SILVER INVESTOR NEWSLETTER
21307 Buckeye Lake Ln., Colbert, WA 99005.
Monthly, 1 year, $99. www.silver-investor.com.
Mines Management: Opportunity
to leverage silver market
David Morgan: "Companies in the mining sector with the most growth potential are typically exploration stage companies. Due to the prospective nature of exploration, a company's share price will grow in anticipation of the results, and the possibility that they might hit it big.
On the other hand, companies that have already discovered a deposit have usually also seen the greatest extent of speculative buying. Not so with Mines Management (AMEX MGN www.minesmanagement.com). I have written at length about how they acquired the Montanore Silver Deposit in northwestern Montana, and so far the shares have been reflective of not only the added value of acquiring 260 million ounces of silver at such a low cost, but also their success at building a company essentially from ground zero to an Amex listing within about eighteen months. What the shares don't yet reflect are the prospects of where they're going from here.
The key to becoming the sixth largest silver mine in the world is to get it permitted first.
When Mines Management acquired the Montanore from its previous operator, the project's operating permits had expired, and we knew Mines would be required to re-permit it. Now, with the right people and funding, the company is in the process of initiating the re-permitting process, and I predict that by the time they're done, the shares will be more reflective of a permitted project on par with the likes of Apex Silver and Silver Standard.
There are several reasons as to why I'm confident they'll get it done, but the best reason is the people. About six weeks ago at the Las Vegas Gold Show, I met the person they hired who would spearhead the re-permitting process. His name is Eric Klepfer and he came to Mines Management from Coeur d'Alene Mines, the world's largest primary silver producer. Prior to that, he was with Newmont and Placer Dome. Eric's experience as a specialist in environmental assessment and permitting really shows when talking with him. He also has a great ability to connect with people, and I am told he is developing excellent working relationships with the permitting people in Montana. One of the keys is to get the permitting agencies to agree on the process; so they are currently negotiating a Memorandum of Understanding that will detail the time and process to getting it done. For those who are skeptical of permitting in Montana, you may be less skeptical when they announce the signing of the MOU. So, stay tuned. Successful permitting of the Montanore could be as profitable to investors as a successful drill program, and the MOU is just the first drill hole.
By the time the project is permitted, I expect the shares to trade at a comparable valuation to the other major silver companies, in the range of $10-$20 depending upon the silver price."
LIBERTY'S OUTLOOK
300 Frandor Ave., Lansing, MI 48912.
Monthly, 1 year, $79.
Strong upmove for Gold
also positive for silver
Patrick Heller: "It is dangerous to make relatively short-term predictions. However, I would not be at all surprised to see gold above $500 by the end of February 2005.
With silver also experiencing a long-term fundamental supply shortage, a strong move up for gold will also be positive for silver.
Though gold is primarily a financial metal and silver is pretty much an industrial metal, a lot of investors consider them both to be money. If one of the two moves sharply, many investors tend to buy or sell the other metal under the assumption that it will eventually mirror the movement of the first metal. This effect has happened consistently enough that it would be highly likely to happen again.
If gold makes it to $500 by the end of February, I would expect silver to reach at least $10.00.
What probability do I give for gold reaching $500 and silver $10.00 by the end of February? Even though both of these levels would be higher than either metal has reached in the past 20 years, I put it at more than 50% but less than 75%.
Even More Silver Products
Because the price of silver is so relatively low, researchers are aggressively seeking new industrial applications for the metal.
A major focus for using silver is for anti-bacterial purposes. Silver kills germs by a physical process, which means that bacteria cannot mutate and develop immunity. A relatively new area of research is the use of silver for better hygiene in the processing, packaging, and storage of food.
Walls of facilities can be coated our painted with silver-containing substances. Work tables can now have anti-bacterial surfaces. Packaging materials can incorporate silver compounds to extend the shelf life of food.
In another area, a microprobe with silver nanoparticles is being tested for its ability to detect biohazards before they could be noticed using current technology. Once a laboratory version is workable and cost effective, researchers expect to then develop a portable version.
The National Aeronautics and Space Administration (NASA) is testing silver-based clothing to cut down on bacteria and odor in the International Space Station. The same fabrics may eventually be used as mattress covers and to get rid of dust mites.
Dow Corning Corporation has introduced a variety of silver inks that can be used in place of wire on electrical components such as printed circuit boards. The inks conduct electricity up to 10 times better than competing products and hold up well in stressful applications.
Before you think that all silver applications are high tech, a British company named James Cropper Plc has released a line of silver-based paper products called Docugard. Their file folders, for instance, are intended for medical applications so that they do not transmit germs from hands and surfaces. Docugard paper fights the growth of staphylococcus, Listeria, E-coli, and salmonella, for instance.
There continues to be significant liquidation and purchasing of gold bullion-priced coins and ingots. Because the market is active in both directions, there is little change in premium levels.
The best values to get the most gold for your money continue to be the Austria 100 Corona (3.5%), South Africa Krugerrand (3.7%), and U.S. American Arts Medallions (3.7%). Among smaller coins, the British Sovereign (7.6%) remains the coin of choice. It is one of the highest volume gold coins traded around the world and has a history of trading at much higher premiums than today."
Editor's Note: Patrick Heller is editor of Liberty's Outlook, a publication of Liberty Coin Service. For specific advice on purchasing gold and silver coins visit the web site at www.libertycoinservice.com.
INTERINVEST REVIEW & OUTLOOK
P.O. Box 51462, Boston, MA 02205.
Monthly, 1 year, $125.
Positive on number of gold stocks
Dr. Hans Black: "Despite the extreme nervousness surrounding the U.S. presidential election, the price of bullion traded in a relatively narrow band during most of the past month, reflecting a continuing near-term toppish pattern for the metal. While we remain firmly longer-term bullish, we are troubled by the number of newly-minted gold bulls and the relatively poor action of many gold stocks during the past few months. In addition, secondary offerings by gold mining companies, which tend to come near tops, have also increased. For the moment, we are remaining resolute in our belief that we will see a dip in the price of bullion back toward the $365-$385 buying zone. We would also remind readers that any near-term surprise arising from the newly re-elected Republican president tackling the subject of budget reform by might indeed be gold negative.
We remain positive on a number of gold stocks but recommend buying them only on pullbacks. They are Newmont, Placer Dome, Eldorado, Cambior, Orvana and Southwest Gold."
ECONOMIC ADVICE
3910 NE 26TH Ave, Lighthouse Point, FL 33064.
Monthly, 1 year, $99.
A very interesting gas play
James Rapholz: "I have a very interesting little gas play for you. It goes by the name of Hong Kong & China Gas (Nasdaq: HOKCY; $1.85). I wrote it up about a year ago for around $1.29. They own the franchise for about 30% of the gas in Hong Kong and have the franchise for all of China. Only 2% of the buildings in China are using gas at present. I keep about 200 companies under surveillance and on the rare occasion that my service rates one a 100% buy, I always writer it up.
This is the type of stock that you buy for your grandchild's college education and forget about the fifteen years. My wife owns 1800 shares of HOKCY."
Editor's Note: James Rapholz offers Bull & Bear readers a special 3-month trial for $9. Rapholz, who has over 20 years of mining experience, offers no-holds-barred advice on precious metals and energy stocks. Visit the web site at www.economicadviceinc.com.
THE TURNAROUND LETTER
225 Friend St., Ste. 801, Boston, MA 02114.
Monthly, 1 year, $195.
Parker Drilling: Risk is more
than offset by the gain
George Putnam III: "Parker Drilling (NYSE PKD) provides contract drilling services to the oil and gas industry. It currently has drilling rigs in the Gulf of Mexico and 13 foreign countries. Through its Quail Tools subsidiary, the company also rents tools equipment to other drillers.
The contract drilling business tends to be quite cyclical, depending on the level of drilling activity, which in turn depends on oil and gas prices. Parker specializes in difficult assignments, which tend to be the most sensitive to industry conditions.
Even though oil and gas prices have been very high for a number of months now, drilling activity has been slow to respond. As a result, Parker's results have been weak for some time, and its stock has languished.
Analysis: With oil and gas prices hitting record levels, it is somewhat surprising that drilling activity remains so weak. We suspect that many oil producers, who rushed to expand capacity during past oil prices surges and were burned when prices subsequently fell sharply, are now being extremely cautious.
We do not expect oil prices to remain at their current record levels of over $50 per barrel, but we also do not expect them to return to levels below $30 for the foreseeable future. If we are right, we think more and more oil producers will begin to expand their drilling programs to take advantage of the favorable prices.
Any meaningful pickup in drilling activity would be very beneficial to Parker because it has powerful operating and financial leverage. On the operating side, Parker has considerable excess capacity at present, and so any revenue gains would largely pass through to the bottom line.
Parker's financial leverage - in the form of a heavy debt load - is the proverbial doubled-edged sword. If results do improve, the financial leverage will magnify the increase in earnings per share and therefore should boost the stock price. However, if results worsen for some reason, the company might have difficulty servicing its debt and might be forced to restructure.
Parker is also favorably positioned in a geographic sense. It currently has a presence in emerging oil markets such as Nigeria, the former Soviet republics and Asia, which would be prime locations for new drilling activity. Moreover, in the past Parker has operated in more than fifty different countries, and this experience would be in demand if the frontiers of drilling activity begin to expand again.
Parker's small size and weak financial results in recent years have kept it off the radar screens of most investors. If worldwide drilling does pick up, investors will be falling all over themselves to get into small, leveraged operators like Parker. While there is a considerable degree of risk in the stock, we think that risk is more than offset by the gain potential. Therefore we recommend buying Parker Drilling now at prices up to 6. Visit the Web sit at www.parkerdrilling.com."
Roger Conrad's UTILITY FORECASTER
1750 Old Meadow Rd., Ste 301, McLean VA 22102.
Monthly, 1 year, $129.
ONEOK: A package of assets
that could win big
Roger Conrad: "Energy and energy stocks have gone from dogs to darlings in a few short months on Wall Street. The good news is massive gains for all of the Utility Forecaster portfolio picks. The bad news is high prices for those who haven't yet bought in, with a few exceptions such as new Growth Portfolio pick ONEOK (NYSEL OKE).
Oneok combines volatile businesses like oil and gas production and trading with fee-based gathering and processing operations and a regulated gas distribution utility serving nearly two million customers in Kansas, Oklahoma and Texas. The result is an exceptionally steady profit mix generating at least high single digit profit and dividend growth and enabling the company to maintain a solid A- credit rating.
ONEOK took a giant step toward robust future growth with the acquisition of the general partner interest in Northern Border Partners, part of the liquidation of Enron's North American assets. Northern controls the key pipeline connecting the Midwest with Canadian gas as well as gathering assets, about which ONEOK has a great deal of expertise.
The company presents a package of assets that will win big if energy prices stay on a long-term tear, while holding steady through the ups and downs. It's important to keep an eye on regulatory and environmental contingencies, but there's little to worry about now. Buy ONEOK, which sells for barely 12 times this year's earnings, up to 28."
MUTUAL FUND MONITOR
1412 Spruce St, Berkeley, CA 94709.
Monthly, 1 year, $79.
Price New Era:
Grandaddy of natural resource funds
Larry Luce: "Price New Era (PRNEX) is the grandaddy of natural resource funds. It was started to allow an investor to buy part of a barrel of oil, a few pounds of steel, a bushel of wheat.
We reviewed the natural resource sector years ago. As a result, we have followed performance of Price New Era in the Fund Selection Guide. We have not recommended it, and it is not owned in client accounts.
With the rise in commodity prices the last year or two, fueled by Chinese demand, we think it advisable to revisit the category.
Although in a retraction phase at the moment, the Chinese economy will continue to expand in the long run. It seems that commodities, certainly those which are in finite supply, will inevitably trend higher. This will surely have negative effects on growth worldwide. The Industrial Revolution, that we might have thought would advance forever, may prove to be hostage to finite supplies of oil and coal.
If advancing commodity prices will indeed diminish the profits of ordinary companies, it behooves the investor to see whether he or she can profit from companies benefiting from the rise in commodities, or perhaps from the commodities themselves.
That is the stimulus for a review of the natural resources sector at this time.
Charlie Ober has been manager since 1997. He was previously an analyst for the fund from 1980 to 1997. He leads a five-member team.
He is value-oriented, searching for stocks that are out of favor.
He also likes "well-managed companies with solid balance sheets that can weather a down cycle."
Morningstar describes this fund as a "calm take in a turbulent natural resource-sector." This calm comes from investing in many resources, not a single commodity, as do the pure-energy funds.
Naturally, when energy funds soar, Ober will participate, but not be the leaders. In 1999, it gained 21.2% vs the average gain of 25%. In 2000, it gained 20.4% vs the average gain of 26%.
Comment: This seems generally like what we want in a natural resources fund. It is very large, however. $1.7 billion in assets means that it cannot buy smaller companies. Results have been somewhat disappointing compared to peers. In 2002 it lost 6.3% vs. and average gain of 1.3%. In 2003, it showed a gain of 33.2% vs. an average gain for natural resource funds of 47.4%."
DELIBERATIONS on World Markets
P.O. BOX 40097, Tucson, AZ 85717.
1 year, 18 issues, $225.
Silver has a positive trend
Ian McAvity: "I watch the Gold/Silver ratio very closely, and believe it suggests Silver has a positive trend relative to gold that may continue for several years.
Like the US economy & market outlook for the year ahead, the high oil price and strong C$ will certainly slow Canada down in 2005. The higher & faster the C$ goes vs. US$, the greater the economic drag on Canada's exporters."
GROWTH STOCK OUTLOOK
P.O. Box 15381, Chevy Chase, MD 20825.
1 year, 24 issues, $235.
Energy Has a Special Glow
Amy Rauch Neilson writing in Better Investing magazine, a publication of NAIC, on growth stocks featured Charles Allmon who considers energy to be a burgeoning market. Here are the highlights of that article.
"The world is changing; there's no question about that," he says. Nuclear power and oil are among the industries Allmon believes will show exceptional growth over the next 20 to 25 years.
"Nuclear power and nuclear power plants are making a huge comeback," he says. "France currently uses nuclear power to generate 70 percent of its electricity, with Japan at 60 percent and the United States at just 20 percent. Nuclear power is nothing yet; the United States just started to wake up."
Allmon contends it's too early to tell which countries will prevail in nuclear energy, although he doubts it will be in the United States. "My guess is that it will be the Japanese and the Europeans at the outset," he says, "unless the United States licenses its technology."
He also points to oil companies, particularly those with large reserves such as ChevronTexaco, BP and Exxon Mobil. "People forget that the world is running out of oil, whether we like it or not," says the respected investment adviser who has been called a curmudgeon by admirer and financial columnist James K. Glassman. "It's a finite resource and people aren't looking at it that way. They're still running around in their SUVs.
"We are simply running out of energy. Right now, the United States uses 25 percent of the world's energy but only has 5 percent to 6 percent of the world's population. Common sense will tell you that something has to happen at some point. Even if we took all of our known reserves and increased them by 50 percent, there still wouldn't be much to go around 10 years from now."
Automobile manufactures go hand in hand with the oil companies, Allmon says, and manufacturers of small cars will lead the industry. "When the oil situation begins to get really scary, by, say, the year 2010 or 2012, small cars will be the place to be," he says. "And the manufacturers of those small cars, be they (American) or Japanese, will prevail."
Other industries that Allmon believes are ripe for growth include technology, gold and defense. "Who knows what cell phones will be like 15 years from now? Right now, they're more widespread in China than in the United States," he says. "There are marvelous things going on."
Because of the state of world affairs, Allmon says he is holding more cash in the $100 million portfolio he manages for clients than he did even at the time of Black Monday in 1987. Ten percent of that portfolio is invested in a single stock: Newmont Mining.
"Gold has always been real money," he says. "No paper money in history has retained its value." He has real concerns about the U.S. dollar. "In the United States, we are living beyond our means. You can't create wealth by printing it."
INVESTOR'S DIGEST of Canada
133 Richmond St W, Toronto, ON M5H 3M8.
1 year, 24 issues, $137.
Minera Andes: Very
promising exploration portfolio
John Embry, chief investment strategist at Sprott Asset Management, runs the Sprott Gold and Precious Minerals Fund writing in Investor's Digest of Canada says he has considerable exposure in his funds to Minera Andes Inc. (TSX.V MAI; OTC BB MNEAF, $0.70, 509-921-7322, www.minandes.com).
"Under the capable direction of Alan Ambrose, a geologist with over 25 years of mining experience, the company has put together an excellent land package in Argentina.
Aside from having a very promising exploration portfolio on its own, Minera Andes has a joint venture (49:51) with a first-class Peruvian outfit, Mauricio Hothschild & Cia., on the Huevos Verdes project, which could be in production by the end of next year. This is a silver-rich, economic orebody with plenty of upside that provides tangible value to a company that has lots of exploration smoke. With a shortage of decent silver vehicles, it could attract an audience on that basis as well."
INSIIDE TRACK
P.O. Box 2252, Naperville, IL 60567.
Monthly, 1 year, $179.
Gold & Silver in Midst of Major Bull Market
Eric Hadik: "Gold & Silver remain in the midst of a major bull market, expected to continue into 2007-2008. Simultaneously, they are in the middle of what has been forecast to be a 6-12 month correction/consolidation that could stretch into April 2005 before a new multi-year low takes hold. A gold spike high is possible.
Dollar - Long-term trend down and projected to continue into Aug./Sep. 2006. However, a Dollar rebound into 2005 is expected.
Crude Oil - Long-term trend up with important, long-term cycles coming into play NOW!
Commodities - Long-term trends up but correcting. New bull markets could begin in coming months."
THE PERSONAL CAPITALIST
6911 South 66th East Ave., Ste. 301, Tulsa, OK 74133.
1 year, 24 issues, $195.
Trading range ends. Riding
Next market movement higher
Sean Christian: "After staying in neutral for a year, we are finally forecasting an end to the trading range. With President Bush's reelection, we have chosen to reduce our cash position and add to our holdings. Our strategy will be to ride the next market movement higher. We'll likely continue reducing cash for some time and may be fully invested again at some point in 2005.
Oil/Energy Shares: Charles Maxwell, who many consider to be the dean of energy analysts, presents a sobering perspective on oil in the November 15th issue of Barron's. The article is entitled "The Gathering Storm." He points out that 6%-7% more oil must be found and made available to the market each year in order to meet 2% growth in the world consumption. Currently, about 70% of the oil that is consumed comes from fields discovered 25 or more years ago. The world is consuming about 39 billion barrels a year and we are finding less than one-third that amount. He also points out the need for conversation and heavy investment into alternative energy sources. We agree, and are investing in PLUG and HYGS fuel cell stocks as our thrust into the coming hydrogen economy. We are confident that our energy stocks WMB, XTO, XOM, and PKD are strong holds. Maxwell's article in Barron's is must reading for those who want to understand the current energy problem.
Precious Metals: The global economic and commodity cycle is maturing, but commodity prices will be well supported in coming years by sustained demand in China and supply constraints. We expect the global metals and mining sector to continue to perform. Gold has reached a 16-year high. We are definitely in a positive environment. We will continue to hold our shares of ABX, NEM, FCX, and CDE."
FREEMARKET GOLD & MONEY
P.O. Box 5002, North Conway, NH 03860.
1 year, 20 issues, $260. www.fgmr.com.
The big rally in the
Precious Metals has begun
James Turk: "The accompanying gold chart is very bullish. Even though gold has been rising for four years, people today generally are still not interested in gold. They are missing the big picture, as are the bears.
The bears are easy to spot because they always start their conversation about gold with its $850 peak in January 1980, and then go on to claim that gold has been in a 24-year bear market. The accompanying chart shows the bears are wrong. Gold's bull market began in the 1960's, and only the first leg ended in January 1980. So gold has not been in a bear market since then, but rather, gold has just been consolidating (within the pennant pattern seen on this chart) its big gains from the 1960's and 70's.
What's more, a couple of years ago gold broke its long-term downtrend going back to that January 1980 peak (the dotted line on the gold chart marking the top of the pennant pattern). So breaking this downtrend line also meant that gold had broken out of its pennant pattern.
That breakout was important because it indicated that gold's consolidation was ending, and there has been nothing negative since then to suggest that gold was in anything but a bull market. The uptrend line formed since the 2000 low has been solid like a rock, providing support to gold each time that uptrend line has been tested.
Therefore, taken together, my conclusion is that the 24-year consolidation in gold is ending, and gold's 2nd up-leg of its multi-decade bull market has begun. However, gold has one more hurdle in its future before we can say that its consolidation (now 24 years old and still running) is complete. The upper parallel line on the chart comes in around $560, and we can see that these two parallel lines from a flag pattern, which is also typical of consolidations. Gold needs to break out of this flag pattern for us to conclude that its long-term consolidation is finished, and that it is beginning the next up-leg in its multi-decade bull market.
I have been writing in my newsletter that when $430 is finally cleared, the gold rocket will be launched. I think that the recent new 16-year high weekly and monthly close means that the fuse of gold's rocket has been lit. Look for $500 first, which is my target for gold by yearend, and then the $550-$560 area shortly thereafter. In other words, I am expecting that this rocket about to be launched will take gold to the top of the flag pattern shown on the chart, and it will do that by Q1 2005 at the latest.
Turning to silver, I have been even more bullish on silver than gold (i.e., I have been expecting the gold/silver ratio to fall as silver outperforms gold). So what do my bullish target on gold mean for silver?
Below is a long-term weekly chart of silver. I like to see symmetry in charts, and the pattern I have drawn shows what is needed for that symmetry to appear - silver has to rally into the $15-$18 area, at least matching the 1983 high.
I don't think we will reach that area in Q1 2005, but I surely don't rule out that possibility. I think $12.35-$13.55 is a much more likely target. Here's my thinking.
Let's assume that gold climbs to $560 early next year. The last important low in the gold/silver ratio was 41.3, which occurred in February 1998 after Warren Buffet announced his huge silver purchase. So I think 41.3 represents a reasonable target for the gold/silver ratio on this next move. If we divide $560 by 41.3, the silver price is $13.55. However, if gold's advance stops at $510, it's 1987 high, dividing that number by 41.3 gives us a silver price target of $12.35.
Therefore, my target for silver is a range from $12.35 up to $13.55. I expect this target to be achieved by Q1 2005.
In conclusion, the big rally in the precious metals that I was expecting in the autumn has indeed begun. It should continue into the early part of next year, with much higher prices to be expected for both gold and silver.
The outlook for gold and silver remains very bullish - and explosive, which is why I use the term 'rocket' to describe their near-term potential. And as I explain above, I think the fuse of the rocket has been lit."
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