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Opportunities in Tax-Loss Selling

Bob Moriarty
Dec 3, 2007

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.

1. NovaGold Resources (NG) and Teck Cominco announced last week construction postponement of the giant Galore Creek copper/gold mine in Northern BC. NovaGold promptly took a 50% haircut, diving from near $20 to a new two-year low of $8.59 in two days. Project costs were estimated to soar to $5 billion from $2.2 billion.

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.

2. Copper Canyon Resources (CPY) took a similar haircut from $1.25 to $.35 on the same news. I went to visit the Copper Canyon project with Tim Termuende two or three years ago. It seems to me the shares of Eagle Plains were about $.70 and the price did nothing in years. Tim wanted to know how to build shareholder value and I told him to spin off Copper Canyon. He did and the value doubled in short order.

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.

3. Eagle Plains (EPL) has been drifting down from $1.25 since the financial crisis poked up its head in July. The Galore Creek announcement scared investors. They promptly drove the stock to a new yearly low. The company has 35 projects, is cashed up and has excellent management. It's a perfect tax-loss purchase at this time of year.

4. Acadian Mining (ADA) I wrote about the company four months ago and the shares were $1.11. As a result of tax loss selling, the shares went for a new yearly low of $.78 last week before recovering to $.88.

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.

5. Arian Silver (AGQ) doesn't fit all the requirements of a tax-loss candidate but they could easily drift down to new yearly lows in the next two weeks. Given the excellent drill results and solid management, I think you could see a $2 stock in the next year. At these prices, the company is a steal. It's a Mexican play that I happen to really like and is a long-term call on gold and silver.

6. Great Panther Resources (GPR) I had the honor of being the first 'letter writer' to have a chance to visit GPR's Guanajuato Mines property when Bob Archer first picked it up a couple of years ago. Stole it is more like it. Great company, great management, cashed up and has operating silver mines and mills in resource-friendly Mexico. This is a permanent call on silver. Any time you can buy them near their yearly lows, it's like stealing.

7. Running Fox (RUN) had a major German fund run into problems in August who had to unload 1.5 million shares. Nothing at all has changed with the company and the price was cut more than 60% from $1.30 to a new low of $.48. This is another long term call but on energy. The company hasn't quite figured out which direction they want to go but have a whole handful of interesting prospects. The company is making a real profit from the gas project and from their oil-field services company. It's an easy call. The stock will be higher a month from now.

8. Olympus Pacific Minerals (OYM) has a gold mine and mill in operation in Vietnam, a whole handful of blue sky potential and has lost 60% of its value because investors don't get it. You can and should. It's cheap and will be higher soon.

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.

9. International Tower Hill (ITH) hit a new all time low twice last week based on nothing more than tax-loss selling. The company has one of the best stables of solid projects in Alaska and top-notch management. If the price of the shares comes near a new low again, snap up the shares.

10. Palladon Ventures (PLL) may be the single best example of buying shares for no other reason than they are cheap during tax-selling season. I wrote about Palladon in 2005. The shares were selling for about $.43 a share. They rocketed up to $1.28 in anticipation of the company going into iron production quickly. Palladon owns half of one of the most significant strategic iron mines in the western USA.

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.

Acadian Mining
ADA-T $.88 Canadian (Nov 30)
139 million shares outstanding
Acadian website

Arian Silver Corp
AGQ-V $.40 Canadian (Nov 30)
105.3 million shares outstanding
Arian Silver website

Copper Canyon Resources
CPY-V $.35 Canadian (Nov 30)
48.5 million shares outstanding
Copper Canyon website

Eagle Plains Resources
EPL-V $.54 Canadian (Nov 30)
54.5 million shares outstanding
Eagle Plains website

Great Panther Resources
GPR-V $1.20 Canadian (Nov 30)
73.2 million shares outstanding
Great Panther website

International Tower Hill
ITH-V $1.75 Canadian (Nov 30)
38.2 million shares outstanding
Intl Tower Hill website

NovaGold Resources
NG-T $9.72 Canadian (Nov 30)
105 million shares outstanding
NovaGold website

Olympus Pacific Minerals
OYM-T $.48 Canadian (Nov 30)
232 million shares outstanding
Olympus website

Running Fox Resources
RUN-V $.49 Canadian (Nov 30)
38.1 million shares outstanding
Running Fox website

Palladon Ventures
PLL-V $.19 Canadian (Nov 30)
76.4 million shares outstanding
Palladon website


Bob Moriarty
President: 321gold

321gold Ltd