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Stuck In The Miners

136
Tue, Jul 16, 2013 - 11:47am

Crash Davis was a perennial minor leaguer. So was Rocky Nelson. Are you "stuck in the miners", too? If so, maybe there's hope...the proverbial "light at the end of the tunnel".

Well, it's been about six months since we last took a look at the miners. And what a lousy six months it has been. Back on January 9, I wrote this: https://www.tfmetalsreport.com/blog/4424/miner-case-depression. If you think that old Turd is all bull, all the time, you should definitely go back and read it. I concluded that very downbeat post with this:

"So, what's the point of all this? Why even jack around with these damn things? Just buy physical metal, take delivery and forget about it. And don't tell me about your IRA. There are plenty of companies out there that can help you to buy bullion within that thing, too.
Stack, stack, stack and BTFD. Your only winning move."

Back then, the HUI was at 424. Now it's 224. Holy moly! Man, woman and child!! That's terrible!!! Down almost 50% in six months. Simply brutal. But I see a light at the end of the tunnel. Is it potential salvation and safety or is it simply the lamp on the helmet of this poor bastard as he staggers near death?

Personally, I'm getting my hopes up, leaning toward "salvation and safety". There may still be a little ways to go to the downside but, if history is any guide, we may finally be closing in on some buying opportunities.

First, a disclaimer: Stack, stack, stack and BTFD is still your only winning move. However, I know that most folks remain in the "system" (against even Santa's wishes) and they are looking to make some fiat-based trading profits. It is those people for whom this post is intended.

Additionally, some believe that the miners will turn when the inevitable M&A hunting season begins. I think it's the other way around. The miners are going to have to bottom and turn before any mergers and acquisitions get going. Why? If you're Goldcorp or Randgold, for example, you'd love to buy some new assets at these depressed prices but there are two problems:

  1. You're very reluctant to issue new shares at these levels so you don't want to buy something using your own equity as a currency.
  2. You're also reluctant to burn precious cash when your margins are being squeezed so severely by the downturn in price.

However, once price turns and you begin to feel more comfortable about your near-term profitability, the idea of buying up the assets of a good company which simply ran out of cash looks pretty appealing. So, there is some opportunity to buy depressed junior and exploration companies on the hopes that they'll survive or be bought out...but...there's probably an equal opportunity (and a more conservative trade) in buying some of the big miners, which will see strong earnings growth if they can acquire some companies and new assets "on the cheap".

One more thing before we get started, it's also time to consider one of the more traditional methods of equity valuation..."book value". This term is a theoretical number that is meant to indicate the breakup value or sum total of a company's assets that shareholders might see in the event of liquidation. Here's the definition from Investopedia: https://www.investopedia.com/terms/b/bookvalue.asp

Book value is the accounting value of a firm. It has two main uses:
1. It is the total value of the company's assets that shareholders would theoretically receive if a company were liquidated.
2. By being compared to the company's market value, the book value can indicate whether a stock is under- or overpriced.
3. In personal finance, the book value of an investment is the price paid for a security or debt investment. When a stock is sold, the selling price less the book value is the capital gain (or loss) from the investment.

Because share prices have fallen so ridiculously far from their highs, I thought it would be helpful to include book value on each chart. I found the book value for each company at Finviz but, in the time I took this morning, I couldn't verify each number through a different source. Therefore, do your own homework. Do not simply rely upon what you see below.

Let's start with the pathetic, disgusting and painful-to-behold HUI. As mentioned above, it's down from 425 back in January, 500 in late 2012 and 600 in late 2011. OUCH! Now at 225, it looks to be near a bottom. As you can see on the chart below, the HUI dropped below 200 in November and December of 2008 before rallying. It also bottomed below 200 in 2004 and 2005. If the HUI falls another 10% to 200, would we be marking a bottom again? Maybe? Probably? I guess it depends upon whether or not you think the world is ending soon. If another Global Financial Collapse starts this autumn, all bets are off. If it doesn't, then a 200 HUI looks and quacks like a bottom.

In no particular order, here are four larger-cap stocks that look to be closing in on price levels where they start to look interesting.

And here are updates on six of the juniors that we have followed from time to time. Note that most are trading well below their book value, which potentially makes them attractive takeover candidates. The only one which isn't is TRX, which trades at a premium because investors are betting upon the expertise of Jim Sinclair (which is a good idea) and the potential of mining in Tanzania. All six are closing in on attractive valuations for anyone wishing to nibble and cost-average.

OK, that's all that I have time for today. If you would like to me to post a chart of some other, specific issues, just make a note of it in the comments and I'll try to accommodate as many as I can through the day. Again, please do all of your own research before acquiring any of these shares and expect plenty of volatility before the trend changes back to the upside. However...IF you pick the right companies...and IF the global financial system remains at least somewhat "normal"...there is great fiat-multiplying potential in some of these shares. Good luck!

TF

About the Author

Founder
turd [at] tfmetalsreport [dot] com ()

  136 Comments

Slick · Jul 16, 2013 - 11:49am

Miners showing firmness?

Big Dutch · Jul 16, 2013 - 11:59am

Negative 7 days and counting.

treefrog · Jul 16, 2013 - 12:00pm

...as long as the light at the end of the tunnel isn't a muzzle flash.

Exbroker · Jul 16, 2013 - 12:01pm

When the banks bankrupt the miners and buy up their shares....You know we have made the bottom.

Magpie · Jul 16, 2013 - 12:01pm

Cash is still king in the RE market.

https://www.corelogic.com/research/the-market-pulse/marketpulse_2013-jul...

edit: #4 !!! smiley

StevenBHorse · Jul 16, 2013 - 12:05pm

SSRI. B.V. 13.86

PAAS B.V. 17.82

sengfarmer · Jul 16, 2013 - 12:07pm

top ten yet again?

R man J · Jul 16, 2013 - 12:07pm

He did say in Chicago that he has 4 exploration projects going and my understanding was they will be releasing results this year and could possibly be producing in early 2014. Thinking about getting back in.

Grublux · Jul 16, 2013 - 12:12pm

?Pretty sweet...

Miners are definitely looking interesting. With a 3yr+ horizon hard to stay away.

Road_Scholar · Jul 16, 2013 - 12:12pm

The Ponzi is getting close to ending...

F4iJ · Jul 16, 2013 - 12:16pm

Rick Rule tells me PVG is the best in my portfolio, although he only ranks it as a 4 out of 10 with 1 being the best.

Mantis · Jul 16, 2013 - 12:21pm

i could have got 3rd if i wasn't distracted arguing about bitcoins on the last thread crying

There are LOADS of fighter jets flying around outside just now btw. Is Britain starting some warmup excercises or something?! On a similar note the local airport had a huge exercise involving loads of police and all other emergency services even coastgaurds too fairly recently. Didn't like the way they were strutting around myself, maybe its just my normal fear of govt getting me paranoid.

Back to topic, I have some money primed and ready to invest in miners, been holding off for about a month so far. I agree that stacking is the best move but i figure my stack is big enough for now, bitcoins are a bit dull just now, might be time to divert myself with the miners. Still not sure which ones to pick, i guess i don't want too much risk so bigger ones might be better. If you only were gonna pick one or two which would it be ? Some pay dividends is that worth looking for?

I've been thinking of EKK and AUY for maybe

F*ck me more jets this is crazy shit

over and out

Hello NSA

Terabyte · Jul 16, 2013 - 12:22pm

"Anybody know why Asiana 214 passenger cabin caught fire when the fuel did not? Seems like a pretty important question for NTSB & Boeing, and future passengers on 777's!"

Oxygen? Available in good quantities when those little yellow dangly things fall down in a crash.

bluefish · Jul 16, 2013 - 12:28pm

Ned Naylor-Leyland has come up with a spectacular
observation.

It is that the velocity of money is low while the velocity of
gold is high.

Money/Gold velocity is now the reverse of how it used to be.

Anyone care to reason why this is so?

Galearis · Jul 16, 2013 - 12:28pm

Fairly admirable thing to say when one is a mining share promoter....But why get out of the system? Oh, yeah, that bail-in thing....

I got out last year in late summer and have no plans to jump back in...

Stack instead? Sure....It is the lowest risk/reward we have in any investment.

Recently Santa warned Canadians to be aware that during a bail-in ones RRSP account would be at risk...This, even when the moneys held from sold out positions are then taxable when and sent into the banking system....This should frighten every citizen regardless of nationality as it reveals that YOUR government belongs to the banks first and you second... In a sovereign debt crisis, the government still involves the tax-payer by forfeiting its own tax base and then allowing the robberies of accounts.... And has the nerve to say it is saving the tax-payer from bail-out abuses...when you are now being taxed at 60% of net worth as a bank account holder of over $100,000.00 as a successful investor in your own country BY THE BANKS instead. Which does not help the governments own debt problems, yes?

How does one maintain a market system in such an environment? How does one handle inheritances? Real estate? Trust funds? And now we see a effort in Toronto to set up a foreign exchange market....In a bail-in environment? The whole market system is going to shrink in reaction... So, how well does everyone think the miners are going to be supported through the equities market system under a bail-in threat? So I for one will keep on stacking (nervously) because I know that to buy (even) bullion, one must have a bank account and one can only make these bullion buys in transactions UNDER $100,000.00. Can anyone imagine how our optimism for a physical bull market may suffer a bit under a bail-in threat? I don't suppose the crooks are setting up the next hurdles against buying physical gold and silver do you?

FWIW,

G.

Nana · Jul 16, 2013 - 12:29pm

When every market is controlled, fixed and PPTed?

Willy · Jul 16, 2013 - 12:31pm

Let's just assume that this gold bull has done what it has suppose to and try to buck off every one of us. If this is still a bull market and we are on our way to new highs such as the likes of Rosen and Sinclair have been preaching, then this next upleg is going to be mindblowing huge!!! All things point to this being a bull still, emotions aside. So hold on this sucker could/will be one for the record books!

Big Dutch · Jul 16, 2013 - 12:34pm

Everyday about two mainstream media articles come out an hour explaining why gold is toast. Now I’ve never seen that happen with any other commodity, stock or sector. Yahoo justy had a piece on negative GOFO rates meaning people were scrambling to borrow gold... so they could sell it. I could go on and on about it, but I’d be preaching to the choir here in Turdville.

The one that really gets my goat is every time they say gold is doomed because of rising bond yields. Historically that's true EXCEPT when the monetary base has been expanded. It wasn’t true in 1976 and it won’t be true now. Here’s why:

The Fed may be buying 80 to 90 percent of all the new bonds/treasuries coming into the market, but there’s a huge pre-QE mountain of debt underneath... If it starts to go they couldn't possibly print enough to stop it. So if we have a bond market sell-off/crash where would all the money go? Into stocks? Hell no. If bonds are crashing that would hurt the banks as they would get more leveraged and as they make up more than 20% of the stock market you can bet the markets will be tanking. Besides, who’s going to pay current prices on stocks if bond yields go to 5%+. Would you pay 60 bucks for Con Ed’s 4.2% dividend? How about 100 bucks for McDonald’s 3% dividend? No you wouldn’t and neither would anyone else, so they’ll be tanking just like the banks.

Again, if rates go flying after a huge increase in money supply, money will pour into hard assets like gold and silver. It will also get the money out of banks and increase the velocity of money (right now money trapped in the banks and banks paying virtually no interest. If bond yields go above 5% all money in the banks will start getting interest and finally the money locked up in banks can start to break free).

I truly believe all this money printing has been done to deleverage our banks so they can withstand the enormous shitstorm the Fed knows has to occur. Many European banks won’t be able to withstand it, but I think most of ours will.

It is the only thing that makes sense to me and it is the reason George Soros is dumping his bank holdings and buying miners since the 4th quarter of last year.

https://bullmarketthinking.com/soros-reports-over-239mm-in-gold-positions-buys-25mm-in-call-options-on-juniors/

Nana · Jul 16, 2013 - 12:35pm

https://dollarvigilante.com/blog/2013/7/10/a-major-bank-makes-a-freudian...

The cognitive dissonance about the dollar never fails to amaze me. People know in their bones that their dollars will be worth a lot less in the future...yet they continue to trust and cling to the dollar as a store of value. They invest in things denominated in dollars that pay interest well below the rate of inflation. Or they go for all out gambling in the stock market to have a hope of outpacing inflation enough to build a tiny bit of wealth to leave to their grandkids.

Commodities like copper with an industrial demand may fall in price -- even drastically -- in the midst of a global depression. But the 30% or so drop in the price of something like copper will be running hard against the US government's need to inflate away the value of the US dollar by having the Fed create new money to buy up more and more government debt. Inflation tends to outpace falling prices due to falling demand. The folks at Wells Fargo understand this and seem to be trying to help clear up some of the public confusion.

Read rest of article via link.

Strongsidejedi · Jul 16, 2013 - 12:35pm

I don't understand something.
I'm in the SRS camp of evaluating gold and silver in the context of energy.

SRS' postings on this topic have been fantastic.

And, ultimately, there is no better place where energy matches to gold/silver/PM's than in the miners.

It takes energy to get the ton of rock out of the ground from 800 feet down.

It takes energy to get the 1 oz of gold out of the rock.

With GOFO rates negative, people are trading their USD fiat bucks for physical gold.

Why would miners be a good fiat investment when the miners' stock valuation is not denominated in gold reserve (above ground, not below ground and still in the dirt)?

If the miners value were denominated by something other than fiat currency valuation, then you would have something of redemptive valuation. Unfortunately, because the fiat currency valuation is volatile, you can not do a time based analysis because the valuation of the USD is changing by the moment.

However, the amount of gold or silver holding does not change as quickly, unless the company chooses to liquidate above ground gold for fiat.

But, the GOFO rate says better.
It's frankly better for the miners to hold the gold reserves and NOT exchange their gold reserves for fiat currency.

This means that the miners are in a very bad position. They appear caught in a monetary catch-22. 

Why sell the gold bars for spot price when they can lease or loan it with a premium AND retain the physical possession of the bars?

With the negative GOFO, they should be able to charge a whopping premium for their bars. Do they?

The only basis for the fiat market analysis on gold ends up being LBMA or Comex spot. But, the miners could together throttle the global supply/demand curve by just doing what OPEC does.

Shouldn't the true basis be the amount of above ground gold and silver reserves reported?

Urban Roman · Jul 16, 2013 - 12:39pm

SRS to the white courtesy phone, please. 

https://srsroccoreport.com/silver-mining-costs-exposed-cash-cost-fallacy/silver-mining-costs-exposed-cash-cost-fallacy/

Costs

The miners are all in this same rising costs and declining revenues boat. The fundamental fact is that if prices do not dramatically rise, the miners are all going to be bankrupt. 

Urban Roman · Jul 16, 2013 - 12:43pm

"The fundamental fact is that if prices do not dramatically rise, the miners are all going to be bankrupt." 

If miners go bankrupt, then there is greatly decreased supply. With less supply, prices rise. So where is the inflection point?

Urban Roman · Jul 16, 2013 - 12:45pm

Who's on first?

· Jul 16, 2013 - 12:45pm

Wow! $42 to $6. Yikes!! But what do the Chinese say about crisis and opportunity?.....

argent rampant · Jul 16, 2013 - 12:46pm

Not an expert on the subject, but it doesn't make sense for the oxygen masks to deploy when the plane hits the ground, only at an altitude requiring pressurization. However, perhaps terabyte is right that the oxygen in the system fed the fire. All I can say is that is one of the first things that struck me when I saw the images of the plane, the whole passenger cabin appeared to be gutted by fire, and it does appear to have been in the overhead area.

Urban Roman · Jul 16, 2013 - 12:46pm

double clicked the send key

Urban Roman · Jul 16, 2013 - 12:47pm

Perhaps you should only focus on those companies with little debt and lots of cash?

Let all of the shaky ones go tits up, then all the survivors thrive.

Nana · Jul 16, 2013 - 12:49pm

https://investmentwatchblog.com/breaking-feds-esthe-george-tells-fbns-pe...

BREAKING: Fed’s Esthe George Tells Fbn’s Peterbarnestv ‘It Is Time’ To Begin Adjusting Bond Buying QE!

achmachat · Jul 16, 2013 - 12:53pm

a little bit of trivia:

when those little yellow dangly things fall down, nothing happens. Each one of those has its own little Oxygen producing chemical reactor inside which is activated once you firmly pull the mask towards you.

edit to keep posts at a minimum:

what I wanted to point out is: there is NO oxygen in the system for the exact reason to prevent fires. There's a solid state pellet in each and every mask-unit that only gets activated AFTER you firmly pull the mask towards you.

Strongsidejedi · Jul 16, 2013 - 1:07pm

Survivability is key but what is the mechanism to physically evaluate the miners?

And, more importantly, how does a mine survive without the cash flow in the local fiat paper currency?

The governments have legislated that we must use paper currency to exchange as "money".

But, it is clear that over the past 300+ years that the paper currency system has led to a giant gap between those with gold and those without.

Those with gold are the big central banks and the governments and then some aristocratic families.

Do those aristocratic families own significant shares or fractions of the miners?

I think not. I think the shares are mostly traded in the exchanges.

The aristocracy of Europe and the US primarily hold the physical in private vaults and have been taking delivery. Jim Sinclair started posting on this need about ten years ago. So far, his political analysis of the major exchanges has been on target, even if his price predictions have been off in the last 12-15 months.

So, the miners look dicey to me. I'd rather just purchase more product from the mints than to take the gamble on holding the mining shares and hope the heck they find profitability.

There is no profitability in the miners at this time. It is literally impossible for them to find that margin when the crude oil price is 105-110 USD. It takes more energy to deliver the one ounce of gold to the wholesaler than in ten barrels of crude oil. I posted about that analysis one week ago.

The GOFO is not seen because it is not a reflection of the reality of how you acquire not only gold and silver, but other industrial metals as well.

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