A month ago, I wrote a piece I titled, "Caution, Caution, Caution." I suggested gold investors use caution as the dollar looked stronger and gold looked weak. But Yandal blew up in face of the investment bankers because of their insane gold hedges (Hint, it's insane to hedge 3.6 million ounces when you only have 3 million. That isn't a hedge, that's shooting dice) Gold has been up and down for the past month like a bride's nightie as much as $12 in a day but without a clear direction.
I think the call was good. Gold stocks haven't moved much over the past month and the dollar did a tiny dead cat bounce. But now it appears gold shares are beginning to act as if they are waking up. In the past 10 days or so, Cardero (CDU) was up 20%, IMA Resources (IMR) is up 30%, even Crystallex KRY almost doubled (not that this is a recommendation of KRY, I wouldn't own it on a bet).
This market is at a turn in the road. The general stock market is at a top. A top which may never be touched again in real terms in our lifetime. Believe it or not, general market investors are both more bullish on the market than in March of 2001, they are less bearish. It's a marriage made in hell. The market has peaked or is about to. The next move is down and it's going a lot lower than last October.
Back in September I wrote a piece about gold stocks but I also covered the general market. In it, I said, "The signs of a major bottom in the stock market are beginning to appear. That represents both great risk and great opportunity. The chance of a major bottom between now and the third week of October is excellent."
Then, ten days later on September 30th, I said, "Baby Bush and his flock of lawless Chickenhawks are certainly doing their very best to speed up the date of the Apocalypse but take my word, it isn't coming Tuesday. But to those few brave individuals who held on to their tech stocks all the way down, the end is at hand and the sheeple are dumping stocks to beat the band. It's capitulation time and if you want to see how it will play out, go back and find a chart of the Dow for May of 1970.
This isn't THE BOTTOM, it's just a bottom. The Bear has years more to run."
The bottom came a week later and now, 9 months later, the mob is finally convinced we are back in the true Bull. Wrong. The same bozos who couldn't give stocks away fast enough in October now are gobbling them up. The Bear is awake and hungry and all the fools who believe in Cisco and Microsoft and eBay are about to get a major lesson in real world economics. But what does than mean for my fellow gold investors?
First and foremost, don't forget this. We are in a gold bull market. For the foreseeable future, if you buy gold shares and they go down, the market is probably going to bail you out. There is risk, major risk, but it's in being out, not being in. Gold shares are going to go up, way up. We have had a year long correction, we have had a minor month long correction and the weak hands have been shook out. Gold and silver stocks are going higher.
The dollar is toast. And I don't mean toast in terms of the dollar declining 30%, I mean the dollar is history. We are going to do what the Mexican Peso did from 1982 through 1995 and the revaluation will be done by adding a lot of zeros. Officials of the Treasury Department revealed to Congress on March 3rd that if we used real accounting, we would show a 44 trillion dollar debt increasing by 1.5 trillion a year. The numbers are staggering and should be sobering. Instead, the American Sheeple greeted them with a loud collective yawn. As long as they can buy SUVs at zero percent interest and their caves go up 25% a year, they are doing just fine.
When interest rates shoot for the moon, the dollar collapses and real estate plunges, look for the American Couch Potato to turn into a furious mob. I fully expect the banks to close, our system to slow to an almost halt and civil unrest. If you just think about it, the Patriot Act wasn't aimed at Osama bin Laden and his thugs. Our government doesn't even care about him. The Patriot Act was aimed at the American public when the real crash takes place. When the mob got unruly in Rome, their rulers would give them grain and entertain them with lions eating Christians. It's going to happen again. Just make sure you don't look like a nail, you might get hammered.
Silver is looking very good. The COTs look better than they have for a long time. Silver has been trading in a range from $4 to $5 for three years. Traders and investors are so sure that it will stay in this range that I believe it's about to bust out. The smartest investment money in the world has been betting on silver for 5 years, George Soros, Warren Buffet and Bill Gates. It might be a good place to be.
As a pure silver play, Cardero (advertiser) CDU is impossible to beat. They have a winter drill program going on right now in Argentina and will be announcing what I believe to be wonderful results for months. All the market is waiting for to blast CDU out of the box is a 43-101 resource. I've called it a ten-bagger before, I'll call it a ten bagger again. If you like silver, you will like Cardero. It's also up 20% in two weeks. [Important read update Jun 19, 2003]
For a sure shot on Cardero, you can always buy Ascot (AOT) If you buy five AOT shares, you own 1 share of CDU. Last week AOT was selling at a 40% discount to CDU. CDU is a buyout candidate and to control CDU, someone is going to buy AOT first.
I went by the IMA Resources (IMR) booth in Vancouver. If you are a rock hound and have a chance to see them at any trade show, you want to see their specimens. Some of the rocks assay 50,000 and above grams of silver per ton. Their assays are spectacular. When they begin a drill program later in August, expect the stock to roar. The stock was $.80 Canadian at the time of the PDAC which was just after they announced their 5800 meter find in the hinterlands of Argentina. It shot up to just over $1.05 and came right back down for the longest time. For those who listened to my ravings on the shares have done very well, in the past ten days, the stock shot from about $.95 to over $1.35. The stock is a pure option on silver lead and copper.
And if you like combined copper/silver or copper/gold, I talked to two more companies you should have on you must have list. I have mentioned Northern Orion (NNO) in the past as a perpetual copper option. They are in the process of closing a deal for 12.5% of the giant Alumbrera mine in Argentina. Alumbrera is estimated to produce an average of 426 million pounds of copper and 546,000 ounces of gold annually until 2011 at a net cash cost of US$0.21 per pound of copper, placing it in the lower portion of the bottom quartile of copper production costs.
To finance the deal they needed to do a private placement at $.13 which resulted in a giant dilution. In two weeks they are doing a 10-1 rollback which will bring the number of shares back to something reasonable. In most cases with gold/silver shares, a rollback is a guarantee of lower prices. In this case, I expect the opposite.
Northern Orion's prime Argentina property is the 100% company owned Agua Rica property with 10,000,000 ounces of gold and 18 billion pounds of copper. They hope to combine economics of scale by starting off processing ore at the Alumbrara mine and reducing capital costs necessary to get to full production at Agua Rica.
When I was in Vancouver, the management of Endeavour Mining Capital (EDV) sponsored a special dinner for special, important people (and invited me, crikey). There were about half a dozen Endeavour management types there and I was uniformly impressed with their caliber. Frank Giustra has assembled a first class management team at Endeavour. But after the meal, we were sitting around chatting over a glass of wine. The CEO of Northern Orion began to talk about losing 20 pounds in the last few weeks on the Atkins diet. He had the entire group in stitches. You cannot image how someone could make the carbohydrates contained in a carrot humorous but he did.
In any case, the Northern Orion story is compelling. If you believe as I do that real assets are the only way to invest now, you will like NNO. The management is brilliant, they have brought in producing assets, they have a giant copper/gold mine in the works and know what they are doing. Barbara has a daughter who works in Miami who had a tiny amount of money in a retirement account as the result of working for a company for only a short time. She wanted our suggestions as to where to put it for the best return. My preference is always for spreading out the risk but in this case, it was impossible as there was less than $800 in the account and commission costs would have eaten up any potential profit if made in 3-4 stocks.
So we chose the one stock we like the best today. It was Northern Orion.
But if I was a betting man. And I am. And I liked copper and gold, I would also look at Northern Dynasty (NDM) managed by the Hunter-Dickinson group. I met with Robert Dickinson in Vancouver and he filled me in. Basically, the Pebble deposit in Alaska contains 3/4 of an ounce of gold and 400 pounds of copper per share of NDM which sold last week for $.94 Canadian. They are starting drilling right about now and expect to be announcing results for months in the future. They do need to make a large payment by November of 2004 but again, if you believe in copper or gold, it's hard to beat those prices.
Buying NDM is a pure option on either copper or gold. I know of no other company which has gold and copper at such a low price. HDI has managed several projects similar to this in the past. They pick up a prime property, drill and prove it and sell it off to a major at a giant profit to their shareholders.
This is the best property they have ever had. At higher copper prices or higher gold, some major is going to snap this up. It's not going to be at $.94 though.
Endeavour Mining Capital (EDV) is always my favorite if you want a merchant bank. It always will be, not least because they are unique in what they do. Frank Giustra and his crew have positioned the company perfectly in terms of mission and time. The biggest single problem today, even at $360 gold, is access to capital. Most tiny mining companies are far better at mining than at finding capital. Endeavour is there to provide the capital when needed. As a result, every good mining deal in the works gets passed by them. They can pick and choose which to invest in. As a result, they have a portfolio twice as highly leveraged to the POG as any of the companies they deal with as they load up with warrants and options. No one has any idea of how incredible their earnings are going to be in a booming gold market but I will warn you. When you buy the stock, get a seat belt.
I have hammered on them to actually post their Net Asset Value on their web site daily or weekly. I think it's about $3.50 right now and the stock's $1.82. It's hard for me to come up with many better deals than EDV. You have prime management, stock selling for half its breakup value and probably at a PE of about 1 once they get cranking. I have no problem saying the price of the stock is absurdly low and calling Endeavour a 10-bagger is like calling snow cold. It should be part of every portfolio.
Endeavour hasn't agree to post the NAV, they believe it's a ceiling to the share price. Nothing could be more absurd, it's a floor, not a ceiling. But I will continue to hammer on them, it's the kind of information companies should be posting on the web. But as time passes, they will have more and more quarters behind the. Look back in about 9 months and you will think today's price is a misprint.
A really great core stock in any portfolio would be Apollo (APG) with an estimated 170,000 ounces of gold per year production this year, increasing to 204,000 next year. The company is the brainchild of David Russell and his highly experienced management team. It is so new that investors have yet to come to grips with the potential. Every $10 move in gold adds $2 million US in profit to the bottom line and the company is only worth $127 million Canadian.
I haven't talked
to every mining executive by a long shot but I will have to talk
to a hell of a lot of them before I find someone so on top of
things as David Russell. He knows the answer to every question,
having already thought it out. He's as sharp as they come. Apollo
is priced as if it's an exploration company but has four major
projects either in production or soon to be in production. Apollo
is a core holding in any sensible gold account.
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