Opportunities in Tax-Loss Selling
The slow motion crash of the world's financial system continues. Last week we had our first "Bank Run" in 75 years with the collapse of Florida's Local Government Investment Pool. One more major bank failure and I suspect we will start having a fully-fledged "Run" on all the banks. Why not? The vast majority are bankrupt right now and only being supported by hot air.
In a depression, no real assets are created. And none disappear. They just change hands. Paper assets, of course, disappear into the vapor, overnight. That's what's been happening since Bear Sterns crapped out in late June. Look for an ever-increasing swarm of bad news until everyone wakes up. You, at least, have been warned for the last six months.
Shares in mining companies are representative portions of real companies with real assets. If you own 1% of a mining company, you will continue to own 1% of that company no matter how low the American Peso goes or how high gold goes. But every year at about this time, there is a short-term opportunity in the shares of companies that for one reason or another are trading at yearly lows.
Many investors will clear out the trash now and again (to take the tax-loss this year) in the hopes of finding more fertile ground to invest in. Their loss may be your gain because it's typical that investors like to throw out the garbage in the middle of December. I'm going to cover a number of shares in this position and give a short rundown on what I think of them. These are neither the best, nor the only. There are probably about 3,000 juniors out there right now. No one knows them all. These are companies I follow and I know. Some I own, many I do not.
These stocks are beat up for a variety of reasons, some reasonable, some not. But the ones I like should recover somewhat in January as tax loss selling abates.
Novagold says, and I agree, that it doesn't make sense to put the project into care and maintenance. Instead, NovaGold CEO Rick Van Nieuwenhuyse suggests that if he had his way, they would continue development for infrastructure.
Galore Creek is a monster project located above a glacier and requires a $100 million dollar road for access. 50% of the road and 20% of a massive tunnel, also part of the project, have been completed. Galore Creek is not a marginal project, the grade and tonnage is exceptional. It's expensive because resources are going up and that's not a good reason to stop. That's a good reason to continue.
The world needs the copper and gold from Galore Creek. Halting the projects makes every other producing copper/gold mine more valuable as well as near term production stories. Galore Creek is large enough that its production would have affected world prices for copper.
I have followed the company since the shares were $.55 apiece and yonks ago I said, "Writers find many words to describe mining companies. Vision usually isn't one of them. We just don't think of using vision and mining in the same sentence, they don't match up normally. But I found a company recently, a gold mining company, with vision."
Nothing has changed in over six years. NovaGold still has vision and the best management in any junior, period. Now you can buy that vision at a 50% discount. That's a good deal. They aren't going to double next week but unlike horseracing, in mining you always bet on the rider, not the horse. NovaGold is a long-term call on great management, copper and gold.
NovaGold owns 60% of the Copper Canyon deposit containing over a billion pounds of copper, 37 million ounces of silver and 2.8 million ounces of gold. They have an option on another 20% of the project so while it may look as if CPY controls $5.5 billion in metal in the ground, actually they only control about $1.1 billion. But that should be worth $20-$50 million and as of Friday, CPY had a market cap of about $17 million.
It's a valuable resource and it may make more sense for NovaGold to simply buy Copper Canyon so they can own 100% of the project. In any case, it's another long-term call on copper, gold and silver.
Acadian owns a lead/zinc mine in Nova Scotia that is just now going back into production. They anticipate something like $30-$60 million in cash flow in the current fiscal year. This is like stealing candy from a baby. Acadian has excellent management and good cash flow. While I think the base metals will decline over an 18 month period, when the market wakes up to what Acadian already has, the shares are going a lot higher. If you see them hit new lows in the next two weeks, buy a cheap call on lead and zinc.
I wrote about Olympus Pacific and their sister SEA gold company, Zedex, last July. Nothing has changed except the price of gold has gone up a lot and they are fully cashed up and ready to take advantage of it. The stock is down because the stock is down, it will go higher.
I'd like to word this gracefully; the best I can say is that the prior management of the company deceived me and everyone else about the status of the project for many months. I was told in May of 2005 that it would be shipping ore in July of 2005. I couldn't for a moment figure out how. They didn't have any production facilities but that's what I was told. Now, three years later, the same deceptive manager is still a director. Only God knows why, it's beyond the comprehension of us mere mortals.
I talk to the company every six months and for three years now all I am told is that they are on the verge of doing something that will get the mine into production. Who knows? Maybe someday lightning will strike and it will happen. It's a great deposit and iron keeps going up.
But at this time of the year, you should ignore deceptive management, you should ignore major projects being shuttered, you should ignore everything but price. I casually follow Palladon. On Friday I saw it hit $.14, down from a yearly high of $.46 and I put in a stink bid for 100,000 shares. And I got it. I put in another order for 100,000 shares at $.13 and got it. By the end of the day - Palladon closed at $.19 - I was up 40%. In one day.
Don't buy the shares at $.19. But if they come down to a new low, load up the truck. The stock is either going to go to $2 or to $.02 and I can't really predict which. But if one in five investments made at $.135 goes to $2, you are still ahead even if all the rest go to zero.
There are many many other companies in the same boat; I'm just giving you a sample. Do some work on your own, find some companies you like, selling at or near yearly lows, and pick up some cheap lottery tickets over the next couple of weeks. I said a month ago we were going to have a correction in gold and silver. It hit with a vengeance. Gold and silver shares are about to explode. The correction is pretty much over and it's buying time.