|| - DECEMBER 2011
1510 800 W. Pender St., Vancouver, BC V6C 2V6.
1 year, 20 issues, $299. Includes Instant Alerts.
Upside potential is enormous
Lawrence Roulston: “The selloff of equities across-the-board and around the world has hit resource companies especially hard. Tax loss selling is adding to the downward pressure on many companies. (That is, investors are selling shares in order to realize the tax benefits of losses for the current tax year.)
Companies with high quality precious and base metal projects, strong management teams and in some cases substantial amounts of cash can be bought for a few pennies a share. From those price levels, the upside potential is enormous. I expect some of the companies to rebound quickly once the selling pressure abates.
Cash is particularly important in a bad market such as at present. In the previous issue, we made the point that companies can continue to raise cash even in unfavorable markets. However, raising cash at very low share prices leads to excessive dilution. With a greatly expanded number of shares outstanding, it will be harder to justify a higher share price in the future.”
Roulston recently prepared a report for his subscribers, Twenty Under Ten in which he highlights a selection of high quality exploration companies that are currently priced at less than a dime. The list includes several companies that he are presently following in his monthly newsletter as well as further new companies.
All of the companies in the Twenty Under Ten list are conducting active exploration and development programs which have the potential to add substantial value in the near term.
Editor’s Note: To profit from the upside potential in gold and silver mining companies, investors need to be alerted to the special situations offered by a few select investment newsletters. One key newsletter to mining profits is Lawrence Roulston’s Resource Opportunities. Mr. Roulston’s 25 years of hands-on experience and extensive personal contacts in the resource industry provide unique insights that have generated an impressive track record for Resource Opportunities and huge profit gains for his subscribers. For more information visit www.ResourceOpportunities.com.
STREET SMART REPORT Online
505 East New York Ave., Ste 3, DeLand, FL 32724.
1 year, 17 issues, $275. Includes Online Updates. Interim Hotlines.
Drop in gold is only a blip in
Gold’s long-term secular bull market
Sy Harding: “Our Seasonal Timing Strategy is now in its favorable season, and 100% invested, its entry signal triggered Oct. 14. Our non-seasonal Market-Timing Strategy remains on the buy signal of October 27. We remain on the sell signal for U.S. Treasury bonds of October 19.
We remain on the intermediate-term buy signal of October 26 for gold.
Gold took a big hit over the last month, plunging 225 points, from $1,800 to $1,574 at its low a few days ago.
In the process it broke below its 30-week m.a. for the first time since 2008.
The decline resulted from a sudden rally by the U.S. dollar, and plunge by the euro, on the spike-up of worries that the EU summit’s latest attempt to contain the eurozone debt crisis would be a failure.
The drop beneath the 30-week m.a. does have us concerned. But it is only a blip in the long-term picture of gold’s secular bull market that began in 2000 when the stock market began its secular bear market.
We’re sticking with the buy signal at least for the moment.
Among our reasons for doing so is that in its sharp plunge gold has again become short-term oversold beneath its 30-day m.a.
And the short-term technical indicators have reached their short-term oversold levels and triggered short-term buy signals.
Recently, Gold has managed to rally back above $1,600 an ounce.
So we shall see.
Meanwhile, our non-seasonal Market-Timing Strategy portfolio remains 10% in the SPDR Gold ETF, (GLD).”
Editor’s Note: Sy Harding is consistently ranked a Market Top Timer, he has been providing investment research to serious investors for over 24 years. Mr. Harding also publishes the FREE daily market blog, www.StreetSmartPost.com.
THE MORGAN REPORT
21307 Buckeye Lake Ln., Colbert, WA 99005.
Monthly, 1 year, $129.99. www.silver-investor.com.
David Morgan: “On the positive side of silver news, Sprott Asset Management put together a shelf filing for US$1.5 billion worth of silver. As we explained (the filing is in the Members section), a shelf filing does not mean it will actually take place, but that it could take place. Regardless, if anyone were to take $1.5B worth of silver off the market at $35/oz, this would equate to nearly 43 million troy ounces, or roughly 5% of the estimated silver available for investment.
The initial purchase was about one-third as much and the price of silver moved approximately $4.00, but even more importantly it took weeks for all the silver to arrive. In our view, this shelf filing is basically putting the “silver shorts” on notice that someone is willing to call their bluff by stating “put up or shut up!” Again, this is our interpretation, but most silver investors have long since had enough of all the shenanigans that have gone on in this market for so long.
Another interesting fact we discovered from Mr. Sprott at the recent Silver Summit is that the trust can be paid in PSLV shares (though he did not agree to it), as opposed to collecting silver from the exchange. That doesn’t make any sense to us that they could pay him with shares from his own trust.
Also at the Silver Summit Mr. Sprott brought up just how insolvent the banking system is on a global basis and clearly asked the question why placing funds in a bank is superior to owning physical metal. He also proposed banks backed by precious metals, but we do not have any details on that at this time.
Keith Neumeyer, CEO of First Majestic Silver, was very outspoken on an interview he did with Hera Research. Keith boldly stated the paper markets are controlling the price of silver and he sees the silver price going back to the classic ratio of 15 to 1 at some future date.
Keith also mentioned that we need financial reform and without it we may be living in a world where the bankers control nearly every aspect of life for the majority of the human race. Both Keith Neumeyer and Eric Sprott suggested it would make sense for silver mining companies to hold part of their cash balances in physical silver.
Editor’s Note: The Silver Saver program now available in the U.S. and Canada, allows you to start a silver savings program. To learn more about the Silver Saver program visit www.silver123.net.
INTERINVEST REVIEW & OUTLOOK
P.O. Box 51462, Boston, MA 02205.
1 year, 12 issues, $125. www.interinvest.com.
Buying small-cap gold companies
Dr. Hans Black: “Gold trading has remained rather muted as prices have meandered on either side of the $1,700 per ounce level during the past month. Gold stocks which have underperformed since mid-year have continued to be under pressure as more and more observers are claiming that the great bull market on gold is now officially over. Alas, we do not agree as we have seen little evidence of exuberance or price extremes in either the metals markets or in the underlying shares. What we find remarkable is that we have climbed so far since 2000, when gold was just below $300, and in spite of this ascent, few participants are outright bullish. In fact, certain observers are still falling over each other in order to proclaim the ultimate high on a weekly basis. Give us a solution for the European debt crisis, find a way out of the difficulties that the Japanese authorities face and, while you’re at it, please tell us how we are going to rapidly deal with the U.S. debt situation. Please solve these issues and then proclaim the end of the bull rally.
Newmont (NEM) continues to be our largest position and we are obviously pleased as it has been the best performing large-cap gold company this year. During the spring we warned that quite a number of companies’ stocks had overrun their value targets, a situation that has now reversed. We are actively accumulating shares in a number of smaller-cap gold companies with good proven reserves and excellent leverage for higher prices in the years to come.”
3910 N.E. 26th Ave., Lighthouse Point, FL 33064.
Monthly, 1 year, $149. www.economicadvice.com.
Freeport McMoRan will
Make your pockets fat
James Rapholz: “I’m still beating the drum for Copper and I still believe that Freeport-McMoRan Copper and Gold will make your pockets fat.
A great buying opportunity is emerging in the shares of the world’s largest publicly traded copper miner, Freeport-McMoRan Copper & Gold (NYSE: FCX, $37.58). website www.fcx.com, phone (602) 366-8400. The shares are down almost 40% this year because of bitter labor disputes, collapsing copper prices, flagging global demand and concerns that another financial crisis is on the way. One key to the metal’s comeuppance is the decelerating economic growth in China, the world’s biggest purchaser of copper. Adding all of these negatives together gives one a very confusing picture for copper prices.
Analysts currently expect Freeport-McMoRan to earn about $5 Billion in the current year, or approximately $4.65 per share on revenue of $19 Billion. Shares fetch just 6.6 times 2011 estimated earnings, versus an average price/earnings multiple of 12 over the past ten years, and three times earnings before interest, taxes, depreciation and amortization, about half the historic range. “In a double dip recession, if copper were to go to $1.50 per pound, I see the stock at $20 to $25,” says Douglas Chudy, a value investor who follows Freeport for N.Y. money manager Dalton Greiner Hartman Maher.
However, for a dozen different reasons, Chudy doesn’t see a double dip or $1.50 copper-a price not far from the metal’s 2008 low. Instead, he sees that “copper fundamentals should remain solid for the next few years. I don’t think 2011 will prove to be the peak in earnings. If copper gets back to $4, this is a $75 stock in the next couple of years.”
Stephen Leeb, another N.Y. money manager and author of ‘RED ALERT” How China’s Growing Prosperity Threatens the American Way of Life, adds that investors “should view copper and Freeport as aggressive long term buys.” Others on Wall Street could be coming buyers.
More than three-fourths of Freeport-McMoRan’s income is the result of copper sales; which has dropped from a recent $3.21 a pound from a February high of $4.66. Another tenth of its income comes from gold sales and the remainder from molybdenum (a mineral that strengthens stainless steel), cobalt, silver and a variety of other metals. Freeport McMoRan has 120 billion pounds of proven copper reserves and approximately 100 billion pounds of other minerals, including gold.
Freeport recently reported that third quarter earnings fell 11%, to $1.10 a share, because of disruptions at its giant Grasberg mine in Indonesia. Next year the company is expected to earn $4.9 billion, or $5.18 per share, assuming copper prices stay at current levels, which are below the $3.60 a pound that the company realized in the third quarter. Broadly, every 10-cent change in copper prices affects the companies earnings by 25 cents a share, although sensitivity can change based on production levels and the amount of byproduct mined.
The company produces four billion pounds of copper each year, claims that it will lose 100 million pounds of copper and 100,000 ounces of gold production this year because of labor strikes. At Grasberg, strikers have been killed or injured in confrontations with police; they are seeking an eightfold increase in wages. Workers also walked off the job last month at Cerro Verde, Peru’s third largest copper mine, which majority is owned by Freeport.
These are sensitive and problematic issues. Yet speaking during the company’s most recent earnings conference call, Freeport CEO Richard Adkerson noted that Grasberg is operating at “roughly two-thirds of the normal rate,” and that the company is mining higher-grade areas to compensate for the production shortages. Capacity utilization was higher during the period than analysts expected, while net extraction costs for the company, the lowest cost copper miner in the world, stayed at modest eighty-cents, because of high grade prices. Jorge Berstain of Deutsche Bank assumes that each 10% increase in wages at the Grasberg would reduce earnings per share by three cents.
China’s Copper Inventories, A critical factor in the market, were larger than expected at the end of 2010. In the first half of 2011, China was thought to have been destocking, but today there are signs they are once again buying. London Metal Exchange warehouses are said to be making large copper deliveries, while the price of copper in China is rising once again.
Long term, copper is now becoming scarcer, given greater demand from the emerging markets and very few new large sources of supply. “At prices much below $3 a pound and oil above $90” which makes copper mining more expensive “it isn’t clear that large amounts of additional supplies of copper can be brought to the market, barring a technical miracle,” says Leeb. “A resumption of even modest worldwide growth without major technological innovations will imply that copper prices must go dramatically higher than recent all-time highs.”
Freeport will be a major beneficiary. The company is far healthier than in 2008, when it had $6.5 billion in net debt stemming from its 2007 acquisition of Phelps Dodge. It since has reduced debt and instead is sitting on $1.6 billion of net cash. With copper at $3.25 a pound, the company would have an annual operating cash flow of $7 billion; which is sufficient to take care of to cover its capital spending needs, taxes and $1 billion in annual dividends.
Freeport plans to increase supply a lot, adding a billion of copper production by 2016 by expanding its mines in Morenci, Arizona, and other mines ion the United States, and also Cerro Verde and Tenke Fungurume in Congo. Last we they said that they would boost capital spending by $1 billion, to $3.7 billion in 2012.
Freeport’s $33 billion market, which happens to be far below its replacement value, or the value to a strategic buyer seeking decades of reserves. In 2011 Barrick Gold paid $7.5 billion to buy Equinox Minerals, a price, according to Credit Suisse, that would peg Freeport’s copper reserves at approximately $123 billion, or $129 per share, a figure that doesn’t include its gold or molybdenum.
These calculations could present a big opportunity for the mining giants with a high amount of cash, such as Rio Tinto, BHP Billiton, or Brazil’s Vale Mines. For more information visit the website www.fcx.com.”
MMA CYCLES REPORT
P.O. Box 250012, West Bloomfield, MI 48325.
Monthly, 1 year, $295. www.mmacycles.com.
Long-term Gold cycle is up. Yet it
doesn’t negate a pullback to 1350-1455
Raymond Merriman: “2012-2015 is shaping up to be one of the most important and transformative periods of a lifetime. Huge financial challenges lie ahead, and the stakes of the 2012 political election are greater than even in 2008. World and national debt has not been harnessed and continues to escalate further and further out of control, right alongside with the unwillingness of political leaders to stop the never-ending spending binge. Once again, the USA spent over $1T more than it brought in this year, for the third consecutive year of these historic deficits. And all of this continuous as we head into the epicenter of this geocosmic storm, known as Uranus square Pluto, June 2012-March 2015. That’s right: we haven’t hit the peak yet. And where there is a storm of financial turbulence, chances are great that there will also be a storm of social unrest. In 2012-2015, the Uranus-Pluto square forms a grand square to the USA’s own natal Sun-Saturn square. The Sun is the leader the president of the nation. Saturn is the government the law making body of the nation. Uranus means sudden changes and great difficulty forging a consensus, and the rise of social unrest. Pluto is debt and taxes, which are the source of great polarization and disagreement. The grand square is tension that either leads to action, or forces action that no one wants due to a crisis that no one agrees upon as to how to solve.
With Uranus, everyone wants freedom and independence financial independence. With Pluto, the collective urge is to purge those in leadership, so everyone tries to find a source to blame. What is truly needed is a unifying leader, and the world and nation do not have such a leader at this time. So instead, we seem headed into even greater polarity and paralysis, as witnessed several times last year in the USA and in its inability to agree to a debt reduction. So far the stock markets of the world have not really reflected this dysfunctional dynamic. Equities are still relatively high compared to where they were three years ago. But that may all change as Jupiter leaves its last time band for a crest, October 7, 2011- March 7, 2012. Once that crest is completed in this time band, the history of this transit suggests the start of a 2-4 years bear market in which equity values decline 48% or more. In the meantime, Gold and Silver may experience their own challenges in response to the new policies of the new ECB head, Mario Draghi. Draghi may be a drag on Gold prices. He doesn’t seem willing to put the ECB into the same inflationary quantitative easing direction as the USA’s Federal Reserve Board that have driven Gold prices higher over the past three years. But does he have the power to enforce these new policies? That remains to be seen, and my guess is that he won’t, at least not for long. The long-term Gold cycle is still pointed up, yet this does not negate the possibility of a decline back to 1350-1455. It doesn’t have to happen, but you need to be aware that it could.”
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