop found in otherwise green pastures.
A month ago I said we were in a correction. It's about over. I'd be loading up the truck and the SUV, the mini and little Susie's toy wagon with good stocks in the next week or so. The Fed gave the chop to the general stock market a few days back. The lever's been pulled, the noose is tightening but the corpse-to-be hasn't taken up all the slack in the rope just yet. Not to worry, that puppy's dead and I have yet to hear of a dead puppy bounce. When this puppy hits bottom, all will know.
I don't care for the gold shows. I don't go there to learn, I knew we were in a bull market when you could go to a show and listen carefully to the sound of pins dropping, when you could hurl bowling balls in any direction blindfolded and be sure of never hitting anyone. When going to a gold show was only slightly more exciting than attending your own wake. That's what bottoms are. We aren't at a bottom.
Nor are we at a top but the public is getting ready to do their best to capture gold shares at the very highest prices possible. Look for a nice bounce starting in the next fortnight and lasting through spring. When every couch potato wants to buy gold shares at any price, sell to them. It's only a few months off. When the real crash comes and June-July looks pretty good, you want to be very careful with what you are sitting on. Gold shares will decline with all the rest. They will recover a lot faster but they will decline.
I go to gold shows to listen, to hear what the real gurus have to say. On Monday last I had lunch with Ian Gordon and Rick Langer at the Vancouver Yacht Club. Ian didn't hear a word I said, he was too busy gapeing at Barb's two drop-dead gorgeous daughters. Ian is convinced we are on the verge of a plunge in the stock market as a massive wave of deflation overwhelms the free-spending fools in America lead by the least and the dumbest in Washington. He points out with great accuracy the incredible levels of complacency found in share buyers and the massive $100 trillion dollar debt level world wide which will never be paid.
That evening I snuck into the Endeavour Mining Capital dinner, sans Frank Giustra (and Sir Elton John).
Among those attending - who scared hell out of me because they're even more negative than I am - were Doug Casey, Eric Coffin, Adrian Day, Bob Bishop and the unsurpassed master investor of Canadian Mutual Funds, John Embry. The consensus view was that investors in the stock market are complacent beyond measure and we are on the verge of a massive inflationary depression. I happen to totally agree.
So there you have it. We are destined for a massive deflationary depression and a massive inflationary depression. That is, if you believe the experts, and I do.
But all is not lost. There are some really excellent gold/silver shares out there still at a reasonable price. I have an advantage over the average investor, indeed, over the average guru, which I'm not.
A lot of people write me with stock tips. And over the past couple of years, I've figured out who is blowing hot and who is blowing smoke. I've had a good run of homers in the past 2.5 years. Some of it is me, some of it is a gold bull market (hell's bells, any damn fool can pick stocks in a bull market) and a lot of it is access to a bunch of very bright people. I picked Canadian Zinc at $.22 and it rocketed higher to about $1.73 but it was a pretty sharp reader who introduced it to me who really deserves the credit.
I've sniffed out some stocks I'd be happy to be buying in the next week or so. Before I start commenting, I do want to talk about an area of stock promotion we all should be aware of, especially in the light of the resignation of Thom Calandra from CBS MarketWatch. First of all, he hasn't been accused of any illegal activities but he was asked to provide his trading records to CBS MarketWatch and wasn't able to provide them in a timely manner. That's all between him and them and the SEC, it has nothing to do with me and you can really learn nothing from his resignation.
That said, it's easy to see how anyone influential can affect the price of a stock both positive and negative. I have some limited power to move stocks and I'm well aware of it. Regardless of what the law says or allows, there are certain basic ethical constraints all writers should adhere to. We all know who the guys are who call up companies and will write them up for shares. Those guys are pimps and their names are well known. I don't do that and I don't approve of it, legal or not.
But writing about shares you wouldn't own makes about as much sense as the Pope preaching about sex. He should stick to what he knows. So, many times I own shares that I write about and I do my best to make it clear that I am biased as hell. Biased but not bought. You cannot buy my opinion as it's too valuable to me.
We don't sell shares in the wake of recommending them, in any short term sense. Like all investors, I buy and sell shares all the time. But I make a point to not trade them shortly after talking about them. I don't doubt for a moment that the SEC will be down on financial writers like white on rice once this market explodes as we all know it will. We play by the rules and we hope most people do, but we suggest you consider how a writer's bias affects his opinion. Everyone has bias. If you don't want to share your profits with me, please don't try to convince me I should share your losses. I am responsible for my investment decisions and you are responsible for your investment decisions.
There are some incredibly overpriced stocks out there. I read today about GoldCorp discounting $530 gold. There was a reason for Rob McEwen dumping all that stock and it wasn't all because he wanted some spare cash for Christmas. Insiders always know a lot more about their stock than you or I do and when the CEO unloads, that should send a clear and convincing signal to the most obtuse investor.
But for as many overpriced companies out there, there are as many way-underpriced companies. Bear in mind this industry was on the ropes 2-3 years ago with companies closing down daily. The companies which survived are in far better financial condition and better able to handle any temporary downturn. For example, 2.5 years ago, NovaGold had a market cap of about $3 million for a few days. They now have $67 million in cash alone and have a market cap a hundred times higher than back then. NovaGold isn't alone, there are dozens of companies in the same boat. Conditions are far better today. And the central issue with mining has always been access to capital. They didn't have it then, they do today.
One of the tiny companies today that I met with at the show and was really impressed by is Atikwa (ATK $.225 Canadian Market cap of about $5 million Canadian) They have a minor property which they just optioned but have budgeted $150,000 just for travel to line up more and better properties.
Understand that everyone in the industry agrees the next crisis is people. There are loads of projects around, tons of money being tossed at good companies, there just aren't the people to manage them. If you will go look at the management profiles of ATK you will begin to understand why I like them so much. Their management is top notch and they will be coming out with announcements of deals struck. I am convinced they will be going into production on something, it's just in their nature.
I was a buyer in the placement at $.10 and I was trying to buy free trading shares from $.145 but the word is getting out and I didn't get any more. I really like the stock and the company up to about $.50 a share.
I've been thinking of changing my name to better reflect how I feel about business and especially mining. I really get tired of all those companies who are far more interested in mining investors rather than mining ore. I'm going to change my middle name to "CashFlow."
Because that says it all. If you have it, you can go through a lot of tough times and even survive making mistakes. If you don't, call yourself "Mudd" because that's what I'm going to think of you as. Cash flow is everything, which is why my eyes popped out when I passed by the Endeavour Gold Corp booth (EDR $1.16 Canadian Market cap of about $12 million) The only confusing issue has to do with their name. It isn't a gold deal, it's a silver deal
Brad Cooke and his crew just bought $14 million dollars worth of mill and equipment for $7 million spread over 4 years. In Mexico, a good rule of thumb is that it will cost you $10,000 for equipment to process a ton of ore a day. He just signed a deal on a 1400 TPD plant. And it will be paid for out of operating profit. That's not far from getting it for free if you know what you are doing. And Brad does.
They believe they can increase production from 600,000 ounces of silver a year to 4 million ounces simply by processing more ore. That would give them a gross of about $24,000,000 a year at $6 silver and a net of $8,000,000 to $12,000,000. Those numbers are little more than educated guesses right now but this project is the best of dozens of properties they looked at last year.
I have strong feelings about the dozen or so silver companies around all of whom plan on going into production "Some Day." Some day isn't quite the same as "Pay Day" so don't confuse them. There are a lot of silver companies whose price is going to go down as silver goes up and the market realizes they don't have any intention of actually producing any silver, they just want to add up all those ounces in the ground.
As Barrick is finding out to their utter amazement, ounces in the ground aren't the same or as valuable as ounces in the mill. Brad made a brilliant comment to me which pretty much says it all. Their ounces are going from the mine to the plant so fast, they won't have time to count them.
Another silver giant did a study on the Santa Cruz area covered by this agreement and concluded the mine has 45 million ounces of silver. It will cost Endeavour Gold about $.15 an ounce for silver in the ground and that's cheap by any standard. Either the silver has a cost of $.15 an ounce and they get the mill for free or the mill cost them $7 million and they got 45 million ounces for free. That's called, "El Goodo Dealo" in Spanish. Especially when they plan to convert those ounces directly to cash.
I don't own any Endeavour Gold shares but I'm trying to buy some on the open market and at some point, they probably will be an advertiser.
I've written a lot of times about NovaGold. And a month ago I talked about Spectrum Gold which is NovaGold's Canadian subsidiary in another piece. Well, Spectrum's partner in the Copper Creek project took the time to sit down with me at the Vancouver show.
Eagle Plains Resources (EPL $.49 Canadian Market cap of about $17 million) is another NovaGold/Spectrum lookalike. They have so many good projects advancing so rapidly that the market can't keep up. They are partners with Spectrum Gold in the Copper Canyon project. Spectrum Gold plans on advancing Copper Creek, a gold/silver/copper project in conjunction with their own Galore Creek project near by as a single consolidated project.
Eagle Plains has acquired over 30 major projects, almost all either drill-ready or at advanced stage in alliance with numerous joint venture partners. When the market explodes, as we all expect will happen, Eagle Plains is one of the most solid juniors out there and as such, its price can be expected to roar higher.
In recent years, Eagle Plains had done joint ventures on various projects with BHP Billiton, Rio Algom, Kennecott, NovaGold, Spectrum Gold, ViceRoy Resources and more resulting in over $5 million dollars spent advancing various properties since 1998. Eagle Plains is perfectly positioned for the up coming gold/silver/copper boom.
We don't own any Eagle Plains shares, nor are they an advertiser. They may advertise in the future and we are trying to buy shares in the open market.
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