Monday and The Doctor is Definitely In
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Still Easter here too, Bob. It started yesterday so most of the shops and banks are closed. The Coptic Christians are on the same calendar that goes all the way back to the days of Rome when an even older Egyptian version was modified by Augustus to suit the Julian Calendar.
They have thirteen months on this system. Kind of confusing some days.
Anyway, thanks guy. Good interview. I am still in the camp that believes the dollar has already peaked though. Where low rates were concerned the country (most Western indebted nations for that matter) has benefited by easy borrowing and has not faced pressures to reform its debt on a fiscal basis.
However, as the new rate regime comes into play it tells me one thing — and one thing only. The only alternative for the Treasury to manage the debt load if the end of zero-bound Fed Funds has arrived is for the dollar to be devalued.
This is part of the reason we are seeing QE in Europe in my view as what is taking place there will actually cause the Euro to rise and that will result in a defacto decline in USD.
Who knows, you guys could well be right that a Greek expulsion would see the Euro gain considerable traction as confidence was restored. That idea sits well with me and makes perfect sense.
Anyway, if low rates are coming to an end, and with it the freedom to borrow without serious repercussions during an expanding deficit regime (and it will get worse soon enough), then a falling dollar is the only other mechanical solution to manage gross indebtedness.
These ideas are linked in a way that we cannot ignore. All of us know the debt is currently unsustainable and most of us also assume the government will loathe to reduce any program spending that might lead to negative outcomes amongst the electorate. We also are now aware that a recession may be coming and that will without doubt drive the deficit up steeply.
Therefore, the debt must now be inflated away as has been done countless times in the past. So low rates have merely allowed the day of the next devaluation and the day of reckoning to be put off….until now.
We need to prepare for a falling dollar. I think it is almost upon us and over the next few years we will see it lose as much as 35% of its buying power before settling around the .66 level by my calculation.
There are a lot of ways to skin a cat they say….but when it comes to debts and currencies the choices come down to just a couple of practical options in the absence of an economic renaissance that would drive American manufacturing for decades to come.
It is either low rates forever or a double digit decline versus the worlds major currencies.
How’s this for timing:
I mentioned on Friday’s blog (3rd Party Comany Reports on Gold Canyon) that AuRico gold was one of the companies I saw as a potential takeover target, and they announced today that they are merging with Alamos gold. One down, and more M&A to come.
On April 10, 2015 at 3:47 pm,
Shad says:
“…..Currently, here are some on my list of Jr Miners as potential takeover targets:
Exeter, International Tower Hill Mines, Rye Patch, GoGold Resources, Golden Queen, Torex Gold, Silvercrest Mines, Crocodile Gold, Argonaut Gold, Aurico Gold, Inca One Gold, Romarco, Orocobre, Idaho North, Bear Creek, Typhoon, Niogold, Wellgreen Platinum, Polymet, Jaguar Mining, Garibaldi Resources.”
Both companies had a little pop, but not the kinds of gains we used to see when these things happened in years past. Gold was down today and most retail investors have completely tuned out the mining space, but there is still some money to be made in picking select companies that have real value.
Great insight Shad, thank you for the info.
Sure Nancy, glad to share. If you have any good takeover plays you are watching then we’d love to hear the suggestions. Good luck in your investing!
I have some interest in the mining sector. As a long term play.
Yes, for the long term 1-3 years out, this space should do incredibly well compared to other asset classes.
You have a great sixth sense Shad!
Thanks. Mostly I have a knack for non-sense 🙂
I did hit the takeover for Duluth Minerals by Antofagasta, the Paramount Gold & Silver Takeover by Coeur, and the recent Uranerz takeover by Energy Fuels, so those worked out well.
That is not bad, Shad. Not bad at all. Was it by study and instincts and was it your plan? That’s pretty interesting to me that you caught 4 in a row. I am curious to know what was your tipoffs.
I look for a large asset, in a company that has the money to survive, and plans to mine or is mining at an attractive cost margin. If they have a Feasibility Study done, or have an updated reserve estimate that is growing near an existing mine, then I figure, a Major or Mid-tier will buyout their ounces in the ground.
Duluth for me was a play on Platinum and Palladium, in a good jurisdiction, and I knew they didn’t have the money to build that mine on their own, but had proved up the resource and had an attractive Feasibility Study. In my opinion Polymet and Wellgreen Platinum are doing the same things and have even better assets so they are next.
For Paramount Gold & Silver, I liked the management/asset/and cost of production and figured they were prime for a takeover. Coeur has been on a tear lately gobbling up mines and properties, so it is only a matter of time before they grab a few smaller Jr Miners. Idaho North and Rye Patch are likely acquisition targets as well for them.
Uranerz (URZ) has been in my watchlist for years and I have traded in and out of it. When it got down to $1, then that was ridiculous and an over-reaction, so I picked some up around $1.01. I got nervous when it dropped down to $.91, but was reading their press releases and knew they were profitable, had long term contracts at prices far above spot price, and were one of the few profitable Uranium miners at present. I sold on the acquisition news to Energy Fuel (#1 US Uranium producer) a little early at $1.32 (as it actually got up to $1.38) but good enough. I’ll add that I just recently picked up more shares of URZ at $1.03 as a play for UUUU shares which should happen in June.
I predict that Ur-Energy (URG), Uranium Energy Corp (UEC), and maybe even the beaten down and almost bankrupt Palladin (PALAF) will be takeovers soon.
(URG) is my pick of the litter, as it does the In-Situ mining like (URZ) in Wyoming, and it’s long term contracts are around $50 (far over spot price). Ur-Energy also took over Pathfinder mines in 2013, and just picked up some other lands adjacent to their properties, so they are being very strategic. Now that URZ was scooped up by Energy Fuels, I think Cameco, Areva, or Denison may go for URG next.
Fission (FCUUF) is also the hottest play in the Athabasca Basin and could be taken over by a Major like Rio-Tinto, Cameco, or Areva as well.
Great post Shad! Thanks for the expanded answer. I was not expecting that. So what you are saying then is that you do have a method and are specifically narrowing your range of purchases to companies that you suspect are takeover targets rather than just buying whatever company has a good chance to move up. I think this is actually the first time I have seen a post like yours in the past few years. And that strategy makes good sense right now as the M&A activity will pick up even as some miners are drowning in red ink. Great idea.
Makes all the sense in the world right now.
Thanks Bird and Shad.
Thanks Birdman. Yes I have a specific group of criteria I look at to target what I feel will be likely takeover targets. In addition to the above comments I look for companies that taking large positions in other companies stock, or joint ventures, or proximity to Majors as other key influencing data.
Now I am not opposed to taking positions in quality Majors or Mid-tiers if I fee like they have a good financial outlook, but those tend to be companies I build positions in to hold onto a little longer due to their strength.
When I am looking at the Jr Miners or Jr Explorers, then I typically consider what their exit strategy will be and if they are going to develop their mine and properties further on their own, in a Joint Venture, or are they building a resource to sell it, or are they building their company to get taken over?
It isn’t an exact science, and as you mentioned some is instincts, some is analysis, lots of digging through press releases and looking at maps for proximity plays, etc…
Kind of funny but I have not paid close enough attention to your posts in the past month because I was so busy defending myself and being distracted. Today’s posts from everyone have been really good to read though and got me refocused. Your input has been terrific. Thanks man!
Shad:
Just lo-o-o-o-ve your ironic sarcasm, Shad 😉
Gracias!
Not really sure about International Tower Hill, Shad. That Company has a tough road.
The property and asset is attractive enough that I still believe they’ll get bought out now the Feasibility Study is complete and they are ready to be shopped. It may not be at a price that long term shareholders like, but that is a big resource in their Livengood project in Alaska.
I thought at one point they were sponsors on this show? Maybe you could unpack why you think the road will be tough, as you likely know much more about it than I do.
Here is a link to the March 2015 International Tower Hills Corporate Presentation:
http://www.ithmines.com/_resources/presentations/ITH_Presentation.pdf
I have been to the property. I understand that at this point the asset is very far away from being even close to attractive at gold prices anywhere near to what we have today.
Well I thought you had done some major research into their property Al, and definitely appreciate your insights.
Yes, I agree (and think they’d agree) that we’d need to be back above $1400 gold to make their project viable. Here are their figures in the presentation link above:
All-In Cost After Tax
(CAPEX+OPEX)
$1,474/ounce (years 1-4) ; $1,292/ounce (years 1 -5)
International Tower Hill mines does have one of the only 20 million ounce gold deposits that have been discovered that is not controlled by a Major or Mid-tier.
The question really comes down to: Do you think Gold is going back over $1474?
I have visited the property in Alaska; I know some the the senior management; I was truly impressed with the infrastructure; however, I believe that for the asset yo pencil a gold price approaching $2,000 is necessary.
I bought stock at a pretty high price and then sold it for pennies.
If anyone believes that gold is going back over $1474, then International Tower Hill Mines will be taken over at some point. I would imagine that if gold did get back up to $1500 plus in 2016 or 2017 that the price of (THM) would be above the $.37 US that it traded at today.
This stock traded over $10 back in 2011 (which was over-valued). Let me ask this:
If THM got taken over at a higher gold/stock price, and bought out by a Major at $1, $2, $3 then what your percentage increase be if you purchased some today?
Shad,
Of course that is a great point. Let’s talk about odds man!
I think there are 60% odds that gold is over $1474 by the end of 2016. and 70% odds it Gold will be over $1474 by 2017.
That leads me to believe that at those higher gold prices projected that there are very favorable odds (65%) that International Tower Hill mines will be taken out at higher prices than today. How’s that for odds?
If ITH-ca (International Tower Hill) is taken out at 100% premium, I’ll only be down 88%!
Good thing I only gambled a bit of Vegas money on it.
Thank you Casey Research [/sarc off]
I really believed in this Company at one time Irwin.
I have about five more just like it.
I have some that I too am very concerned about Irwin!
Question is: will we ever learn?
Speaking for myself … probably NOT. ha!
but I’m still smilin’:)
What I can’t figure out is when two dogs mate, what makes the new puppy so much better?
AuRico (AUQ) up 8%
Alamos (AGI) up 6%
Why? what’s new and improved?
genetics!
I am all in at $.45 (US) on International Tower Hill Mines (THM) in US or (ITH) in Canada.
Since the stock is at $.37 (US) currently then that is a big slide, but I am thinking of averaging down if it gets in the low $.30’s.
Irwin & Al – That was my point when I said regarding the takeout price:
“It may not be at a price that long term shareholders like”.
I thought we were here to invest in where we saw equities heading in the future?
If someone picked up some shares here at $.37 in THM, then I can only see them having a multi-bagger by 2016/2017.
And that Shad, is a very good point!
Shad;
When I bought ITH-ca and several others, I knew they were speculations, so I made the decision to hold them to zero, and not average down. Sure am glad I made that decision. If the trade goes against me, I accept that I was wrong and the least I can do is not compound the error.
The reason I don’t use stop-losses on these gamble plays, is because I also never know when one is going to bounce 100% over night. I only had that happen once, but we’re in a time now, when it can happen to a few more dogs.
Thanks Al & Irwin. I could see where a longer term holder in Int’l Tower Hill Mines that may have got in around $10 US in 2011 and watched it fall for 4 years down to $.37 US today would be very disappointed. However the reserves have only improved since then, the Feasibility Study and many permits are completed, and it is just waiting for a buyer when Gold prices improve.
I first picked up shares at $.94 US, but made some money swing trading it up above $1.03 US and went on to swing trade it a few more times in 2013 and then jumped ship. I just recently took the position at $.4418 (US) in February after it came back down from a recent high at $.60 (US) in January. In retrospect I should have waited a bit longer, but that spike showed me there was some real interest when Gold prices started rising at the beginning of this year. This is why if it drops down further in May, then I’ll average down.
Regarding the AuRico gold and Alamos Gold merger. Here is the link to the details from the company regarding the benefits of the merger:
Then there is another press release I can’t seem to get to link, but I’ll cut and paste a portion of it below about Standard and Poors expects it to be credit-positive for Aurico.
“Under the terms of the merger, AuRico and Alamos shareholders will each own
50% of the newly created company, MergeCo, with a transaction equity value of
about US$1.5 billion.
The CreditWatch placement reflects the potential that the merger would be a
credit positive transaction for AuRico. In our view, we expect MergeCo will
have a comparatively stronger balance sheet and modestly improved competitive
position from the corresponding increase in operating diversity. On a pro
forma basis, we expect MergeCo to produce up to 425,000 ounces of gold in 2015
from three mines, with additional development opportunities. In addition,
MergeCo will have a cash position approaching US$430 million and total debt of
just below US$340 million, which increases financial flexibility. Given that
AuRico’s senior secured bonds are expected to account for effectively all of
MergeCo’s debt outstanding, we believe the incremental earnings and cash flow
from the merger could result in a relative improvement in core credit ratios.
The merger is subject to shareholder and regulatory approvals and we expect it
to close in the second quarter of 2015. At this time, the status of AuRico’s
senior secured revolver and bonds are unknown, specifically as it relates to
security and guarantees. However, we believe the facilities will remain
outstanding as the proposed transaction does not trigger change-of-control
provisions (AuRico is considered the acquirer of Alamos from a tax
perspective) and we do not expect the company to raise any new debt.
We plan to resolve the CreditWatch once completion of the transaction becomes
clear, at which time we could raise the long-term corporate credit rating on
AuRico, although likely not by more than one notch. We will reassess the
issue-level rating on AuRico’s senior secured notes after assessing the status
of the notes within MergeCo’s capital structure, including any changes to
security and guarantees.”
I own a little of AUQ—-M&A along with the bankruptcy of multiple juniors appear to be upon us. It’s another signal that we’re bottoming in these PM stocks.
Yep. While it may get ugly, there are also some good scores when companies you hold get taken over or merge. It can be an exciting time for certain select Jrs or Mid-Tiers.
there are lots of ugly stocks around.
Now the question is, which ones are really winners that our oversold, and which ones are going down the drain?
That is so true Nance. Just don’t buy any!
I would say any stocks that are standing at the end of this year are a good look see.
Mr. Korelin,
Is that investment advice?
Ha! Tricky question Nancy.
That should have said “which ones are really winners that are oversold”…?
There was a good press release today with record production from Silvercrest MInes.
http://www.kitco.com/news/2015-04-13/KitcoNews-kitco-mining-minutes-April-13-2015.html
If you want a glimpse at the potential value in V.FMG take a look at the recent Soltoro Agnico deal. 32 million $ for Soltoro. Soltoro doesn’t have much except a few small resources a lot of high grade potential and arguable the potential is much less than FMG properties. Under explored high-grade Mexican precious metals properties have been the target of a series of takeovers in 2014/2015. If you don’t think FMG is getting serious consideration given its drill results and inferred resource you need to give your head a shake. Even the majors have started to smarten up by investing more in low cost under explored high grade properties versus high cost over explored low grade properties. High grade is where you want to be. Delete all the low grade companies from your portfolio to eliminate the temptation.
forgot to mention Soltoro and FMG share a shareholder of significance Ernesto Echavarria. He has a few bucks to toss around.
Thanks Peter R!
Big Al
Peter
> High grade is where you want to be. <
I completely agree.
(These are off the top-of-my-head, and at the high end of estimates):
GOLD
Claude: 7 g/t
Kirkland Lake: 14 g/t
Pretium: 15 g/t
SILVER
Alexco: 25 ounces per ton (opt)
Scorpio (Galena): 11 opt
still trying to figure out if Klondex belongs in this group
Good stuff Brian. Yes the better the grade the better the margins.
In addition, Base metal credits also need to be taken into account as Silver or Gold equivalents. If you just isolate the Silver or Gold, you may miss part of the overall ore revenue.
There is another (almost) intangible about mines with high grades;
this relate to ethics, environment, blah-blah:
The higher the grade the less ore needs to be processed:
1. Less chemicals used
2, Less energy used
3. Less waste ore
4,. In general, possibly less impact on the surface and surrounding habitat.
A bit more to it than that. But a bit of truth.
Get some sleep, Brian.
Appreciate your comments!
Good points Brian. Some of the economics & environmental impact has to do with whether it is open pit or underground, what extraction process they are using, the distance the ore must be shipped for processing, what is the tailings facility like, etc…
And I promise to go to bed in a few minutes … one more (possibly irritating) point
One of the barriers to the AVERAGE person investing in Gold?Silver or the miners is: GOLD is bad. Maybe worse than having a carton of cigarettes in a sock drawer or owning a tobacco company.
I think that investors need to understand the TREMENDOUS difference between a regulated, ethically run Canadian company and the MSMs depiction of “Dirty Gold” or “Conflict Gold”.
As an example:
http://www.brilliantearth.com/dirty-gold-facts/
Brian….Eagle Hill although not producing indicates around 7g/t.
Biggus
Thanks for the tip. It passed my first three cut-offs. So I will do some DD.
Out of curiosity, are you a stock holder? Or just interested in the company.
Brian
Al…Eagle Hill and Southern Arc no longer sponsers?
DOC
I ma posting late, so if you do not catch this, I will re-post tomorrow.
I was looking at the weekly chart for $US Gold. So, I have a very specific TA question related to Bollinger Bands (I want to make sure I ma interpetring correctly).
If we just look at 17March going forward:
Gold increased for 7 straight days to touch the top band, then retraced retouched to the midpoint (3-4 days), then re-touched the top band(3-4 days), and has now touched the mid-point again (3-4 days).
For goodness sakes, it looks like a pattern and gold should test the top band in the next couple days (US$ 1225)
How crazy (or naive) am I? I can take the truth 😉
Brian
Wow, it is really late; sorry for the typos and atrocious sentence structure, but hopefully you get the gist.
Brian – there is a great deal of resistance in the 1222-1223 range that it may bounce off, but if Gold can make it through there then 1239 comes into play. See the audio commentary from Rick Ackerman for the specifics in the blog.
The question is will Gold come under pressure this week as Gary Savage and Gary Wagner think, or will it have a bit of a pop left this week as Avi Gilburt thinks may lure in the bulls for the coming spike down in late spring/early summer?
Gold looks heavy to me right now. More so silver. Both are a sell or a short in my view and there is downside dead ahead. I think the next drop is going to surprise a few people.
Silver has come within just pennies of posting a 15 handle this morning as an example. Gold itself traded down to 1190 so it is a warning to take heed of if you are betting gold will see 1225 anytime soon. My own outlook is negative near term. Gary is on the right track.
Based on the over-night markets it looks like Gold is under pressure (at $1190 US presently) as the 2 Gary’s predicted. This appears to be the daily cycle low forming, so there may be rebound for a few week into the larger intermediate cycle.
If so, does this intermediate cycle lend credence to the idea that PMs may actually trend higher into May & June as some have opined?
I have been very consistent with the call for lower Gold prices in May due to seasonality, Q1 Earnings reports, and US Dollar strength applying pressure to the Precious Metals. Those are fundamental reasons for Gold to be lower in a month, but the technical indicators that are playing out can’t be ignored either.
If the scenario plays out where gold heads down this week, puts in the daily cycle low (in the normal 18-28 day timing band), and then ratchets up higher out of the low to finish off the Intermediate cycle higher into May, then it is quite possible that my original thesis would be incorrect.
This week closing down lower or spiking higher will be very important to the mid-term picture.
Good question. I think we would have to ask Gary that. I don’t really follow his cycle theory all that closely but he has made some pretty good calls using that system.
Gary does say it is often not helpful near bottoms though or when the trading has been essentially sideways action. If you look at the daily chart you can see we have been dipsy-doodling around the 1200 mark since way back in October when it was first hit.
That price has effectively become the average now for seven long months but I think a breakdown is coming to end that pattern and if anything, 1200 will become the major overhead resistance to overcome for the rest of the year.
Check that daily chart for yourself and just ask this one question…based on the technical chart pattern does it appear more likely that gold will head to 1150 or to 1300? See, that’s why I have strong doubts about any kind of bounce right now.
Personally, I would be very cautious getting long today and tomorrow.
Good thoughts and yes it will be interesting to see if Gold gets a reasonable bounce for a few weeks after putting in the daily cycle low, or if gold just does a dead cat bounce and then sinks into May to test the lows.
Since middle March we have been seeing a gold price trend that showed higher highs and lower lows. This gave many analysts the perception that a breakout was potentially on the horizon for gold. And that is the problem with reading short term charts. In the last 48 hours that seemingly bullish trend channel has clearly broken down. We are all on notice that a significant price decline is imminent and that the bearish head and shoulders patter I identified weeks back is clearly in play at this time. The bulls will no doubt ignore me as always. All I can say is “best of luck with your trades”!
This is a response mainly to Brian. I know I haven’t said much about gold recently as far as the technicals are concerned but the sell off this A.M. isn’t surprising me. The PM stocks signaled it. The momentum indicators and strength indicators weren’t strongly in either camp. I would like to see a somewhat further sell off for the remainder of April and then it sets us up for an interesting May with a good chance of a rally in May.
Good thoughts Doc. It seems like there are a few different paths that Gold can take here. 1) Gold/Silver put in their daily cycle low as Gary mentioned, and then rebounds strongly into May (as you also just mentioned). 2) Gold surprises people at the end of the week and next with a pop up, but that is just to get bulls long before the price sinks into May – I was more in this camp with Avi Gilburt & Rick A. 3) Some believe PMs will just keep heading down without any relief. Not as likely, but still a potential.
It will be fascinating to watch!
Almost all the indicators are on a sell right now. If gold rises from here and suddenly breaks out to the upside it will be a near miracle. I suppose nothing can be ruled out totally….but I am 100% bearish at this stage of the game. Gold has a destiny with its 2014 lows at the minimum.
Yes, my best guess is that Gold does have a destiny with lower lows in the mid-term, but in the short-term I’m not ruling out 1222-1223 as first resistance and 1239 as secondary resistance.
Don’t forget – it is still Easter in Greece.