Water, water everywhere. . .
And not a drop to drink.
It occurred to me that I should really call this piece "Gold Stocks, gold stocks everywhere and not a share to buy" but that phrase just doesn't roll off your tongue very well. So I'll call it Water, water but think of it as gold stocks, gold stocks because that's what I really want to write about.
I can't be the only gold bug wondering about which gold stocks to buy today. There was a world of gold stocks I loved 18 months ago where picking gold stocks was about as difficult as throwing darts. Everything is up 300-400% from there it seems, and that makes me very nervous. I actually spend more times thinking about stocks I should sell today than stocks I should buy today. But with all the wonderful gold stocks around, there must be a few screaming, "Buy me, buy me." I think I may have found one.
I love reading my own stuff. Many times I go back and reread a piece just to see what I said about a company in the past. God I'm good. But everyone is brilliant in a bull market, not just me.
In May of 2001, I said:
And then in early December of 2001:
Silver Standard was about $2 then and was $7.80 last week. I'd say I called that pretty well.
I love writing about the precious metals stocks and where you can invest. But since I'm not a professional stock advisor, I don't write nearly as often as I would like to. We used to post Clif Droke's DROOY report at 321gold - he was doing a daily chart and analysis of DROOY which is probably the most liquid and easy to trade gold stock in the world. But some bozos thought Clif was being too good and wrote nasty comments on one of the DROOY chat boards. Since Clif's predictions were remarkably accurate, the only way that could happen, they figured, was if Clif was some sort of manipulator. I suppose if Clif had been dead wrong with his predictions, the complainers would have been quite happy.
I like to see people make money on stocks and while we do not get any "insider" data, we do talk to people in the business all the time. And I'm always asking questions. So we have a feel for who is real and who is not. The percentage of "real" miners is probably as high as it has ever been. Everyone else has been run out of business by the bad times.
Basically what I'm trying to say and using a lot of electrons saying, is that I like recommending companies, I just don't like taking flack about it.
In May of 2001 and as late as November of 2001 picking gold stocks to invest in was about as difficult as reading stock symbols. All you had to do is find a list of gold companies and throw money at them. I was recommending Hecla at $.80, for one investor I split $100,000 three ways, between DROOY, GLDR and RIC. He bought right at the low and GLDR has been a bit of a disappointment, it only went up 300%. All you had to do to make money was to buy gold or silver stocks and go to sleep.
One of the few companies worth writing about a year ago was NovaGold (NRI). They were $.13 early in the year and had zoomed to $.80 by the time I figured out who they were. Since they were climbing like a cat going up a tree with it's butt on fire, I wrote a lot of stuff about them. They hit $5.10 a few days ago for a 3900% gain. Are they a pump and dump ready to cream their investors? Actually not, I figure the stock is good for $20 to $50 a share at $450 gold. And gold is headed for $450 just as sure as I know the sun will rise tomorrow.
I have to laugh at investors and what they use to measure stocks. NovaGold released a scoping study in February.When you do a scoping study now, it has to be prepared by an outside 3rd party. The ole days (not the good ole days), when a company PR guy did the calculations of reserves and resources, are gone. And who will miss them?
So NovaGold releases this scoping study which they didn't prepare anyway and the study says they have 20 zillion ounces of gold resources and can produce 1 zillion ounces a year with gold at $275 and break even. (That's not really what it said but you should get my point)
So over on this chat board, some clown is talking about how NovaGold is headed for a fall because their scoping study showed 20 zillion ounces of gold and according to his calculations, NovaGold only had 19.5 zillion ounces of gold.
It funny how people tend to focus on the meaningless. And the question of 19.5 zillion ounces of gold in the ground or 20 zillion ounces of gold in the ground is almost meaningless. First of all, the report was based on $275 and $300 gold, gold is $325 or so now and we all believe it's going higher. I can't remember how many holes they drilled last year but they hit solid amounts of gold on something like 65 out of 68 holes. And when 95% of the sites you drill show that much gold, no one has any clue as to how much gold there is, the only thing anyone knows is that there is a lot more gold there than has been measured.
But enough of NovaGold and what a great predictor I am. (I was flying the F-4B when I was 20, I may have skipped the class in modesty) What I'm really trying to say is that I love predicting stocks. I just don't like taking flack about it. Some stocks, like NovaGold, are laydowns. NovaGold is a call on gold. If you like gold, buy some NovaGold. It doesn't matter what price you pay. If gold goes up, NovaGold goes up. If you like silver, buy Silver Standard (SSRI). It's a perpetual call on silver. If you think silver looks like $10 an ounce think about the fact that with a 25% increase in the POS, SSRI shot up 300%. Do the math yourself.
A lot of people are looking for a pullback in the price of silver and gold. The Bullish consensus on gold is getting very high and I get nervous when everyone likes the stocks I like. It's as if I've missed something. Picking stocks in advance is not a committee sort of thing. It has to be thought out. And when you know a stock can drop 25% in a day, you get very hesitant to write with predictions you may well have to eat in short order. When everyone agrees stocks can only go up, I like selling stocks.
I've found the perfect stock if you like gold and want to make some money. I've found one which is a hell of a deal no matter if gold goes up or down. How about that for a play? You make money if gold goes up right away and you make a lot more money if it corrects. That's like having your cake and eating it, too. Those sort of deals don't come along every day.
I wish I could say I invented this company or discovered it or was the first to write about it. I can't. As usual Jay Taylor beat the mob to the scene. I don't know exactly when he recommended them, it seems like two years or so back, maybe less. And when he called them a "Buy" the stock was selling for $.16 a share in Canadian dollars. Now I'm going to suggest something which probably will get me labeled as a heretic by the rest of the investing group but so what. I am a heretic.
When you are investing in what I call the "Penny Dreadfuls" or anything less than a buck, you may as well forget about stops. If you can't afford to lose 100% of your investment, don't bother investing in them in the first place. The reason they are "Penny Dreadfuls" is that they are non-dividend, usually non-earning, long-shots. You are not buying them to make 30% in the next five years. You are buying them to make 10-fold on your investment. And thinking maybe 100-fold.
Jay Taylor has a remarkable record for finding stocks early. And recommending them early. If you had bought NovaGold when he first recommended it and placed a prudent stop-loss, all you would have done is guarantee a loss. He recommended the stock about $.40 and it dropped to $.13. With the real winners, they are good at $.40 and great at $.13 and you should be backing up the truck to buy, not whining about the stock hitting your stop-loss. Forget the stop-loss with "Penny Dreadfuls" and hang on for dear life.
The company Jay Taylor recommended at $.16 is back at $.16 cents now after spending most of the last year below $.10 and actually dropping (plunging) to $.02 a share. It's called American Bonanza Gold Mining Corp and trades on the CDNX as BZA and the pink sheets at ABZGF.
Go buy some. And pray that it goes down so you can buy some more. Its a stock with such a compelling story that you should invest half a normal investment now and half if it goes down from here. I don't think it will but it might and rather than thinking of it as a problem, you should think of it as an opportunity.
What that means is that if you normally would invest $5,000 when you find a metals stock you like, buy $2,500 worth now and spend the rest if it goes way down. Do not put on a stop loss or the market maker will steal all your money. It's part of the fun of owning the "Penny Dreadfuls."
American Bonanza has about 65 million shares outstanding, with 78 million on a fully diluted basis. Their primary project is the Copperstone Mine in Arizona with about 1.2 million ounces of gold resources. That isn't a lot for any mining company but American Bonanza has located a high grade zone which contains some 67,000 ounces which could be mined very easily and would produce according to Taylor, some $.23 a share in free cash flow. (On a stock selling for $.16, that's not all that bad a deal). In effect, you are paying about $10 an ounce for gold.
Anytime you are buying a mining company, especially the small ones, you are buying the management. A mining claim is little more than a lot of dirt located in one place. It takes good management to turn it into ore and to create a profitable mine. I have said it again and again in other pieces I have written, the companies who are aggressively pursuing properties today are the winners of tomorrow. The long drought has killed off all the marginal companies run by shysters, they couldn't survive in the barren ground. They will be back with exaggerated claims but for now, go for the companies with management who saw a light at the end of the tunnel.
American Bonanza believes they can produce about 72,000 ounces a year out of the Copperstone Mine. Based on $300 gold the project would produce $.28 in net present value at a conservative 10% discount rate. By using the high grade bulk sample to provide cash flow, management believes they will have a 1.2 year capital payback period. And with gold at a higher price, you can add $.03 a share in profit for each $25 increase in the POG.
American Bonanza is another NovaGold in terms of management. Very heavy on Chiefs and no Indians. Brian Kirwin, President and CEO has 18 years experience in mining and worked for Placer Dome for seven years. (Placer Dome is like Apple Computer, they don't do much themselves but operate as a training ground for all the good people in the industry) He also was the VP for Exploration for Vengold for three years.
His number 2 man, Giulio Bonifacio, VP and CFO served in the same position at Vengold and has been a professional accountant for over 18 years. Overall, the entire management team, including directors is one of the strongest of all of the junior golds. They may not have the giant gold deposit of NovaGold but will be in production very soon. And it should go without saying, they have a plateful of other projects in progress at the same time.
We own a fair number of shares of American Bonanza. We would be daft if we didn't, knowing what we know. There are a heap of companies we like at the present time but the first company we would be adding more money to would be American Bonanza. And naturally we are just as prejudiced as we can be on the company.
Here's some other companies we like. We don't own them all but we do own a bit of most of them so I'm not going to be suggesting entry or exit points. Just as a matter of interest, I think American Bonanza has 50 fold potential in a real bull market but that's only an opinion.
1. If you wanted a dividend paying gold stock which acts like a gold bond, go for GoldCorp. It's one of the few stocks we don't own but it's a gold bond, not a high flyer. Of all the people in the gold industry, Rob McEwen has the 2nd best understanding of how to use the web to communicate his message. This stock won't go up 10 fold in the next month but it doesn't much care for going down. And there are people who like dividends.
2. If you want to buy the GoldCorp of five years from now, you could do no worse than buying NovaGold. The stock was $.13 15 months ago and $5.10 last week. It will be a lot higher in the future. NovaGold is going to be identified as the company which created the new gold rush in Alaska and revitalized the industry. And I'd want a piece of the company if Donlin Creek didn't exist. They have exceptional management and they could mine gold in the ladies department of Macy's.
3. But if you really like exceptional management, you want to own some of Candente. I really liked meeting and talking with Joann Frieze in San Franciso last November. The stock was about $.15 a share Canadian and I thought I would do the same thing as I suggest with American Bonanza, buy half a loaf and hope the stock would drop.
It didn't and is now up about 300%. I have been dying to write something about Candente but haven't because they don't have one special project going into production that I can work some numbers up on. But if you want to invest in a winner, you want to own some Candente. When NovaGold goes to the ladies department at Macy's for their gold, it will be Joanne who would have discovered it first and who will sell it for massive profits to them or another giant. Candente is a pure exploration play with about the finest management around.
4. If you like hedging on a gold project between two companies, look at Alamos and National Gold. National Gold has 50% of the project and Alamos has the other 50% with about 3.4 million ounces of gold in resources. You are buying gold for about $5 an ounce but National gold shares are cheaper than Alamos. Great management in both companies.
5. Silver stocks aren't the "gimmie" they were a year ago but silver can and will move more than gold. Anyone preaching $1000 gold is also preaching $70 silver but they may not know it. Silver Standard is a pure silver play. It is a perpetual silver option and has management years ahead of the rest of the industry. They formulated their game plan almost 9 years ago and are in the midst of implementing it at this time with the higher price for silver. Anyone smart enough to be buying silver at $.02 an ounce has a clear future.
If you like silver dividends, go for Freeport McMoran Preferred D. It pays out 1/2 ounce of silver per year as a dividend as a shrinking preferred stock. You can buy 3 ounces of silver for about $11.50 today.
We like all the silver stocks and you can chose from Apex, Pan American Silver, Coeur D'Alene, Corner Bay and Hecla.
6. If you are a cheapskate and really like gold, but you just don't like paying much for it, consider Banro (YBEEF). At today's prices, you are paying about $3 an ounce for gold. It's in the Congo but gold is gold and they have some very rich deposits just waiting for one of the majors to snap them up. But not so cheap as today.