The bad news and the good news
The New York
Gold show two weeks ago was one of those bad news/good news stories.
The bad news is that it was an absolute disaster, with no public
participation other than people listening to the typically pretty
good speakers. I go to these shows to get a feel for how the
public feels and it was pretty obvious last week in New York.
The public would rather go to Aunt Gerties funeral than attend
a resource and investing show.
I did a piece, in my youth, four years ago called Small is Beautiful. In it, I said we were at a bottom because by every measure, the public wasn't interested in precious metals. We didn't even open 321gold until a couple of months later, I wrote the piece for friends and to post on our old website.
It was a real
good call. And today, with all the doom and gloomers pissing
on gold, silver and oil, we ignore the fact that gold is well
above $400, silver above $7 and oil above $50. What's everyone
whining about? Markets don't go straight up unless you are one
of the fools wearing the tin foil hats and think that markets
are supposed to move only in one direction and everything else
That's the time to be buying with both hands and both feet. I said back in April that we had all the signs of a bottom. Well, what I meant was, it was a bottom.
At the end of the day, when the dollar has been destroyed and our Republic is no more, many will be claiming it was a surprise. Disaster may have been a surprise in 1929 when the market crashed but with all the great pieces being written today, no one can fairly claim ignorance.
In just the last week, we have had such great pieces as U.S. Current Account Deficit may hit $900 billion next year coming from Axel Merk and The US Trade Deficit is Unsustainable from Bud Conrad. Take a look at the charts in Conrad's piece. He didn't need text, the charts show 10 million words. No one quite knows how the end will come but forces are building up which will destroy the wealth of most Americans and anyone not prepared for disaster.
Ford and GM bonds have tanked as they hit junk status. United dumped their pension plans on the taxpayers so they not only have stiffed their entire staff, now taxpayers get to pick up the pieces. Does any reader really believe Ford and GM can be saved? One day soon their pension plans will end up in the laps of taxpayers. Along with a war totally out of control in every way. Including financially. And the fools in Washington want to bomb Iran. If they do, it will be the end of the dollar.
But there is good news, there is always some good news somewhere. Stocks are still cheap and if you don't want to think about investing in resource stocks as an investment, think of it as an insurance policy against disaster. Which we know is going to happen.
Another current piece suggests what I have believed would happen years ago; Anchor Your Currency To Gold by Paul Kasriel of the Northern Trust. It offers a quite reasonable suggestion to the Chinese. One day soon the US government is going to realize that blowback is real. For all the demands the Chinese unlink their currency from the dollar, some of the alternatives may in fact be worse for us.
But on to the shares. Again, as I have said several times in the past, right now appears to be a real good time to be buying and that's across the board. These aren't necessarily the best stocks around, but the ones I know the best which are at buying points. There are hundreds of resource stocks around which I haven't even heard of which may well reflect perfectly good value. The price of everything worth having is being set by Chinese demand right now and just as long as China keeps growing at such a swift rate, resources are going to continue up.
For those inclined to bet on Peak Oil, which appears to be here, according to Oil Industry Guru Matt Simmons of Houston, the two oil and gas stocks I like the best are Admiral Bay (ADB-V $1.30 Canadian ADBRF-OTCBB, 44 million shares; website) and Vangold (VAN-V $.275 VNGRF-OTCBB 42 million shares; website).
Both stocks have been hammered since February and I think it's way overdone. Both companies have aggressive plans for drilling this year and being seriously in positive cash flow by the end of the year. Vangold has a major presence in gold exploration as a kicker.
If the analysts have been wrong for the last couple of years, and I believe they have been, almost all of them, including myself, we missed all the explosive moves in oil and gas and coal and iron and moly and uranium. I certainly have been way too focused on gold and silver and I think it's been a mistake.
Well, everyone is still missing the coal boom. Coal is up 100% in the last year and a few juniors are starting to take advantage of it. I talked to the management of Cash Minerals (CHX-V $.30 Canadian, 24 million shares outstanding; website) at the New York Gold show. Their numbers were incredible. They have just completed a scoping study on their Division Mt property in the Yukon. The 51 million ton resource could be put into production for $32 million Canadian and provide a whopping IRR of 59% and has a NPV of $74.8 million.
And that's only considering 5% of the property. All that for a market cap of $7.4 million. Not much of a downside if you want a high potential gain energy play.
Even better is West Hawk Development (WHD-T $.16 Canadian 15 million shares outstanding; website). West Hawk just announced picking up an option on the Groundhog coal property in Northern BC with 380 Mt of anthracite coal based on historical studies. (not yet 43-101 compliant) The Groundhog property is within 30km of an existing rail line. Obviously West Hawk has a lot of work to do to get into production but with a market cap of $2.4 million there isn't a world of downside but there is a world of upside.
My old favorite moly company is Adanac (AUA-T $.62 Canadian, ANCGF-OTCBB, 31.4 million shares outstanding, website). Adanac has an 18-month lead time over other major moly projects and I believe the moly story is a rush to the finish line, not the total amount of metal.
I first wrote about Adanac last August after a trip to their Ruby Creek Moly Deposit. Moly was $14.50 a pound and AUA was $.54 a share. Today, after a 43-101 report showing over 400 million pounds of moly at Ruby Creek and a feasibility study in the works, moly is $38.50 a pound and the stock is $.62. We have a 165% increase in moly prices to accomplish a 12% increase in the price of the shares. I'd think over $10 billion dollars worth of moly in the ground would be worth more than a $20 million dollar market cap. When moly runs, as I believe it will, Adanac is going along for the ride.
I suspect the kicker which gets all the moly companies moving will be when a junior actually takes advantage of the giant rise in moly prices over the last 18 months. It looks to me as if the project which will provide the flame will be the Ashdown project of Golden Phoenix Minerals. (GPXM-OTCBB $.205, 140 million shares fully diluted, website).
GPXM has had some serious management problems over the past few years which drove the shares down to $.09 about two months ago. They seem to be under control with new management taking over and they have accomplished full funding for the project which contains rock with grades up to 7% moly or about $4000 per ton rock. Permitting and construction is taking place as I write with estimates of production starting as early as August. The company has an absurd number of shares outstanding but back of the envelope projections show a guesstimate of $30-$50 million dollars revenue for their 60% of the project yearly. The stock has easy 10-bagger potential and soon.
I can't write about my favorite resource stocks without at least mentioning a few iron-copper-gold companies. First and foremost of which, of course, is Cardero... of billion pounds of elephant snot fame. [pardon me]. Cardero (CDU-V $3.26 Canadian CDY-AX 41 million shares outstanding, website) had a major presence at the NY show. I felt bad for Henk Van Alphen at the show since I had threatened to jump up and down on his chest if Anglo didn't start drilling soon on the major IOCG project subject to a 70/30 JV between Anglo American and Cardero.
Well, Anglo hadn't started drilling but the good news is that Henk didn't have to put up with me jumping up and down on his chest during the show. Actually, I couldn't get close enough to him, there were too many people taking swings at him with baseball bats. Anglo's drill program makes Waiting for Godot seem like an action flick.
But the good news is that we think, we THINK, [fingers crossed, feet in buckets full of horseshoes, sleeping w/shamrocks under my pillow] Anglo has the drill permits and will be drilling 'shortly.' I've been on the property and seen what Cardero has in the Baja and it's big. This may be the last chance to pick up Cardero stock while it's still cheap. I will be going down to Peru with Cardero in about two weeks to do a report on their Pampa De Pongo property with an estimated 5 billion tons of magnetite sands.
Palladon (PLL-V $.60 Canadian PLLVF-OTCBB, 28 million shares outstanding; website) is making good progress at their Cedar City iron deposit in SW Utah. I have reported on them several times and the stock is still reasonable and more. They have taken a number of samples from the face of the deposit at various places and sent them out for assay in order to sign a contract one of several interested Chinese buyers. Rehabilitation of the loading facilities is about to take place and it's POSSIBLE, I repeat, POSSIBLE they may be loading and shipping ore as soon as July 15th - August 1st. They anticipate using contract mining so all the pieces are in place to get cranking. With a potential $20-$30 million US in cash flow per year, Palladon is reaching for the brass ring and I believe will grab it. Naturally all the pieces have to be in place to get into production but based on my talks with CEO George Young in New York, things are looking verrrrrry good.
The next company, an iron company, may be a candidate for the daftest named mining company in the business. North American Gold (NAU-V $.55 Canadian NAUHF-OTCBB 19.3 million shares outstanding; website) is neither oriented towards North America or towards gold. It's a Toronto junior picking up low hanging IOCG fruit in Scandinavia on both sides of the Swedish/Finnish border.
North American is focused on IOCG targets with either past production or with significant historical information in the way of drilling and past studies. They show over 200 mt of iron resources now with 638,000 ounces of gold and one complete mine/milling facility right on a rail line. With a market cap of about $12 million and iron up 71.5% in the last three months, North American is a cheap lotto ticket on iron.
There are two platinum companies I like. Eastern Platinum (ELR-T $1.20 Canadian ELRFF-OTCBB, 103 million shares outstanding, website) is the merged product of Elgin and Jonpol Exploration. Between the two major projects at Mareesburg and Spitzkop, the company controls over 8.5 million ounces of PGM. They hope to begin limited production at Mareesburg beginning in 2006. You are paying about $15 per ounce of PGM and with the platinum/palladium ration favoring platinum, that's a cheap price per ounce. It should be more like $40-$50 per ounce.
Platinum Group Metals (PTM-V, $.80 Canadian, 43 million shares outstanding, website) has a 37% interest in a JV with Anglo Platinum in the Western Bushveld which already has a 4.75 PGM resourse as well as major projects in Canada and South Africa. With the stock near yearly lows, it's a cheap play on platinum prospects.
With silver zooming lately, investors seem to have woken up. My favorite silver play remains Endeavour Silver (EDR-V $1.90 Canadian, EDRGF-OTCBB, 21 million shares outstanding, website). Endeavour is in production, estimates a cost of $4.50 per ounce and thinks they can produce 1.3 million ounces this year. It's a profitable company and the closest thing to a pure silver play that I know of. At the show they had a few super little 5-oz extra-shiny silver ingots from their mine in Santa Cruz, and I was lucky enough to be given one as a gift for Barb.
The next best alternative would probably have to be Excellon Resources. (EXN-V $.22 Canadian, EXLLF-OTCBB, 111 million shares outstanding, website). Excellon is actually in production and is stocking ore at the surface pending delivery of a missing vital part for their new crusher. They have several million dollars worth of silver/lead/zinc on surface with grades up to 3000 grams per ton of silver and 30% combined lead/zinc. Sometimes I shudder at how boneheaded management can be. These guys haven't released any public information for two month and they are in production. They should be shouting from the rooftops. I talked to them in New York about internet advertising but they don't want to spend the money. Why should they, I pointed out, as I pointed out the window overlooking Times Square at a booming Coca-Cola sign? Hell. Why should you spend money to tell your story just because Coca-Cola does? After all, Excellon is a far better-known name than Coca-Cola.
Boneheads. I run into them all the time in the mining business. They also have 111 gazillion shares outstanding which is about 5 times too many. It's hard for the shares to move at all with that many shares. Management got approval for a roll back and lacks the gumption to actually execute it. As the mine has gone into production, the shares rocketed all the way from $.16 last August to $.22 now. If they go any higher, it will be in spite of management and will probably give me a nosebleed.
There is another silver/lead/zinc company I really like. Apogee Minerals (APE-V, $.28 Canadian, AGEEF-OTCBB, 16.75 million shares, website) is in the process of duplicating the business model of Endeavour Silver. They have an option, pending TSX approval, on a producing silver /lead/zinc mine at La Solucion just outside of La Paz, Boliva. The mine and mill are currently producing about 100 tons of ore per day. Apogee plans on increasing the capacity of the mill and mine.
In addition, Apogee has come up with spectular drill results at the Candelaria project in Boliva with 15 meters of 253 g/t silver, 13% zinc and 230 g/t Indium. ($1000 per kilo or $28 per ounce) and channel sampling at sister project Buena Vista in Boliva with 8 m of 202 g/t silver, 4 g/t gold and 13% combined lead/zinc. With a market cap of $4.7 Canadian it's not only a lottery ticket with a high payout, it's low cost.
Naturally the mines everyone likes to invest in the most are those just going into production or about to. I have written about Desert Sun for years, since the price was $.50 a share, three years ago. (DSM-T $1.70 Canadian, DEZ-Amex, 85 million shares, website). They began production in February as the stock shot up to $2.50 and it's backed down to a more reasonable price. Desert Sun projects 102,000 ounces of gold for the year.
The next best thing to buying a stock as they go into production is to buy one soon to go into production. European Minerals (EPM-T $.64, EPMCF-OTCBB, 195 million shares, website) has been the subject of a report by me before, back in November of 2004. European have completed their financing for the mine and expect to be in production by the 4th quarter of 2006. The project at Varvarinskoye in Kazakhstan has a resource of 2.2 million ounces of gold and 270 million pounds of copper and is now 100% owned by European.
The kicker is that EPM has a market cap of $125 million Canadian and has $100 million in the bank. You can buy the 2.2 million ounces of gold and 270 million pounds of copper for $.13 a share. That's as close to a gimmie as you ever get in business. There is a total of $.13 of risk. It doesn't get any better than that as far as I know.
I'll finish with two of my all time loves. First NovaGold (NG-T $9.54, NG-Amex, 66 million shares outstanding, website). These guys have the best management team in the mid-tier juniors (soon to be seniors). The stock hit a low of $.13 in 2001 at the bottom before rocketing higher ever since on the back of a lot of good management decisions and hard work. They have a whole shed filled with major projects and are currently focused on the Galore Creek copper/gold deposit in Northern BC with a resource of 13.75 million ounces of gold and 12 billion pounds of copper on top of their Donlin Creek JV with Placer Dome with a resource of a booming 25.4 million ounces of gold.
If you wanted to make 3-4 trades a year and retire rich, you could do it by starting with a chunk of NG and doing nothing more than buying the lows and selling the highs each year. The stock has a wonderful pattern and has been one of the best stocks to own in Canada for years.
Their baby brother is Eagle Plains with a stable of over 30 major properties. (EPL-V $.79, EGPLF-OTCBB, 42.2 million shares outstanding, website). Their portion of Copper Canyon, a JV with NovaGold adjoining Galore Creek is worth about $1.80 Canadian just based on metal value. In contrast with NovaGold, EPL is a very steady stock. The good side of that is that you can buy the shares and go to sleep for months in the reasonable expectation that the shares will increase as resources increase in value. You buy different stocks for different reasons. Novagold is a great trading stock, with a big trading range. Eagle Plains on the other hand doesn't change its price very much.
Readers should realize a lot of of the companies are advertisers, some are not. I write about the companies I know about and I know our advertisers better. The one thing that shocked me about my trip to New York last week was just how many companies were there which I had never even heard of. There are a boatload of juniors in the resource business and no one can know them all. While I have written about the companies I know best, there are lots of opportunites in resources right now. We own shares in some of the companes mentioned so take everything I say with a grain of salt. Take everything that everyone says with a grain of salt, it's your money.
I'm off to Brazil tonight for a few days to look at some properties in the wilds of the Amazon jungle for Amerix. Expect a write up in a week or so. Meanwhile, remember, it's a bull market for all resources, when prices pull back, it's not a problem, it's an opportunity.