The Fat Lady isn't Yet Singing...
...but she is warming up.
I ended a piece two weeks ago with an interesting prophecy. It read,
It was just another good call this year. It's getting easier and easier. I wrote it on the 6th. Look at a chart of the XAU. It shows a bottom on the 9th.
chart courtesy of StockCharts
If you want to be popular and poor, spend a lot of time and energy talking about how markets are manipulated. If you want to be rich, figure out how to to measure the psychology of investors.
We hit a historical extreme of emotion of gold investors in this last week. Those who understand how markets really work had an opportunity that will never again be offered in your lifetime to buy dollars for pennies. It was deleveraging, just as I said a couple of weeks ago. The giant $80+ rise this week was nothing more than some hedge fund that was short gold covering their shorts. Deleveraging, once more, nothing more.
Barbara and I used to be computer gurus. We owned and ran a website called MacCPU.com selling CPU upgrades to Macintosh users before Steve Jobs killed off the industry in the late 1990s. On occasion I would write articles on a variety of subjects. I wrote one in May of 2001, two months before we launched 321gold.com.
We were at another extreme of emotion then. You couldn't give gold stocks away. Let me take you back to what I said then,
We are at the same point today. It's going to take most investors a good amount of time to wake up to the fact share prices are increasing.
The financial world is in turmoil. Pundits of all variations are demanding the government bail out each and every market. That's very funny. The government caused the problem by making money too cheap for 60 years. And now these twits think government is the solution. That's very funny.
Everyone wants to know what is coming and I'm going to share it with my readers. You can go back and read everything I've written for years. I do have a clue.
There is a 50% chance there will be a total train wreck in the banking system. Right now banks are terrified of lending to other banks lest they get caught holding the bag. $596 trillion dollars worth of used toilet paper in derivatives is deleveraging and that's causing a world of hurt. We have a 50% chance of an Argentina style banking system failure.
24 hours after the first run on a bank in the United States, every bank in the world will have closed its doors. The banking system will be shut down for six months at least. You will be able to get tiny portions of your money and in the end most of it will have disappeared into electron heaven.
At the end of the day the United States government will declare bankruptcy and walk away from all their debts. The US will become a 3rd world economy overnight. Revolution or mass unrest is guaranteed.
There is a 50% alternative that the government's effort to reflate will work. They are talking about $700 billion dollars to buy up used toilet paper. Do not think for even an instant that $700 billion dollars of taxpayer money is chump change. It's not. It's far too small to be called chump change. There are going to be trillions of dollars in losses, tens of trillions of dollars in the end. The biggest question you should be asking yourself is if the world has enough trees to print all the paper we are going to need to paper over $596 trillion dollars worth of derivatives.
I use the term taxpayer money loosely. We are fighting a $3 trillion dollar pair of wars in Iraq and Afghanistan. The American taxpayer can proudly say that it isn't costing them a dime. We aren't paying a single cent in taxes for these wars. We are borrowing every cent. Don't fret about the $700 billion dollars George Bush just dumped down a rat hole. If the Chinese don't belly up to the bar, your great-grandkids can pay it.
You have heard me warn of the dangers of the foolishness from Washington for years. I have been on the fringe of financial advisors. I have been on panels with big gold bugs and many of them felt I was far too negative and it wouldn't be as bad as I said.
It's going to be worse. Our way of life as Americans has changed permanently and most of those changes are going to be negative. We are one signature away from a dictatorship.
We are one stupid decision of some 2nd Lieutenant or Ensign from a nuclear 3rd World War. It's so bad that even gold bugs don't get it. It's the biggest turning point in history and most people don't have a clue as to what to do. We are in uncharted waters.
My readers know what to do. I have given good advice for years. So here it is again. You are never in your life going to have the buying opportunity you have right now for shares in production and pre-production gold and silver stocks and energy stocks.
While everyone else is either licking their wounds or whining about manipulation, you know where you stand. In a few short days, governments around the world are going to start dumping dollars to beat the band. You want to be in hard assets right now. It's probably too late to take a major position in physical metal, either silver or gold. The next best thing is to be in good cheap gold and silver stocks.
One of the better known names in the industry went on the radio in Canada last week and said you should dump all your penny gold stocks, 90% of them would be out of business in a year. If you remember, two weeks ago, I was making the case this is the best time in history to be buying. We can't both be right. But who said gold was going to crash on March 17th and I'll give you a hint, it wasn't him. No, he's telling you to dump everything after a 70% drop.
Here's how tops and bottoms work. At every top, there are 1000 good reasons to buy. At every bottom, there are 1000 perfectly valid reasons to sell. When even gold bugs panic and tell you to sell, you should buy. When is the last time any herd made money?
Be a contrarian. When everyone around you is in a panic, you know what to do. Buy when there is blood in the street.
But what to buy? This is really going to startle you. The Chinese are holding $1.8 trillion dollars mostly in US instruments. They are waking up to the fact the paper is pretty much worthless. The only way they can make it valuable is to sell it and put the money into real assets. When they do, commodities, energy and precious metals are going to roar as they have never before in history. When the wind is high enough, even turkeys fly.
These are a few of my favorite picks right now. Many or most are advertisers but those are the companies I know the best. There are hundreds of beaten down shares well worth buying. This list is a just a sample, there are many excellent resource stocks to buy now.
Animas Resources (ANI-V) is in the midst of a 10,000-meter drill program at their 214 square mile Santa Gertrudis deposit in Northern Mexico. Results will be out shortly. I've been on the property in two visits. It's a lot more than a major project, it's an entire district and the first drill results will prove it.
The stock had a high of $2.14 in March and the yearly lows of $.67 a year ago before people started covering the stock. With 27 million shares outstanding, the stock is cheap. The company is sitting on $6 million in cash right now.
Arian Silver (AGQ) has a lot of shares outstanding at 131 million but already has proven up 80 million ounces of high-grade silver and silver equivalent. So you are buying 2/3s of an ounce of silver per share. An ounce of silver for $.15 is pretty cheap. I've been to the property and there is a lot more silver to be found. I'll guess they will find 200 million ounces and that brings the price of silver down to about $.05 an ounce. In 2003 similar companies were selling for $1 an ounce in the ground.
Of all the companies I am writing about today, Arian has the worst cash position, about $900,000 but one of their silver projects is at an advanced scoping study stage. It could be put into production in about 6 months at a cost of perhaps $3.5 million. The company is more of a pure exploration company than I would prefer to be buying right now but it could turn into a production story using contract miners in short order.
Bob Hoye has written a number of articles talking about the ratio between silver and gold. He has said that he believes the ratio could go as high as 100-1 in the financial crisis now unfolding. Silver is a commodity first while gold is money first. When we got back to a gold standard very soon because everything else has failed, silver is the metal that will be in the highest demand. That's when the ratio goes back to something like 16-1.
Arian has the projects to be a major silver producer. If you really like silver, Arian has the highest leverage to silver. It could be a $2 stock with what they have right now in a favorable silver environment. Given that it was a $.09 stock on Friday last, you owe it to yourself to at least consider. It's my favorite silver stock right now because it's so cheap.
ATW has to be my favorite gold stock. I've visited their projects in Western Australia twice. In a nutshell ATW bought two gold mines with two gold mills in Australia. They own $50 million dollars worth of plant and equipment. They have $10 million dollars in cash and 10 days ago had a market cap of $15 million. Duh.
RAB Special Situations got a giant margin call. They dumped their holdings of hundreds of precious metals juniors. ATW was one. ATW had 2 million shares dumped on the market. The action drove the price of ATW to a low of $.27 a week ago. I was begging people to buy the stock at $.27.
The Burnakura mine has a historic gold resource of about 425,000 ounces. ATW just released recent drill results that discovered an entirely new and high-grade area of mineralization including 15.6 meters of 13.37 gram gold. Their other mine, Gullewa has a 43-101 resource of 850,000 ounces.
If you subtract the cash on hand, $10 million, from the total market cap, $25 million, you are buying 1.27 million ounces of gold for $15 million dollars or about $12 an ounce. And that includes two mills worth $50 million.
Burnakura will be in production by December of this year. The best guess is production of about 50,000 ounces a year. I know of no other gold stock that is so well cashed up, has such quality of management and will be in production so soon.
Cardero Resource (CDU-T) is an old favorite of mine but I wish I could get them to speed things up a little. They have iron projects in Peru that went nowhere for three years. But iron is hot right now. The US may be entering a major depression but China is quite capable of consumption.
The Pampa de Pongo iron deposit has a 43-101 inferred resource of 953 million tons of 44.7% Fe. Cardero hired SRK early this year to complete a scoping study on the project. PdP is the largest undeveloped iron project on the west coast of the Americas. With easy access to a shipping port, the project has to be high on a Chinese wish list.
Cardero is in the midst of a 30,000-meter definition drill program with a soon-to-be-released updated 43-101 resource and the completion of the scoping study by SRK at Pampa de Pongo. When the updated 43-101 is released, Cardero will be in play. With nearly a billion tons in iron resource, CDU could easily be in the billion-dollar buyout range.
Endeavour Silver (EDR-T) is a company I've written about a number of times. The company is a primary silver producer with two major mines and mills in Mexico. They are producing about 2 million ounces silver yearly now and will be doing 3-4 million in the next 18 months. With a market cap of $100 million, they are cheap.
Great Panther (GPR-V) is another Mexican silver producer. It should be a core holding for anyone wanting to invest in silver. They will produce about 1.8 million ounces in 2008 at a cost of about $11 an ounce. Costs of production are decreasing and grade is increasing so they have excellent leverage to the price of silver.
The company is well cashed up with over $10 million on hand and a tiny market cap of $35 million. Investors are going to be rushing into silver and gold producers and GPR will be one of the early companies to get a boost. I love their management.
But the management I love best in the entire gold and silver junior market is the team put together by Jeff Pontius of International Tower Hill. (ITH-T) When he kicks the bucket they are going to stuff him, bronze the carcass and stand him in the corner. He is what all management of juniors should be and never are. He has always over delivered and under promised and you will finish a bracelet made of hens teeth before you run into that again in the juniors. I'd marry him if Barbara wasn't such a treasure and besides, I don't think he swings that way.
Bob Bishop and I went to see ITH days after they did the deal with Anglo two years ago. It was a wonderful theory and little more at the time. Jeff and his guys have run marathons since then and advanced everything yet the shares are 40% of what they were then.
One of the projects we went to see was called Livengood, north of Fairbanks with 12 month a year access on a major highway. I told him I thought it was one of their best projects and some drilling would prove up millions of ounces. Well, after some drilling, they have a 3.1 million ounce resource of .54 g/t gold. Look for more like 4 million ounces when the updated 43-101 is released in November.
At another, the high-grade Terra project, they have outlined a 428,000 tonne resource of 12.1 g/t Au. Terra could be put into production in 18 months due to the high-grade and they can produce faster and cheaper than they can drill.
ITH has the basis for being one of the best majors five years from now or two or three great projects to be sold off at a giant profit. This the best management team in the business. And the stock is selling for about $30 an ounce of gold based just on Livengood. That's not going to last for long. There is going to be a rush into the safety of gold and silver juniors.
Ivory Energy (IV-V) is my best energy stock. We hold a big position in the stock. They have two primary projects. The best known is the Silverdale Heavy Oil project with 82 wells and 3.4 million BOE reserves. An independent review shows a NAV of $.71 per share and the stock is selling for $.20.
But of even greater interest to me because it's been totally been ignored by the market is the Alberta Gas project where Ivory owns 14% of one well and 20% of another. The first well produced at a rate of 5.6 MMCF and Ivory's portion is 784 MCF. That well is connected and producing but the company has been very quiet about it. The 2nd well will be connected in the 4th quarter. The pair of wells could easily add 300 BOE production daily.
Ivory Energy has 66 million shares on a fully diluted basis. They are exceptionally highly leveraged to the price of both oil and natural gas. I look for the shares to be selling for upwards of $1 in three months. When the stock goes above $1 I expect to see the Debentures (IV-DB) begin to be exercised for shares and that will reduce Ivory's overhead by $2.5 million per year. I'm betting on it actually.
I went to see the Juanicipio silver project of Mag Silver (MAG-T) three years ago with the brilliant and unmatched Peter Megaw. We stood on Mag's property and watched the line of drill holes approaching from Fresnillo, owner of the largest silver mine in the world. Peter said the best thing they could do is to do nothing. Just wait until it dawned on Fresnillo that they needed to do a deal with Mag. Mag Silver was about $1 a share back then. It's a lot higher now but lower than it was 6 months ago.
In June Mag released a current 43-101 showing their 44% portion of the project held 104.5 million ounces of silver. It also includes 480,000 ounces of gold and over a billion pounds of lead/zinc. Brent Cook went on BNN last week. He figures Mag's piece of the project is worth a NAV of $1.2 billion. Last Friday you could buy the whole company for a tiny $243 million and that includes over $60 million in cash.
Peter Megaw knows more about Mexico and the mining districts there than the next three experts on Mexico. If he is involved in a deal, invest with confidence, he's the best. Mag Silver should be a core holding for anyone wanting a quality silver story.
Palladon (PLL) gets no respect for their iron story in SW Utah at Iron Mountain. It's pretty much because of lousy communication because it's an incredible story. Palladon has an iron production facility at Iron Mountain just now going into production. They have a contract with a Chinese customer to deliver 2 million tons of direct shipping ore a year. They are building a magnetic separation unit that will further upgrade the iron. I expect them to make $20-$30 profit a ton. They are just now going into production. There are 169 million shares outstanding selling for about $.50 a share. Give me a break. $85 million dollar market cap on a company that easily could be doing $40 million in profit. If you like iron, it's hot right now, you have to love Palladon. It's about as cheap as you are ever going to find a production story.
My last but not least story is another of my favorites, Pediment Exploration. (PEZ-V) The company has $17 million dollars in cash and a market cap of $55 million. They have two brilliant gold projects. The near-term production story is at La Colorada. La Colorada has been in production twice in past history. There is a plant with associated leach pads already in place.
The prime project, however, is the Baja gold project with 1.45 million ounces of gold already with the results of another 60-70 holes to be added soon. It's relatively high-grade and at the surface so could be put into production in relatively short order.
Gary Freeman (Pres/CEO) and Chester Millar (Chairman) have done a brilliant job of keeping the company cashed up. With everyone else in the industry scurrying around begging for money to keep the doors open, Pediment has enough money for their needs and for acquisitions if they come up.
You are buying gold at $25-$35 in a near term production story with a very well managed and cashed up company in one of the world's best countries to do business in. It doesn't get much better than that. Or safer.
We own shares in many of these companies and most are advertisers. Presume safely that we have a bias and get benefit should the price go higher. That said, you are the one who profits from your investments which is as it should be. So you also have a responsibility to do your own due diligence.
The alternative to buying good resource stocks right now is keeping it safe in something like Fannie Mae bonds or a good money market fund. That's akin to giving it away.