100 Reasons to Sell
I’ve said it before and I’ll keep saying it again and again until all my readers get it. At every top there are 100 reasons to buy and at every bottom there are 100 reasons to sell. That’s what makes tops and bottoms.
Markets are fueled by emotion. Markets don’t care about fundamentals. At the very peak of silver last year just short of $50 I had a hundred fools writing me telling me all about the fundamentals for silver and why silver was going a lot higher at once. Well, Mr Market cleaned their clocks and no one is writing me today telling me how silver is going to $500 an ounce tomorrow because no one is ever going to produce silver again and besides, it’s the most critical war metal. Huh? Makes you wonder what people are smoking.
The fools are all licking their wounds and wondering why all the instant silver “gurus” have gone silent. At $4 an ounce in 2001, the “Gurus” were all selling washing machines at Kmart and didn’t know silver from a cheap coffee pot. At $50 an ounce, they sounded like a flock of chattering magpies. Now they have gone silent. That’s a good sign.
Technical Analysis doesn’t work. If it did, we would all be rich and we aren’t. It might help you but it isn’t going to call absolute tops and bottoms. Tops and bottoms are generated by consensus. When everyone hates gold and silver and shares of mining stocks, you want to buy. With both hands. And the more extreme the emotion, the higher the market will react. It’s like stretching a rubber band.
We are there. The ratio of the XAU over gold is more extreme than in October of 2008 when it became obvious that the system was on the verge of collapse and gold was selling for $680 an ounce. But wait a minute, if fundamentals and TA are meaningful, how come gold is $1580 and the shares are cheaper than in 2001 or 2008? Well, because of emotion run amuck. Everyone wants to sell. That’s when you should want to buy.
I flew 21,000 miles in ten days a little while ago because I wanted to be finding the really good stories. I want to point my readers to the leaders of tomorrow though I’m not sure it makes any difference. In a hurricane, even the turkeys fly.
You could probably buy the biggest piece of crap stock on the TSX and it will go up soon. I think even the companies run by the blunderers and blithering idiots I have come across in the last ten years would go up. That would include anything associated with Ray Demotte or Ralph Kettell or David Greenway or Harp Sangha.
Man by nature is a herd animal. That may have been a valuable trait when you were dodging lions and elephants in Africa 35 thousand years ago but it’s pretty negative in today’s financial climate. You have to do the opposite of what the crowd does. The best book I have ever read on investing is called Extraordinary Popular Delusions and the Madness of Crowds. If getting rich is your goal, buy the book and read it. Basically it proves people are dumber than bricks and anyone over the age of five who doesn’t know that at once has been poorly educated.
We have posted a number of really good pieces lately that our readers should pay attention to. The Gold Report did an excellent interview with David Stockman. Mr Stockman does an excellent job of explaining how our financial system is about to come unglued. I think I understood everything I needed to understand about Europe and the Euro when I read that under EU rules, there are 26 pages of instructions on how to use a rubber. Huh?
France has just elected a new President who is promising to keep the banks whole, increase taxes to 75% for the rich and have the government spend more. At a time when we need to be defaulting on the bonds and notes that can never be paid, lowering taxes and reducing government spending, governments in Europe are not only doing the wrong thing, they are doing the opposite of the right thing.
The Greeks can’t even form a government. The problem with all democracy is that it is two wolves and a sheep arguing over what to have for lunch. Democracy is mob rule and to my little surprise, the Greeks have voted to continue being bailed out by Germany. I’m shocked. When a revolution starts among the 52% unemployed in the young people, where do they think the money is going to come from?
You are faced with Hobson’s Choice, the best of a bad lot. I like resources. Everything else is a plow horse.
I talked about Argentex about two weeks ago. At the time you could buy silver for $.11 an ounce in the ground. They are going to announce an updated 43-101 resource based on twice the drilling, shortly. At today’s price of stock you are paying about $.17 an ounce. That’s cheap. When the resource comes out, no doubt it will be cheaper.
Right after visiting Argentex, I flew to Neuquén Argentina and then we drove to Rio Negro province in Patagonia to visit the Toruel silver project of Netco Silver. Netco has past drill intercepts of almost 2-kilo silver at 6.7 meters. Their biggest problem isn’t geological; it’s communications and management. They have a series of sheeted veins similar to that of Argentex they just have never communicated at all with the market.
New management is in place and I expect a lot more action and communication soon. Their geological team in Argentina is excellent and they have enough money to get a serious drill program started. I do hope they change their name, Netco sounds like a Costco for nets.
If you are a silver fan, either Argentex or Netco represents excellent value for pennies. That said, I think you could invest in any junior today and be looking at much higher prices in 6 months.
If you want to look at an interesting Boron/lithium play, my visit recently to Serbia may be of interest. I went to see a company named Pan Global. (PGZ-V)
Rio Tinto holds a borates/lithium project named Jadar about 100 km west of Belgrade, Serbia. The project contains 125 million tons of 1.8% li2O, lithium and 12.9% B2O3, Boron. Pan Global believes the project would be worth $800 million in market cap and is attempting to duplicate the size of the project in similar nearby sedimentary deposits.
Rio Tinto discovered the project in 2004 and drilled 38 diamond holes to come up with the 125 million ton inferred resource. When the GFC hit in 2008, Rio Tinto laid off the entire borates staff in Serbia to conserve cash. That group put together a series of 14 title blocks and did a deal with Pan Global, also headed up by a former Rio Tinto executive named Julian Bavin where PGZ could earn an 80% interest in any 3 of the 14 title blocks.
To earn a 51% interest, PGZ must spend $4 million within 3 years of the option agreement. To raise the percentage to 65%, PGZ must spend an additional $8 million by year 7 and to get the 80%, spend $20 million in exploration or complete a feasibility study.
Borates are naturally occurring minerals containing boron that combine in hundreds of ways with oxygen. Borates are used in fiberglass, for use in heat resistant glass such as Pyrex, detergents and fertilizers.
We looked at the technical data, the drill core and visited one outcrop. Pan Global is using gravity data to determine where suitable basins are located in the area around the Jadar deposit. They are drilling as I write and have come up with interesting drill results already.
Big companies often create opportunity by accident. There are other companies interested in exploration in Serbia and others searching for borates and lithium. But no one has the franchise and background of the Pan Global crew. They took a lemon and made lemonade. Rio Tinto paid to train them in the art of borates discovery in Serbia and then tossed them aside when the financial crisis hit. They took all their knowledge and created a company with a tiny market cap today but a giant franchise in discovering big and valuable borate deposits in Serbia.
Two countries in Africa have taken giant advantage of the gold price explosion over the last 11 years. Ghana and Tanzania. I’m going to talk about one project in each country.
Tanzania is a country most metals investors are familiar with. The giant Barrick Bulyanhulu Gold Mine is located just east of the 100 square km Tembo project owned by Tembo Gold (TEM-V). Tembo has hired a number of former Barrick managers and exploration people to conduct the 97,000-meter drill program scheduled for Tembo this year.
The company came public in late February opening at $1.20 a share and climbing eight days out of the next nine before peaking at $2.29 a share. One giant reason the big companies have had their share prices hammered so seriously in the last few months is forced selling from precious metals mutual funds. Basically they were selling every high priced share they could just because they could and they needed the money. Even though the company is less than three months old, Tembo got caught up in the selling and lost 2/3s of its value.
Tembo will lead the way higher as gold shares recover. The company is already announcing brilliant drill results and those results will continue for the next year. Look for a far higher market cap for this company in the next 6-12 months.
The 2nd largest gold producer in Africa is Ghana. I recently came across a company with 1100 square km of ground in highly potential gold belts in Ghana named Abzu Gold. (ABS-V) I was attracted because of the strength of management. Gordon Neal is Chairman of the Board and a Director. He was responsible for much of the success of Mag Silver over the last 10 years as VP of Corporate Development and highly caliber management is not to be found.
Abzu’s geological expertise is better than any other company I know of in Africa. Dr Paul Klipfel is the President of the company. He shared discovery and development of the Livengood gold project in Alaska with Jeff Pontius at International Tower Hill. Livengood is up to 20 million ounces of gold. Jeff Pontius is also a director of Abzu and he helped discover and develop the Cripple Creek deposit in Colorado.
Abzu is drilling a number of targets in Ghana and results to date are encouraging. The single most important factor I know of with mining companies is management and Abzu has superb management combined with a tiny $12 million dollar market cap in home run country.
It’s not possible to consider resources without discussing energy. One of the top fund managers in the world recently called natural gas his number one pick as a contrarian. I’ve followed a Coal Bed Methane company in Indonesia for years and it’s selling at a yearly low today in spite of coming up with brilliant drill results.
The company is CBM Asia. (TCF-V) The company has a commanding position in CBM in Indonesia but as a result of a variety of events mostly beyond their control, the share price has been constrained for four years. Their goal is to control a land position with 10-15 TCF of CBM. Indonesia is a difficult country to deal in and CBM Asia has been at the mercy of their larger Indonesian partners for years. They are attempting to take control and be operator on their own projects this year.
For the last six months, the company has focused on raising money and has raised almost $16 million albeit at the expense of existing shareholders. The company has $16 million in cash and a market cap of only $18 million. Until they close all the financings, the stock isn’t going anywhere. When they start production or start doing some serious drilling on the projects they control, the stock will move.
The company gets little respect but Indonesia is the new frontier for CBM. With giant demand from Japan and China, the wellhead price in Canada is $3 but it’s $11 in Indonesia. If CBM Asia will focus on drilling wells and coming up with a timely 51-101, I see the share price being a lot higher in the future. Natural gas may get no respect today but that’s not going to last forever.
I’ve written about the next company a couple of times and it’s been a real success this last year. It’s an oil and gas company based in Canada called Aroway Energy. (ARW-V) The company is currently producing 650 BOE daily of oil and has 200 BOE of gas shut-in until prices turn up. Oil production has increased by 25% since December.
The implied value of 650 BOE production is $85,000 per barrel. So the company probably should be worth about $1 a share today and production is increasing rapidly. If you like oil in a safe country, ARW is a cheap way to buy good management.
The next company is a Canadian based oil company that is sort of a mini-Aroway. The company is named Blackdog Resources (DOG-V) and is based in Calgary. They only produce 122 BOE per day at present but managed to increase revenue by 45% over the last year.
Last year was filled with problems with the company in terms of weather and technical issues but the company has a number of wells they have been working on to improve production. I think the share price will surprise investors.
The communication is not good but the management is. This is a sleeper sitting at near yearly lows. It will go higher soon.
These are not the best stocks I know of or the only. They are some of the 2000 juniors out there begging for attention and selling for pennies on the dollar. If you want to make money in mining, you have to buy when no one else has the guts. You could throw money at the market now and make a lot of money in the near future. It is a bottom.
Some of the companies talked about are advertisers. Some are not. Some I own, some I don’t. I am always biased so you should always take responsibility for your own investment decisions.
Argentex Mining Corporation
Netco Silver Inc
Pan Global Resources