Road Less Traveled - Contrarian Report

Transcription

Road Less Traveled - Contrarian Report
May 2013 – Jason Hamlin
“I shall be telling this with a
sigh somewhere ages and ages
hence: Two roads diverged in a
wood, and I –
I took the one less traveled
by, and that has made all the
difference.”
- Robert Frost
Another Month, Another 4% Gain for the S&P 500!
Nothing seems able to stop the stock market rocket from blasting higher month after month. In fact,
the S&P 500 finally broke above the 1,600 level in powerful fashion on Friday, ending the day with a
1% gain to 1,615. This is the first time the index has ever eclipsed this mark. The stimulus appears
to be working for stocks, but commodity prices have continued on their downward trajectory.
This is an odd disconnect, since most of the companies rising higher on the stock indices need raw
materials in order to build all of the new products they are selling so quickly. To some extent this is
true, but much of the stimulus is going to the banks, which prefer computerized debt entries over
actually producing anything of real value. But I digress. Let's look at the latest employment report.
The unemployment rate dropped from 7.6% to 7.5% during April, as the economy added
165,000 jobs. While the change was not significant, investors seem desperate to celebrate something
and sent stocks 1% higher on the day. The good news is that for once it was actually driven by more
people finding jobs, not by people leaving the labor force. The ratio of the population with a job
ticked up slightly to 58.6 percent, from 58.5 percent. The number of long-term unemployed, those
out of work and looking for a job for more than 27 weeks, fell by 258,000.
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Gold Stock Bull © 2013 (www.GoldStockBull.com)
May 2013
Adding to the positive news, February and March's employment numbers were revised up by more
than 100,000. If this pace continues, the unemployment rate will be about 6.8% a year from now.
Unfortunately, the broader measure of unemployment that captures people who have given up
looking for a job out of frustration and those who are working part-time but want full-time work,
actually rose, as U6 ticked up to 13.9% from 13.8%. Also, the average workweek fell to 34.4
hours, from 34.6 hours, suggesting businesses are relying on part-time workers, possibly reflecting
the impact of the sequester and Obamacare. If the additional jobs offer fewer hours and lower
wages, the official recovery may not be as strong as it appears at first glance.
While the jobs outlook is moving in
the right direction, the civilian
employment to population ratio
remains at the lowest level in a
generation at around 58%. What is
really troubling about this chart is
how the trillions in stimulus pumped
into the economy over the past few
years failed to impact this chart in any
significant manner. I guess the
temptation of 99 weeks of
unemployment checks might be
keeping some folks on the sidelines.
But the bulk of the decline is simply a
lack of worthwhile jobs available to
those seeking employment.
The other chart worth a gander is the labor force participation rate, which remained flat at
63.3%, the lowest level since 1979. So if significantly higher percentage of Americans had a
job a few years ago than now, where exactly is the recovery?
Stock investors are behaving with no fear and the belief that there is plenty of powder left in this
rally. As a contrarian, red caution flags
are popping up and flashing “warning!”
However, I also believe it is wise to
trade the trend and stick with the
momentum until that momentum
changes. I have considered taking
profits on our non-precious metals
stocks, but will continue to hold with a
trailing stop target to protect from any
sudden reversal. Tyler at ZeroHedge
recently asked “Are Stocks Still Cheap?”
with some charts worth a quick look.
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May 2013
GDP Growth and Manufacturing Slow in the U.S.
If you raise taxes on the middle class and small businesses, growth is going to slow. So it should
have been no surprise that GDP growth for Q1 came in at an annualized rate of just 2.5%.
Of course there will be revisions in the coming months, but this number comes in on the low side of
estimations, with some analysts expecting annualized GDP growth of as high as 3.8%.
There were also signs that manufacturing is cooling, as demand for durable goods slumped in
March by the most in seven months. The Thomson Reuters/University of Michigan final index of
consumer sentiment also declined to 76.4 from 78.6 a month earlier (link).
Yet, consumer spending was actually up during the first
quarter overall, although much of the increase came from consumers
dipping into savings, which is not thought to be sustainable as the
pinch from payroll tax increases begins to be felt. The saving rate
dropped to 2.6 percent in the first quarter, the lowest since the last
three months of 2007, from 4.7 percent in the prior period.
The Institute for Supply Management said the pace of growth in the
vast services sector slowed in April to its weakest pace in nine months. The services index fell to
53.1 last month from 54.4 in March, short of economists' forecasts for 54. It was the lowest
level since July, yet the BLS has stated that much of the April job growth came from the service
sector. Something doesn't compute.
Last month I stated that the S&P technical
chart was looking frothy and overbought,
so after another month of gains the
condition has become even more extreme.
Notice how every other similar advance in
the past five years has been followed by a
relatively sharp correction. Well, such a
pullback to support at the blue trend line
seems overdue, but I'm not quite ready to
bet on such an occurrence. I imagine
stocks can get even frothier before
deciding to retreat, but think it would be
wise to pick up some downside insurance
at the first sign of a crack in the facade.
The other thing to point out in this chart is
how sharply volume has dropped off since the financial crisis. Declining volume often signals that a
trend (in either direction) is lacking conviction and therefore more prone to a sharp reversal. Of
course, that is not always the case, as pointed out in this article. Still, I believe caution is warranted
at this juncture. Overall, I am a bit less bullish on stocks which have become over-bought and
remain very bullish on mining equities, which have bounced off lows and started to rally.
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May 2013
Debt / Deficits / Dollar
U.S. Debt-To-GDP Ratio: 103% (Post WWII High!) Including Unfunded Liabilities: Roughly 500%
The government only added $65 billion to the national debt in the past month, down significantly
from the $170 billion added in March. This is driven partly by the recent sequester spending cuts and
increased payroll taxes. Usually this time of year is the best for government cash flow because
annual tax returns flood into the Treasury in April. The Treasury says it expects to pay off $35 billion
of debt in the second quarter. That compares to an earlier forecast that it would have to borrow $103
billion. This is a welcomed step in the right direction, although I don't think it is sustainable,
especially if borrowing costs rise at some point in the near future.
“To preserve our independence, we must not let our rulers load us with perpetual debt. We must
make our election between economy and liberty, or profusion and servitude. . .I place economy
among the first and most important of republican virtues, and public debt as the greatest of the
dangers to be feared.” - Thomas Jefferson
The U.S. dollar remains in a multi-year downtrend, although it has been predominantly up in the past
year. As it approaches the top of its trend channel, I expect it will make another 'lower high'
somewhere below 85 and sell off once more towards 70. This could be the flame that lights the fuse
under precious metals, but we will have to wait and see how things transpire.
With the official inflation rate moving below the FED's target of 2%, the FED has said it will press
forward with an $85 billion-a-month bond-buying program and hinted it might even dial it up. This
marked a shift in the U.S. central bank's public tone and is contrary to claims by gold bears about an
early end to FED stimulus. Watch for the dollar to weaken and commodity prices to rebound.
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May 2013
Bitcoin/Crypto-Currency Update
The Bitcoin roller coaster ride has continued during the past month. After a
meteoric rise from 50 to 250 in under two months, the price of a bitcoin corrected
back towards 50, rebounded and then recently dropped again below $100
temporarily. I have been trading the volatility via selling above $150 and buying
back recently under $100. There is also a spread of around $50 between the price on exchanges
and on Ebay, leading to profit opportunities for active traders.
The chart shows the rise to around $260, subsequent drop, rebound and drop again. My strategy
will be to continue buying dips under $100 and taking some profits off the table on bounces above
$150. I believe bitcoin will once again climb above $200 and potentially towards $1,000 in the
coming years as demand increases and supply growth slows.
Of course, there are a number of unforeseen events that could derail such a price trajectory. The
government might find a way to effectively crush demand and limit use. A new digital currency with
superior characteristics could come along and steal market share from Bitcoin. Therefore, I suggest
only investing an amount that you can afford to lose and periodically taking profits so that you end
up with only profits at risk. I have long since cashed out of my original investment, although I still
have a good amount of bitcoin in play.
The latest bitcoin decline was fueled by news of a lawsuit by Coinlab against Mt Gox. The two
companies were supposed to be merging, but Coinlab is claiming that Mt Gox is not cooperating or
handing over their U.S. clients as promised. Perhaps it is the increasing volume and profitability that
has Mt Gox balking, but they have thus far claimed that they are unaware of the lawsuit.
Bitcoin has been called “gold for nerds,” but its legitimacy and use has been growing rapidly beyond
the confine of computer coders. In Kreuzberg, Berlin, the virtual currency has expanded off the
internet to become a favored medium of exchange in real shops and bars (see video here).
Bitcoin may be an experiment, but so is unbacked fiat currency like the USD. It may come down to
who you trust more, the community of peer-to-peer bitcoin users or Bernanke? Central bankers
certainly hope you choose the latter, but P2P currencies are providing a viable alternative.
If you haven't done so yet, click here to download the GSB Beginner's Guide to Bitcoin.
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May 2013
Agriculture & Energy
The FAO Food Price Index averaged 212 points in March 2013, up 1 percent (1.7 points) from February,
but 1.7 percent below March last year and nearly 11 percent below its peak in February 2011. Crude oil
prices have started climbing in the past week, up $2 to its current price of $95 per barrel. Gas prices
dipped in April to roughly 45 cents below this time last year. The national average is $3.50/gallon.
Hain Celestial Group (NASDAQ: HAIN)
Core Position
Bio: The Hain Celestial Group, headquartered in Melville, NY, is a leading natural and
organic food and personal care products company in North America and Europe. Hain
Celestial participates in almost all natural food categories with well-known brands that
include Celestial Seasonings®, Terra®, Garden of Eatin’®, Health Valley®,
WestSoy®, Earth’s Best®, Arrowhead Mills®, Hain Pure Foods®, and many others.
Growth in organic and health food products is significantly outpacing that of the overall food industry.
Health foods are transitioning from alternative to mainstream, as consumer awareness increases and
people seek to avoid questionable hormones and chemicals in many foods.
Update: Hain's share price continued
higher in April, advancing 6%. Earnings
were in-line with expectations , but
revenues missed, causing the stock to
decline a bit. Earnings of $0.72/share were
up 29% versus year ago.
Support at the 50 and 200 day MA has
held, which is a bullish sign. My price
target remains $75 by year end. The RSI
is back towards the midline and has room
to push higher again. I think we will see
HAIN continue its upward trajectory after
consolidating gains over the past several year.
GasLog LTD (NYSE: GLOG)
Current Position
Bio: GLOG is a growth-oriented international owner & operator of liquefied
natural gas (LNG) carriers, providing support as part of their LNG logistics
chain. Their fleet consists of 10 wholly-owned LNG carriers. Eight of the
latest technology ships with tri-fuel diesel electric (TFDE) propulsion
technology are on order and scheduled to be delivered on various dates between 2013 and 2015.
I believe natural gas demand will push higher in 2013 and that shippers of LNG in particular will be in
high demand. The global demand for LNG is on a rise with the number of exporting countries expected to
increase to 21 in 2015, from 12 in 2000. Similarly, LNG importing nations is expected to increase to 38 in
2015, compared with 11 in 2000. The number of LNG trade routes between countries has increased from
41 in 2001, to 157 in 2010. GLOG has already signed long-term contracts with British Petroleum and
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May 2013
Shell and expects 100% fleet utilization in 2013 and 2014. Earnings are expected to go up by 500% or
more from 2012 to 2014 and the company currently has a 3.8% dividend yield.
Update: GLOG advanced 5% during the
past month. The company announced
that Q1 financial results will be released
on May 15th. Several analysis re-issued
buy ratings and/or raised their target
price for the stock to as high as $18.50.
The technical chart shows how GLOG fell
outside of its short-term uptrend channel
during April, but bounced back very
strongly at the start of May. Last month I
stated this was just part of a market-wide
move and not company-specific. The dip
to $12 proved to be an excellent buying
opportunity. I think we will see GLOG re-enter the trend channel charted above in the coming months
and I maintain my price target of $20 by year end. I also believe 2014 and 2015 are going to be very
strong for this company as new carriers come online and their revenues rocket higher.
Critical Metals and Graphite Miners
The critical metals and graphite sectors rebounded in April, after dropping sharply in March. Molycorp
(MCP) was up 10%, Avalon Rare Metals (AVL) climbed 5% and Lynas Corp (LYN) advanced by 2%.
In the graphite space, Northern Graphite (NGC) was up 2%, Focus Metals (FMS) was up 10% and
Zenyatta Ventures (ZEN) advanced by 11%. I believe we are seeing attractive entry points and may
look to buy shares this week. My top graphite pick remains Mason Graphite, although Energizer
Resources (EGZ) has a stronger IRR on their Green Giant Molo project at 48% vs. 34% for Mason.
Mason Graphite (CVE: LLG or MGPHF)
Target Position
Bio: Mason Graphite is a Canadian mining company focused
on the exploration and development of one of the highest
grade graphite deposits known in the world. Its 100% owned Lac Guéret graphite property is located in
northeastern Québec near the main service center of Baie-Comeau and currently hosts a NI 43-101
compliant Measured & Indicated mineral resource of 7.6 million tonnes grading 20.4% Cg (carbon as
graphite). 20.4% Cgr is the equivalent to about 9.1 g/t gold. LLG started publicly trading in November of
last year, so it a relative newcomer to the graphite market.
I like Mason because their project is full of flake graphite with an incredibly high-grade ore body (20.4%),
their management has experience in the graphite sector and they are trading at a discount to
competition, despite having considerably more sale-able graphite concentrate in their project. Recent drill
results have been strong and their April 2013 PEA proved to be economic with a pre-tax IRR of 34%.
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May 2013
Update: Mason Graphite fell 6% this
month, after dropping 17% in March.
During April, the company announced the
long-awaited PEA study on their Lac Gueret
project in Northeaster Quebec. It resulted
in 22 years of production at 27.4% CGR and
an IRR of 34%. You can read more details
about the PEA here. Stonecap raised their
price target on Mason once again this
month, increasing it to $1.60. That is a
return of around 166% from the current
price. I think Mason is a steal anywhere
under $0.60.
The technical chart for Mason Graphite shows the stock dropping below its IPO price temporarily during
Aril, before bouncing back above $0.60. I am looking for $0.60 to hold as support and provide a base for
the next move higher. The RSI has plenty of room to push higher. I may wait for this support to develop
before picking up shares, but the company looks very cheap with a market cap of just $34 million and a
project NPV of around $300 million.
Energizer Resources (TSE: EGZ or ENZR)
Target Position
Bio: Energizer Resource is developing the Molo flaked graphite deposit in Fotodrevo,
southern Madagascar. The Molo deposit is located in the Green Giant Graphite project,
and is part of the joint venture (JV) property with Malagasy Minerals Limited in
Madagascar. Energizer has a 75% ownership interest and is the operator of the Project.
The Green Giant project has a very robust pre-tax IRR of 48%, NPV of $421 million (10%
disc), 20 year mine life at 8.5% head grade and 3 year payback. For more information,
check out this excellent article on the history of the company and push towards production in 2015.
Update: Energizer fell 17% in the past month and is down 47% year to date. The market has given the
company no value for coming out with an extremely economic PEA and I believe Energizer is very
undervalued. Of course, they will still need to raise nearly $200 million to move the project towards
production, so some shareholder dilution is
expected. Still, the project has a $421M
NPV and the company only has a market
cap of $26M.
The technical chart is not pretty, with a
sharp decline occurring since the start of
the year. Energizer is now testing its alltime low of $0.16 and has a market cap of
just $26 million, despite the NPV of $421
million on their Green Giant project and a
good amount of high purity battery-grade
vanadium to boot.
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May 2013
Gold Plummets by 15% in April Before Bouncing Back
The month of April witnessed the worst decline in gold in 30 years, as the price plummeted from
$1,600 to around $1,325, before bouncing back to $1,470 in the past two weeks. The chart below
shows just how steep the sell-off was and also how quickly the gold price bounced in the v-shaped
recovery. The chart also illustrates how the correction brought the gold price back to levels not seen
in over 2 years! But the long term trend line suggests gold should be trading closer to $2,000.
I've written about this correction
in emails and articles during April,
but suffice to say there was no
fundamental news to explain such
a large drop. Rumors of Cyprus
selling some of its gold would not
be enough to cause a drop of this
magnitude. Reports of the FED
ending QE are also not credible,
as central banking buying of
public debt is here to stay (QE to infinity) and may in fact increase as inflation remains tame.
A massive amount of paper gold was traded to cause this drop. In fact, the amount of paper gold
that was traded in the two worst days of this decline eclipsed the total amount of gold produced
worldwide in a full year! As usual, the regulatory agencies are sitting on their hands and pretending
this is normal market activity. Or more likely colluding with the banks that profit from the volatile
COMEX pricing. Ted Butler explained it well:
“On just about every other market, like stocks, bonds, currencies, grains, meats, soft
commodities yesterday was non-eventful price wise. The importance of this distinction that
only selected markets experienced unusual price weakness is that it eliminates many
general knee-jerk explanations about prices being impacted by broad macroeconomic
factors. How could broad economic factors influence certain commodities and not the stock
or currency markets?
Looking deeper, the commodities experiencing price weakness all have different
supply/demand fundamentals relative to one another, so as to eliminate the possibility that
all those unique fundamentals changed yesterday in synch. Commodity fundamentals
change glacially; it’s impossible for the supply/demand equation of many various
commodities to change overnight.”
The bullish part of this correction is how quickly prices have bounced back. It was meant to be a
shakeout and there were certainly some suckers that sold at $1,350 in a panic, but gold is now
approaching $1,500 once again. Buyers stepped up to the plate en masse to purchase both physical
metals and mining shares at discounted prices. Physical shortages emerged and premiums rocketed
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May 2013
to the highest levels that we've seen in the entire bull market. Silver eagles are still $5+ over spot if
you can find them, highlighting the glaring disconnect between the paper and free-market prices.
So, we know that demand is stronger than ever and supply has been
dropping. Yet, we have these paper-driven price declines that seem to
defy logic. It is my belief that manipulation of this kind is almost always
short-lived and eventually free market forces re-establish themselves.
When enough people spot the opportunity and buy the dip, prices return to some level of equilibrium
that reflects basic laws of supply and demand. In this case, the FED/banks have plenty of
ammunition in their war chest, so the market may indeed remain irrational longer than some can
remain solvent. This is why it is important to only buy what you can afford, take delivery and avoid
use of leverage in paper markets. This way you can't get a margin call or be forced out of your
positions. You can simply wait for the rebound or if you have the cash and fortitude, buy the dip
during the most panicked moments.
Eventually the gig will be up, the manipulators will be more thoroughly exposed and forced to exit
the markets. New exchanges will provide more honest price discovery, wealthy individuals and funds
will demand delivery or cash premiums, the COMEX will crash, people will panic out of fiat money
and the relative scarcity of physical gold and silver will force prices much higher. When this occurs,
premiums will hit new highs and it will be very difficult to secure physical at any price. Miners will be
able to command honest/higher prices for their product outside of the rigged COMEX game and their
share prices will once again rise to reflect the value of their assets.
Until then, don't fret these corrections. Embrace them. Rejoice for the opportunity to buy the dips,
because most investors only know how to buy the rallies and consistently miss the biggest gains.
Gold vs. Gold Mining Stocks
The HUI/Gold index has
dropped to 0.19. In other words,
mining stocks are now the most
undervalued they have ever been
since the start of this bull market.
They are even more undervalued
now than they were at the depths of
the financial crisis when everyone
was selling everything in a mad scramble for liquidity. But we aren't in such an atmosphere now with
the stock market making all-time highs and relative calm in the streets. So, what exactly explains
this ratio reaching such an extreme? Rising costs and tight credit markets have certainly impacted
the mining business, but I don't believe this is enough to justify all-out panic price levels for mining
stocks. I believe we are likely to see a significant rebound by year end and will continue to position
the GSB portfolio accordingly.
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May 2013
Silver Drops 20% to $23 Before Recovering Part of Loss
Silver dropped a massive $5 in just a few days during April, dropping from $28 to $23, before
recovering above $24 in the past week. The decline was more severe than I had anticipated, but
similar to gold, it was driven entirely by paper contract trading. While COMEX prices were dropping
precipitously, demand for physical silver and premiums were both skyrocketing to record levels.
The chart below compares the last major correction in silver to the current one. In 2008, silver
dropped from $21 to $9 for a decline of 57% in a matter of months. This decline was driven by the
financial crisis, which helps to explain the rapid and severe drop. Fast forward to the current
correction, and silver has dropped by roughly the same amount, 53%, but in two years rather than a
few months. Trying to assign a cause to this decline is not quite as easy.
The good news is that silver proceeded to advance by roughly 450% in the two years following the
last correction. If it were to do the same today, silver would need to climb to $125 by the end
of next year. History doesn't always repeat, but it is nice to have a target in the crosshairs.
The gold/silver ratio climbed to 61 during April, the highest level seen since 2010. I've
always believed silver to be the better investment in terms of ROI potential and the higher this ratio
climbs, the more attractive silver becomes relative to gold.
As previously state, I expect
the gold/silver ratio to return
to historic norms around 15
to 20 or possibly to the
manufacturing ratio closer to
10. Some analysts believe
the two metals will reach
parity before the bull market
is over, but I suspect gold will
always command a premium
to silver.
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May 2013
Precious Metals News Worth Reading This Month
Junior mining stocks see record insider buying – Those looking for even more
evidence that corporate executives are smelling bargains in the junior mining sector
should consider this: Insider buying on the TMX Venture exchange is near a record
high. INK Research’s Venture indicator is at 715 per cent today, just 20 percentage
points below its record peak of 735 per cent set on Oct. 27, 2008. That means there
are more than seven stocks listed on the exchange with insider buying for every one
seeing selling. It also marks a steep increase since early March, when the indicator was near 400 per cent.
Australia to Abandon the U.S. Dollar – Australia’s announcement that it is abandoning the U.S. dollar for
trade with China is the latest broadside in the global currency war. Starting April 10, Australia and China will no
longer use the U.S. dollar for trade between the two nations. For the first time, Australian businesses will be
able to conduct trade in Chinese yuan. No more need for U.S. dollar intermediation. China made a similar
move with France during the month , all of which pushes the dollar towards losing status as world reserve.
How the Gold Market was Crashed – There's been a recent huge draw down of physical gold at the New
York COMEX and at the JP Morgan Chase depository. Look at the physical market draw down on the charts. It
has taken a drastic plunge. HOUSTON -- we have a problem. The paper game is losing legitimacy.
Rothschild to pull out of gold market after 200 years - The investment bank that has chaired the London
meetings setting the world gold price since 1919 is quitting the market. NM Rothschild will withdraw from all
its commodity trading activities, which also include an oil trading business set up less than two years ago, as
part of a strategic review. The move brings to an end nearly 200 years of tradition. The company hosts and
chairs twice-daily meetings which effectively set the world's gold price. I am not sure the significance of this
news, but hopefully it signals a change in the price manipulation and suppression.
The Attack on Gold by Paul Craig Roberts – Insider activity is often one of the best indicators of future
share price trends. When there are 7 times more insider buy transactions vs. sell transactions, those in the
know have become extremely bullish. I think this is an indication that the bottom is near or has already been
reached. Given the oversold conditions, particularly when looking at the HUI to gold ratio, now seems like an
opportune time to build or add to positions in mining stocks.
U.S. gold mining output declines 225,055 oz in 2012—USGS - The U.S. Geological Survey Monday
reported 2012 U.S. gold production was 227,000 kilograms (7,298,219 troy ounces), down from 234,000 kg
(7,523,274 ounces) of production during 2011. Declining supply, alongside increasing demand = higher prices.
Asians Drive Gold Demand To 30 Year High – Asia is seeing a new gold rush as demand for gold bars,
coins and jewelery has soared. In Hong Kong and Beijing customers lined up outside banks and jewelery
shops to make purchases and in some instances there was not enough physical metal to meet the demand.
The Shanghai Gold Exchange’s cash contract hit a new record high yesterday (43 metric tonnes) while gold
coin sales at the U.S. Mint have nearly tripled in April against last month’s figures ( see here). Some believe
this increases the chances of a COMEX default . At any rate, the shortages continue.
Russia's Main Exchange Plans To Develop Gold Bullion Market - Moscow Exchange plans to develop
markets in gold and grains and will utilize its ownership in smaller local exchanges as the company seeks to
become a regional trading power, according to CEO Alexander Afanasiev. This should help with price discovery.
If you would like to follow the articles that I read and find worthwhile throughout the month, I usually post
them in real time to both the Gold Stock Bull
Facebook page and
Twitter page.
Page 12
May 2013
Current and Target Precious Metals Stocks
Central Fund of Canada (CEF)
Core Position
Bio: Central Fund of Canada is an investment holding company. It invests its assets in
unencumbered, allocated and segregated gold and silver bullion, in international bar
form. Central Fund’s nominal holdings of bullion certificates are deposited with
Canadian Imperial Bank of Commerce (CIBC). At least 95% of their assets are in gold
and silver bullion, with a split of roughly 50/50.
Update: CEF fell 9.5% in the past month. The fund is now trading at a 2% DISCOUNT, which rarely
occurs. In fact, it happened only once in all of 2012 and not a single time from 2006 through the start of
2011. Use this link to check the current premium/discount on CEF.
The technical chart shows CEF dropping
through support around $18.50 and briefly
dipping below $16. It has since bounced
back above $17, but is still trading at a
discount. To confirm that we have seen a
bottom, CEF needs to make a strong move
back above support at $18.50, which is also
the 50-day moving average. The RSI has
plenty of room to push higher, as the
indicator is well below the halfway mark. I
think anything under $17 represents an
excellent opportunity to establish or add to
positions in CEF.
Silver Wheaton (SLW)
Core Position
Bio: Silver Wheaton is the largest metals streaming company in the
world. The company currently has fourteen silver purchase
agreements and two precious metals agreements where, in exchange
for an upfront payment, it has the right to purchase all or a portion of the silver production, at a low fixed
cost, from high-quality mines located in
politically stable regions. By 2015, annual
attributable production is anticipated to
increase significantly to approximately 43
million silver equivalent ounces.
Update: Silver Wheaton dropped 15% in
the past month and is down 32% year to
date. The company will release Q1 results
on May 10th. Analysts downgraded their
target price from $44 to $38, which is still
roughly 50% higher than the current price.
The technical chart turned bearish with a
triple top and descending support line.
Page 13
May 2013
Sandstorm Gold (CVE: SSL or SAND)
Core Position
Bio: Sandstorm is run by the previous CFO of Silver Wheaton – Nolan Watson,
and has impressive contracts set up in a few short years. By making upfront
payments to its partners, Sandstorm receives volume-based production
payments (i.e. metal stream deals). They get all of the upside of exploration and new discoveries from
their partners, with fixed cash costs and reduced risk.
Update: Sandstorm Gold fell 14% in the past month. Cannacord upgraded the company to a speculative
buy and most analysts continue to have a price target in the $12-$14 range.
The technical chart for Sandstorm Gold
shows that the price has fallen sharply
through support and broken its trajectory
towards $15 or higher. It bounced off a
lower level of support above $6 and should
now find support around the $7.50 level,
which was resistance in 2011 and support
on a few occasions in 2012.
The upside potential for SAND is enormous
at this juncture. A return to the long-term
trend line would put Sandstorm somewhere
around $20. If gold breaks out once again
and pushes towards previous highs, I expect that SAND will double rather quickly to the $15 area before
pushing to new highs. I was early to catch the proverbial falling knife with SAND, but continue to believe
that the company is significantly undervalued given its growth trajectory.
Almaden Minerals (NYSE: AAU)
Current Position
Bio: Almaden Minerals pioneered the prospect-generator model. The company
has a very well respected management team and is run by top-notch geologists.
They own their own drill rigs and unlock value via discovering resources, selling
them to producers and acquiring a royalty in the process. The company currently has 15 exploration
royalties, with a few nearing production. Almaden's recent focus has been on Eastern Mexico, where their
main Ixtaca project resides. A maiden PEA is
expected by year end and Almaden is drilling
El Cobre aggressively.
Update: Almaden dropped 15% in the past
month on no major news. The technical chart
remains bearish but management has hinted
that the company is close to finding a buyer
for Ixtaca, which should push the share price
much higher on the news. I am holding for
now but may consider exiting my position on
continued underperformance. Insiders were
buying shares of AAU during the past month.
Page 14
May 2013
Aurcana Corporation (CVE: AUN or AUNFD)
Current Position
Bio: Aurcana is a Canadian junior mining company that owns the producing La
Negra mine and newly-producing Shafter silver mine. The completed development
of the company's two current projects has the potential to quadruple currently
established silver production to over six million ounces silver equivalent per year.
The company is already profitable, has no debt and is unhedged. The Shafter silver mine in Texas could
become the 12th largest primary silver mine in the world and has an estimated payback of less than a year
Update: Aurcana fell another 21% this month and is down 46% year to date. The 1-for-8 share
consolidation went effective April 30 th and the stock is now trading around $4. The company reported year
end financials this months with revenues up 48% and silver eq production up 33%. The La Negra mill
upgrade to 3,000 tpd has been completed on time and on budget. However, the Shafter mill has
experienced a number of technical difficulties and has not yet reached its initial target of 600 tpd. These
growing pains are normal, but over-promising and under-delivering tends to anger shareholders.
The technical chart shows a waterfall decline
in Aurcana to under $3 (post share
consolidation) briefly, but it quickly bounced
to above $4.50 and remains above $4 today.
The stock has a long way to go to recover
recent losses and needs to climb above the
200-day moving average around $7 and then
back above the trend line at around $8.50.
This would represent a double from the
current share price.
Aurcana will likely miss their target of
doubling production from 2.5 million ounces
in 2012 to 5 million ounces in 2013, due to technical issues with moving Shafter towards full production.
Still, the market is valuing Aurcana as if Shafter wasn't producing at all and will never produce silver. I
expect the market cap and share price to adjust much higher as Shafter starts producing near capacity
around year end. I think anything under $5 will prove to be an absolute steal and believe that once the
share price climbs back above $5 and Shafter begins firing on all cylinders, institutional money will pour in
and help catapult the share price to new highs. Accordingly, I am holding Aurcana for the long term and
may add on this dip. Click here for a recent interview with CEO Lenic Rodriguez.
Goldrock Mines (CVE: GRM or MFMNF)
Current Position
Bio: Goldrock, formerly Mansfield Minerals, discovered the 100%-owned Lindero
deposit in Northwest Argentina in 1999. The company has developed it to a feasibility
stage 3M ounce project. The bankable feasibility study on the Lindero gold project
was completed in April of 2013. It calls for an open pit gold mine operating at 15,000
tpd, with production of 128,000 ounces during the first three years and 109,000 ounces for the life of
mine. The study concluded a pre-tax IRR of 42% and after-tax NPV of $215 million. With project
permitting completed, the company is now focused on funding alternatives to begin construction.
Update: Goldrock Mines dropped 6% during the past month, despite releasing a very robust bankable
Page 15
May 2013
feasibility study with a pre-tax IRR of 42% and after-tax NPV of $215 million. Not bad for a company
with a market cap under $40 million. They are currently looking at ways to finance mine construction, so
we could see some near-term dilution, but I think the company is significantly undervalued and like the
risk/reward tradeoff going forward.
The technical chart shows GRM sliding
back below its 200-day moving average
over the past two months. It is also
bearish to see the double-top and failed
breakout attempts. However, a new
uptrend looks to be forming with support
at $0.60 and the RSI has room to push
higher. This stock still flies under the
radar of most investors, so the full
realization of a very economic feasibility
study has probably yet to be translated
into the share price. It is a speculative
play at this juncture as the company still
needs to find financing for the construction of Lindero. But with numbers this strong, I don't imagine
they will have much trouble. I am holding with a price target of $1.50 within 2 years.
Pretium Resources (NYSE: PVG or TSE: PVG)
Current Position
Bio: Pretivm is creating value through gold at its 100%-owned,
advanced-stage Brucejack Project located in northern British
Columbia. The high-grade gold opportunity at Brucejack is the
catalyst for near-term production, and main focus of the company. The resource comprises 5 million
ounces of gold in the Indicated Resource category (9.9 million tonnes grading 16.2 g/t gold) and 5 million
ounces of gold in the Inferred Resource category (4.6 million tonnes grading 35 g/t gold). The updated
Mineral Resource estimate will be used as the basis of the mine plan for the feasibility study currently
underway for the Brucejack Project. Production is projected for early 2016.
Update: Pretium's stock advanced 3.6%
in the past month, after dropping sharply
in the previous months. The price target
for PVG stock was lowered again to $17
by Scotiabank during the month, still a
gain of 142% from current levels. During
April, the company announced a $40
million strategic investment in the form of
a private placement from Liberty Metals
and Mining. The Q2 feasibility study will
be a big test for the company and should
result with an IRR much higher than the
29.8% announced in their PEA. The
technical chart shows PVG dipping below their 2010 IPO price. The stock remains incredibly undervalued
in my view and I believe we will see a share price higher than $20 within the next two years.
Page 16
May 2013
3D Systems (NYSE: DDD)
Current Position
Bio: 3D Systems is a leading, global provider of 3D content-to-print solutions
including personal, professional and production 3D printers. With a commitment
to democratize access and accelerate adoption of affordable 3D printing, they
also provide creative content development, 3D CAD software, curation services and content downloads.
Update: DDD advanced an impressive 27% in the past month, equaling our gain since buying on 4/5. At
that time I stated: “With the recent decline, I
think the stock is fairly valued and has the
potential to bounce higher from here.” The
company reported that its first quarter
revenue grew 31% from to $102 million on a
61% increase in printers’ and other products
revenue and 22.1% overall organic growth.
Non-GAAP net income jumped by 43% over
the 2012 quarter to $18.9 million. The
company announced a whole slew of new
product innovations, partnerships and
acquisitions, which can be viewed here.
The technical chart shows a bounce off support just below $30. DDD still needs to clear the previous high
to remain bullish. Also note the RSI is near overbought territory after the 27% gain this month. I think 3D
printing and 3D SYSTEMS in particular will continue to advance and become more widely adopted, so look
for new highs in the coming months. That being said, the stock market in general is over-extended and
could drag down DDD in a correction, so you may wish to employ a trailing stop around 15-20%.
First Majestic Silver (NYSE: AG or FR)
NEW!
Current Position
Bio: First Majestic Silver is a Canadian silver mining company with 5 producing mines
under its control in Mexico; La Encantada, La Parrilla, San Martin, La Guitarra and the
recently inaugurated Del Toro mine. First Majestic also produces and sells its own
bullion. Production from its five mines is anticipated to be between 11 and 12 million
eq ounces in 2013. Management is top-notch and the company has a very aggressive growth profile.
Update: AG fell by 19% during April, which
is part of the reason we picked up shares on
the dip. Their latest mine Del Toro, reached
phase 1 commercial production of 1,000 tpd
on April 1st. AG announced another record for
quarterly silver eq production of 2.7 million
ounces, won an award of $90 million in longrunning litigation and announced that La
Guitarra was expanded to 500 tpd. The chart
is not very bullish with a series of lower lows,
but the stock is currently oversold and the
fundamentals are very strong.
Page 17
May 2013
Gold Stock Bull Watch List
I continue to monitor and like the following companies. As these companies make
progress or come out with news, they may graduate to the current/target list. But
don't wait for me, if you see something you like, perform your own due diligence and
buy if you like what you see.
Our newest addition last month, AMD, shot up 57% in April on takeover rumors. The junior royalty
company, AMB, dropped 24% and is offering an attractive entry point around $0.20. I like EDV under $1,
especially with the recent insider buying. Analysts have a $3 price target and their growth profile is
strong with an expected 50% increase by the end of 2014. IAG had a very strong fourth quarter, is
expecting production of around 900k ounces in 2013, has a new mine starting production, low costs and
plans to nearly double production by 2017. This is strong production for a company with a $2B market
cap and P/E of around 6. IAMGold also had the most insider buying of any miner in the past sixty days.
Insiders have been buying these stocks recently: IAG, EDV, BAA
Precious Metals
IAMGold (NYSE: IAG) New
Endeavour Mining (TSE: EDV or EDVMF)
Comstock Mining (NYSE: LODE)
Timmins Gold (NYSE: TGD) New
Americas Bullion Royalty (TSE: AMB or AMBCF)
McEwen Mining (NYSE: MUX)
Ethos Gold (CVE: ECC or ETHOF)
Scorpio Mining (TSE: SPM or SMNPF)
RioNovo Gold (TSE: RN or RIVVF)
Guyana Goldfields (TSE: GUY / GUYFF)
Atna Resources (TSE: ATN or ATNAF)
Soltoro (CVE: SOL or SLTOF)
Agriculture / Energy / Rare Earth Metals
Sprott Resource Corp (TSE: SCP or SCPZF)
Africa Oil (CVE: AOI or AOIFF)
Focus Metals (CVE: FMS or FCSMF)
Mason Graphite (CVE: LLG or MGPHF)
Sandstorm Metals (CVE: SND / STTYF)
Canada Lithium (TSE: CLQ or CLQMF)
Agco Corp (NYSE: AGCO)
Lindsay Corp (NYSE: LNN)
Biotechnology & Other
Oncolytics Biotech (NASDAQ: ONCY)
Advanced Micro Devices (NYSE: AMD)
Acadian Timber Corp (TSE: ADN)
Smith & Wesson (NASDAQ: SMHC)
Overvalued Short Sell Candidates
While most investors only buy long positions, another strategy is shorting stocks. Shorting requires a margin
account and has additional risk, which you should read about and discuss with a registered investment advisor.
Groupon (NASDAQ: GRPN)
Page 18
Sallie Mae (NASDAQ: SLM)
May 2013
Gold Stock Bull Portfolio / Trades
I added AG on a dip below $12, while getting stopped out of CGI and GQC in the past month. We
now have 3 non-precious metals stocks in the portfolio and I will likely be adding Mason Graphite this
week. We currently have 12% in cash. 2013 has been a rough year thus far, but I have faith in the
companies listed below and remain convinced we will be rewarded for our patience.
The current portfolio, trade history, emails and newsletters are on the Premium Member page.
I recommend buying physical bullion via cash and carry at your local coin shop. Online sites such as
Tulving have lower premiums, but there is a paper trail via your bank wire. Remember that there is
more to consider than solely price when buying physical metals. Consider reputation, buy/sell
spread, ability to purchase anonymously, etc. I also use and recommend Cornerstone Bullion, which
not only sells bullion, but can also help you to convert your IRA to physical gold and silver.
Remember to think like a contrarian, buy the dips, sell the rallies and never allow the paper shorts to
shake you from your positions at temporarily suppressed prices. Gold and silver are nowhere near
the end of this bull market and could easily top $5,000 and $250, respectively, before all is said and
done. Corrections are a healthy part of any bull market, allowing the bull to rest its legs and
providing a base from which the next upleg will spring.
Jason Hamlin [email protected]
All ideas, opinions, and/or forecasts, expressed or implied herein, are for informational purposes only and should not be construed as a
recommendation to invest, trade, and/or speculate in the markets. Any investments, trades, and/or speculations made in light of the ideas,
opinions, and/or forecasts, expressed or implied herein, are committed at your own risk, financial or otherwise. Past performance is no
guarantee of future results. View terms
Page 19
May 2013

Road Less Traveled - Contrarian Report

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