McEwen Mining—Updated Targets

I tend to write about McEwen Mining (MUX on TSE and NYSE—I will be speaking in USD price terms–$2.97 currently) every May it seems but that hasn’t been intentional. But so be it, now happens to be a great time for an update. As you can see below (I’ve posted what I wrote in May 2016 with a link to the initial buy recommendation on the blog from May 2015 if you would like to review the progression of thoughts), I initially recommended MUX at $1.09 so in 24 months the share price has tripled essentially.

Last summer the price doubled within 2 months after our update and Q&A/webinar with Rob McEwen posting in May 2016. We took off our principal risk in July 2016 literally at $4.90-$5 as my alert was right at the interim top. I have recommended adding that position back on and then some each time the share price has dipped below $3. So, we own a much bigger position “on the house” now than we did last summer and I have just added even more to my position in the high $2’s. There is a chance the gold miners remain weak through the summer, which is normal, and we could have a chance to add even cheaper. But technically and fundamentally, this is where investors want to be adding to their positions.

During the May 2016 video, I raised my price target to $10 by the end of 2017. I am maintaining the $10 price target but am expanding the time horizon to 18 months from now (year end 2018). I believe we’ll see MUX test last summer’s high of $5 by the end of 2017 and it may trade higher than that but I’ll be a bit more conservative on the timing as it is a very aggressive call on ROI from here. WE MUST BE IN THE HABIT OF ADDING TO BEST OF BREED GOLD MINERS WHEN THEY ARE DOWN EARLY ON IN A NEW BULL CYCLE. This is a discipline and unless you have the resolve to buy when things don’t look rosy, you will rarely make money in the market, especially in mining stocks!

There is nothing wrong with MUX. This is a normal fluctuation in prices! MUX will trade with the sector and I believe will outperform it going forward due to their excellent assets and operator at the helm, Rob McEwen. Timing is everything and now I feel is a good time to revisit the webinar with Rob for a refresher or to introduce you to this quality company for the first time.

chart 1

 

One year ago in May 2015, I initiated coverage on McEwen Mining (NYSE: MUX) (TSE: MUX) at $1.09 per share with a strong buy recommendation and a 12-24 month price target of $3 (speaking in terms of USD MUX on NYSE). You can read the report here.
The share price has gone up by 150% and closed today at $2.53. During my webinar below, which Rob and I recorded today, I raised my price target to $10 per share by the end of 2017. I will be walking through more solid economics in my next report but we did some back of the napkin tabulations on the webinar. Rob demonstrated that when all categories of reserves are measured, and including their copper monstrosity that is Los Azules, MUX owns 46 Million ounces of Gold equivalent ounces in the ground right now. Stick that in your pipe and smoke it! In the report from May 2015, you’ll see a 10 year chart showing 3 major bottoms and two major tops since Rob took over UXG (now MUX). The 3rd top will be hit again, and it also will likely be breached. The price has twice hit $10 per share when MUX wasn’t nearly as established. Rob McEwen has put $127 MM of his own cash in MUX to acquire his 25% equity ownership position. His only reward in building the company is share price appreciation as he takes no salary, no options, no bonuses, etc. His personal cost average is just under $2 per share. We can buy today just 20% above his cost basis but he has been busting his hump building value in the business for well over a decade, we just press the “buy” button. Enjoy the 45 minute or so webinar for yourselves. The camera didn’t zoom back and forth to who was speaking so you’ll have to look at my mug throughout! Or better yet, just turn up the volume and listen versus watch….it’s a talk/Q&A.

Check out the webinar below with Rob McEwen and sign up with your name/email for updates on MUX and other unique investing ideas from GIL.

 

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Legal Disclaimer: I am offering ideas for your consideration and education. I am not offering financial advice. I am not a financial or investment advisor and am acting in the sole capacity of a newsletter writer. I am a fellow investor and trader sharing his thoughts for educational and informational purposes only. This publication is a 100% subscriber supported. No compensation is received by the author from any of the companies mentioned for the recommendation of a stock in this service (if this changes or there is exception-it will be clearly disclosed to our readers. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided on the Website is based on careful research and sources that are believed to be accurate, Mr. Muschinski does not guarantee the accuracy or thoroughness of the data or information reported. The opinions published on the Website belong to Mr. Muschinski or respective associates and are neither an offer nor a recommendation to purchase or sell securities. Mr. Muschinski does not recommend services, products, business or investment in any company mentioned in any of his essays or reports. Materials published on the Website have been prepared for your private use and their sole purpose is to educate readers about various investments. By reading Mr. Muschinski’s essays or reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these essays or reports. Investing, trading and speculation in any financial markets may involve high risk of loss. We strongly advise that you consult a certified investment advisor and we encourage you to do your own research before making any investment decision. Mr. Muschinski, Gold Investment Letter’s employees and affiliates, as well as members of their families, may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

New Gold—A Gift from the Gold gods

 

New Gold (NGD/NGD.TO) closed on Friday at $3 on the US market (I will be quoting the price in USD-you will have to multiply by 1.31 to equate the CDN exchange equivalent). The share price began to collapse on January 30th leaving a large gap on the chart at $3.96 (Jan 29th closing price). The even more significant flush came on January 31st, after analysts at the major brokerage houses downgraded the stock from a buy to hold, virtually across the board. That day, the price sank all the way to $2.39 intraday, just about sliced in half in 2 days! The news that caused this panic was an announcement that NGD would delay commercial production on their massive new Rainy River mine to November 2017 (this was previously scheduled to start “mid-year”).

The problem with Bay Street/Wall Street analysts is that they are, much more often than not, the sheep and not the shepherd. They are reactionary and behind the curve instead of in front of it and therein lies the opportunity here as the hatchet job on NGD was way overdone. The company also announced a $100MM funding gap due to cost overruns, which is not the end of the world. Guess what folks? New mines are very tough to build, mistakes are made, delays happen, and costs overrun. This is the mining business, not opening a new Chipotle. Obviously, some issues become perpetual and for smaller companies can be their demise. In the case of New Gold however, this is not the case. Last week on February 8th, they reduced that shortfall to $35MM as they sold a gold stream in their El Morro project for $65MM to Goldcorp, which is obviously non- dilutive.

Rainy River is NGD’s future and that future growth is not that far in the distance. I tripled my position size between $2.65-$2.85 and feel like this was a gift from the gold gods! I initiated a strong buy on NGD to all of our subscribers in the 2nd half of 2015 at just above $2 per share ($2.10 I believe was the official price USD). The share price tripled by mid-2016 and many of us wished we had bought more. Well, now is our chance as I love it again here in the high $2’s to low $3’s for primarily an investment but also for a pretty juicy trade too.

 

chart1

 

The daily chart shows two clear bullish signals via the clear gap in the chart (these tend to get “filled” much more often than not, even if just temporary) and a rising MACD, which acts like a pendulum swinging. I’ll take a step back and look at the bigger picture via the 10 year (monthly) chart below but first let’s look at the clear fundamental driver of the story….growing cash flow and earnings starting in 2018. Obviously a rising gold price is huge leverage to all of the gold producer’s earnings but we have a company specific driver in this case and it is Rainy River.

 

chart 2

 

As you can see from the above slide in NGD’s corporate presentation, RR will virtually double the cash margin/flow of the entire company, which has 4 other producing mines. Average annual production per asset as it stands now is approximately 100,000 ounces. RR is projected to quadruple the average production of the other 4 mines and produce 400,000 ounces annually, starting in full during 2018.

 

chart 3

 

You can see the huge impact RR will have on New Gold’s overall numbers above and it is significant. Do you want to invest in this company once RR is completely on track and producing 33,000 ounces per month in less than 12 months? No, you don’t. Not if you can buy it after a hiccup cheaply because Wall/Bay Street is focused on the short term and quarter to quarter realities. This is a perfect type of scenario to snatch value away from the sheep and buy into New Gold at a discount. Action and then patience will be rewarded.

None of this speaks to a rising gold price, which I expect going forward to north of $1,500 in 2018 (NGD uses $1,250 gold in their feasibility numbers/projections). However, per $100 an ounce rise in the gold price generates $300 million in value just at Rainy River. This is because $30MM in extra cash flow is generated and at 10X earnings it should reflect in $300MM in stock value added. That means when combined with the other 4 projects, just a $100 gold price increase in 2018 would add $600MM in value minimum, or 30% to the share price.

After a 5 year brutal bear cycle, most of the surviving mid-tier and blue chip gold producers are lean and mean because they had to be. The leverage going forward on rising gold prices will be significant and benefit stock prices fantastically if we see a real move in gold. NGD provides value at these prices, leverage to the gold price, as well as growth. Looking at EGO (Eldorado Gold) as a comparison, I would buy NGD every time. EGO has a $3B enterprise value versus NGD’s $2.1B yet their 2017 production profile will be very similar to NGD’s at between 365k-400k ounces. They also are not projecting anywhere near the explosion in production volumes that New Gold is after this year due to the Rainy River asset. The bottom line is that today’s problem will end up being tomorrow’s value driver and we actually don’t have to wait very long to see it.

I’ll circle back on this post in early-middle of 2018 once RR is hitting its stride and we’re seeing the same analysts that just downgraded, then upgrading, and driving the share price into the double digits again. As you can see on the monthly chart below, we are trading right on rising trend line support around $3. I ultimately expect the share price to retest the $14 area it hit in 2011 once the current gold cycle kicks into gear given some time. In the meantime, a closing of that gap could happen in as little as days or weeks. But even if it takes a year, 33% annual profits with a very low risk profile from these levels is better than a sharp stick in the eye!

 

chart 4

 

I’m long NGD

 

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Legal Disclaimer: I am offering ideas for your consideration and education. I am not offering financial advice. I am not a financial or investment advisor and am acting in the sole capacity of a newsletter writer. I am a fellow investor and trader sharing his thoughts for educational and informational purposes only. New Gold is a paying sponsor of our website so my viewpoint may be skewed. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided on the Website is based on careful research and sources that are believed to be accurate, Mr. Muschinski does not guarantee the accuracy or thoroughness of the data or information reported. The opinions published on the Website belong to Mr. Muschinski or respective associates and are neither an offer nor a recommendation to purchase or sell securities. Mr. Muschinski does not recommend services, products, business or investment in any company mentioned in any of his essays or reports. Materials published on the Website have been prepared for your private use and their sole purpose is to educate readers about various investments. By reading Mr. Muschinski’s essays or reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these essays or reports. Investing, trading and speculation in any financial markets may involve high risk of loss. We strongly advise that you consult a certified investment advisor and we encourage you to do your own research before making any investment decision. Mr. Muschinski, Gold Investment Letter’s employees and affiliates, as well as members of their families, may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

Southern Silver Site Visit and Valuation Update

On January 28th, 2017 I traveled to Durango state Mexico to tour Southern Silver’s (SSV/SSVFF) Cerro Las Minitas property (CLM). Lesley Stokes from the Northern Miner was with us and she wrote up an informative article last week.

I initially published a public report on SSV in May 2016 at 14 cents per share which you can read here.

IMG_4292
[Our editor on site at drill #92]

Interestingly, if you look at the long term 10 year chart I posted back in May, I circled two target areas at that time. The first circle was around 50 cents. The share price broke above 50 back in August last year hitting a high of 66 cents but fell back and has been consolidating below 50 cents for 5 months. Guess where we have been seeing resistance recently? 47-50 cents. What is encouraging though is that on the weekly chart below, we are seeing bullish confirmations in a very recently rising MACD (bottom right) and reverse head and shoulders pattern. Technically, it is highly likely that the next move resolves itself upwards not only besting 50 cents per share but also the previous high at 66 cents.

I want to note the second target area I circled almost 9 months ago when the share price was just 14 cents, which is at $3. It won’t go there overnight as the next major resistance area after besting last year’s high will be at $1. Once $1 is broken, $3 per share should actually happen a lot faster than it took for the price to get back to $1 from bear market lows. What could be the catalysts for such a surge besides rising silver/zinc prices? It could very well be the potential doubling of the resource this coming summer.

 

Picture1

 

The current resource at CLM is 36.5 million indicated silver equivalent ounces and 77.3 million inferred equivalent ounces containing primarily silver, zinc, and lead. The current in situ value of the resource exceeds $2.3 Billion and has grown several hundred million dollars due to zinc’s huge rise in 2016. The company is now in the midst of a 10,000 meter drill program with an ambitious goal to double the current resource. The $2MM program is being funded by the Electrum Group who is earning into 60% ownership at CLM and SSV will own 40% once the money has been spent (Electrum will have spent a total of $5MM at CLM by this June).

 

IMG_4192

[Core shack]

“We already have a great deposit as it is, but once we hit the Blind Shoulder zone we just started following the high-grade, and we think we can double what we have right now,” Macdonald says during the drive to the property.

The quote above is referenced from the Northern Miner article via SSV geologist Rob Macdonald. Obviously, there is no guarantee that they will double the resource but I will say that the SSV team certainly feels confident in the plan to do so. Right now at 48 cents CDN, the market cap of $40MM is valuing each silver equivalent ounce at 30 cents. I believe that is too cheap and I see many examples with silver equivalent ounces valued at $2 (Defiance Silver) or even $4 (Alexco). What is a fair value? Once SSV is in the PEA or pre-feasibility stage (we’ll see what’s next….probably a PEA but they will have to review the plan with Electrum this summer once results are known), $1.00 per equivalent ounce is very reasonable. In fact, $1 per OZ right now is reasonable.

At $1 per ounce of silver equivalent resource the stock would be trading at $1.50 right now. Wonder how they get to $3? Double the resource and walla! Keep in mind that these comps are fair with a $17-$20 an ounce silver price. $25 silver and the valuation could easily double to $2 per equivalent ounce or triple at $28-30 silver, which I believe is coming. For now, I’m only looking for $1 per silver equivalent ounce of resource on what they have today which forecasts a $1.50 share price. I’ve been saying $1-2 in 2017 so I’m very comfortable with this price target.

IMG_4207

[Cerro Las Minitas–The Hill of Many Mines]
*Note the modern highway just meters from the property

One thing that should bolster investor’s confidence is the direct involvement of Tom Kaplan’s Electrum Group. This group is the smart money, make no mistake about that. Kaplan has literally made a fortune by building up plays just like Cerro Las Minitas and they will do it again….and again…and again. In this particular case I’m betting on both the horse (CLM) and the jockey’s. Larry Page via Western Silver has been involved in some monstrous successes as well such as discovering Penasquito in Mexico though Western Silver Corp. This mine now produces almost 1 million ounces of gold annually.

I’m confident that in the next sustained move higher in precious metals, the gold/silver ratio will begin to tighten in silver’s favor. At 70 to 1, it is on the very high end historically and should make its way into the 30-40 to 1 area within 2-3 years, maybe even much sooner as silver can make up ground fast when it decides to! I don’t see Southern Silver taking CLM into production as they will be acquired well before then. This is an asset the majors will want and the company could be in play as early as this coming fall after the new resource estimates are on the table. The longer an acquirer waits, the higher price tag they will need to pay so I would rather see an offer in 2018 or once silver is $25 or higher, minimum.

More details on mineralization and the various target zones can be read in SSV’s corporate presentation and/or in the Northern Miner article. SSV remains a buy under 50-60 cents and on pull backs. It remains my top junior silver holding. SSV was a sector leader during the huge gold/silver stock rally in 2016 and I expect it to remain an out performer in the next run.

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Legal Disclaimer: I am offering ideas for your consideration and education. I am not offering financial advice. I am not a financial or investment advisor and am acting in the sole capacity of a newsletter writer. I am a fellow investor and trader sharing his thoughts for educational and informational purposes only. Southern silver is a paying sponsor of our website so my viewpoint may be skewed. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided on the Website is based on careful research and sources that are believed to be accurate, Mr. Muschinski does not guarantee the accuracy or thoroughness of the data or information reported. The opinions published on the Website belong to Mr. Muschinski or respective associates and are neither an offer nor a recommendation to purchase or sell securities. Mr. Muschinski does not recommend services, products, business or investment in any company mentioned in any of his essays or reports. Materials published on the Website have been prepared for your private use and their sole purpose is to educate readers about various investments. By reading Mr. Muschinski’s essays or reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these essays or reports. Investing, trading and speculation in any financial markets may involve high risk of loss. We strongly advise that you consult a certified investment advisor and we encourage you to do your own research before making any investment decision. Mr. Muschinski, Gold Investment Letter’s employees and affiliates, as well as members of their families, may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

Bravada Gold Upside Potential Remains Significant

Bravada Gold (BVA/BGAVF) was one of our best performers in 2016. The XAU index of mining stocks, despite the second half correction, closed 2016 up 74.1%. This was actually the largest percentage increase on record EVER for the XAU, which has been around since 1983. In comparison, BVA was up 500% from .04 to begin the year to a close of .235. The share price at one point in the summer soared up 1,000% to 40 cents and has now basically been cut in half during this correction. Those that outperformed mightily on the upside in the rally are susceptible to greater percentage pull backs as well.

Did we see the best of Bravada’s share price increase or is there more upside to come? I’m betting on higher prices despite being up substantially on my position, which is very significant for me as I own approximately 4% of the outstanding shares between my firm and personally. I actually am participating in the current 20 cent financing as well (more to come on that later). Bravada only has 35 million shares out so their market cap remains tiny at just $8MM CAD (.235 per share). BVA is one of my top junior gold holdings for several reasons.

First, it is a pure play on Nevada gold exploration as BVA owns 15 properties in the state with 5 being developed by partners. Several have been past producing mines including 2 of their best projects in Wind Mountain and Quito. Very large companies have been attracted to BVA prospects including Kinross, Baker Hughes, Coeur, and Newmont currently as active partners. A number of Bravada’s projects have blue sky potential including several that could become 1MM plus ounce gold resources.

Their 100% owned flagship, Wind Mountain, already has 925,000 ounces of gold in the indicated and inferred categories. This equates to Bravada’s entire market value being approximately $9 per ounce in the ground on Wind Mountain and giving ZERO value to the other 14 projects! I can slice and dice comps and analysis all day in many different ways but the clear simple fact is that the stock is TOO CHEAP. Many juniors have valuations of $20-30-40 per ounce of gold resources even after the recent 40% plus correction in the sector.

I think it is very important for investors to consider the stock now before a fresh round of drilling begins at Wind Mountain before the end of Q1 2017. Quito will see drilling and Kinross is active at Baxter, but I expect serious value generation at WM this spring. There are very precise targets in this phase of drilling that will increase the resource but even more importantly, will technically become more attractive to a new partner. We will see consistent news flow from drilling via Bravada and their partners throughout the year.

The company has a very small burn rate and has cleaned up their balance sheet in 2016. A vast majority of the $1MM current financing will be put to work in the ground, which I like to see. By mid-year/summer 2017, with improved information and results from the next drilling program at WM, we should see a $25-30 an ounce valuation on this project alone. That would put BVA in the share price range of 65-75 cents, giving zero value to the other 14 projects. Clearly Quito and Baxter themselves, which have majors in Coeur and Kinross spending millions, have meaningful value. The Baker Hughes barite mine being built will start to throw off cash to Bravada in 2017 as well.

The other 10 or so Nevada properties are at varying stages of development but half of them are good prospects and have had money spent on drilling in the past. Once gold starts really ripping, all of these projects could garner attention, leading to purchases or JV’s. If we give all 14 projects just half the value of Wind Mountain, we’re looking at a $1 plus stock price. That could happen in 2017 but we’ll need to see another strong run in gold and gold miners for it to happen. However, even in a down/sideways gold market, I think BVA penetrates the 40 cent high from 2016 this year. Going from the current 23-24 cents to $1 may seem like a lot. But keep in mind it is just over 50% of the percentage movement that the share price saw in 2016 (2016 was 500%–we would need to see about 300% from current prices to hit $1).

Juniors move baby! Big swings like this are very normal in bull markets and we know that they can be decimated in bear markets. In fact, BVA was trading at $3.20 in May of 2010 and hit a low of 2 cents in 2015. That means the stock lost more than 99% of its value in just over 5 years!! Some investors are still WAY under water at these prices, still down over 90% ($3 to 30 cents is 9/10th’s of their value!). Fortuitously, we happened to start entering the stock in the fall/winter of 2015 and took a big stake in the company for peanuts. So, it’s all in how you look at it. BVA is a very long way from testing its highs in 2010 which would need a 13 bagger from current prices to do so. However, in the gold mining sector, I believe that BVA and other solid plays like MUX and others will eventually EXCEED their 2010-2011 highs!

I’m laying this out now because it is very important that my readers get in the habit of buying positions when stocks are down. BVA is off about 45% from last summer’s highs of 40 cents but I think it is starting to turn on the weekly chart (see below) and will be back over 30 cents soon, leaving the .20’s behind for good. The only reasons that I would sell any shares is if the position size becomes way out of whack compared to my other junior holdings or if I’m exercising warrants, further increasing my holdings at cheaper prices.

chart-1

The weekly chart above is bullish and a flagging pattern for months coupled with a triangle pattern forming since November indicate a potentially explosive move soon. A breakout above 26 cents with volume will confirm a significant breakout on the weekly and the next major resistance level won’t be until 40 cents. MACD is turning up after being down for 6 months! The chart is absolutely set up for a multi week-month uptrend to begin. However, if we see the triangle broken to the downside (20 cents) with volume first, then the low end of the flagging pattern at 15-16 cents would be a feasible low point. I am guessing the break out of the triangle will be higher as usually the trend continues in the previous direction, which was higher.

For those of you that are accredited investors ($200k annual income the last 2 years, $300k with your spouse, or $1MM in net worth minus your primary home), you may want to jump on the current private placement offering to take a position. The terms are one unit at 20 cents that includes a 3 year full purchase warrant at 30 cents, which is a nice sweetener on top of the healthy discount to market. This is the optimal way to take positions in juniors if you have access to the deals. Luckily, on BVA, we do. Just register your interest amount (minimum is $20K CAD or about $15k USD—100,000 units) via the Issuer Direct page here.

In summary, investors that want to own exciting gold juniors trading at historically low valuations to assets may want to consider taking a position in BVA/BGAVF. I think the stock can be bought up to 30 cents on BVA and 24 cents on BGAVF for a potential double or more in the next 12-18 months. The current private placement will be closing on or before January 13th so accredited investors that are interested should act swiftly to ensure inclusion.

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Legal Disclaimer: I am offering ideas for your consideration and education. I am not offering financial advice. I am not a financial or investment advisor and am acting in the sole capacity of a newsletter writer. I am a fellow investor and trader sharing his thoughts for educational and informational purposes only. Bravada Gold is a sponsor of the Gold Investment Letter and we are being compensated twenty five hundred dollars monthly. I am also the owner of Issuer Direct and will be receiving compensation in the form of a finder’s fee for investors referred to invest in their private placement. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided on the Website is based on careful research and sources that are believed to be accurate, Mr. Muschinski does not guarantee the accuracy or thoroughness of the data or information reported. The opinions published on the Website belong to Mr. Muschinski or respective associates and are neither an offer nor a recommendation to purchase or sell securities. Mr. Muschinski does not recommend services, products, business or investment in any company mentioned in any of his essays or reports. Materials published on the Website have been prepared for your private use and their sole purpose is to educate readers about various investments. By reading Mr. Muschinski’s essays or reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these essays or reports. Investing, trading and speculation in any financial markets may involve high risk of loss. We strongly advise that you consult a certified investment advisor and we encourage you to do your own research before making any investment decision. Mr. Muschinski, Gold Investment Letter’s employees and affiliates, as well as members of their families, may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

NovaGold Resources is Cheap and Oversold

I have begun building a position in shares of NovaGold (NG/NG.TO) in the $4-5 range and believe that the price is very close to a short term bottom. At a closing price of $4.05 yesterday on NG, the stock is off over 30% in the past 7 trading days with an RSI reading of 25 (oversold). The share price was $7.25 as recent as early August so it has nearly been cut in half during this gold miner correction. Now is exactly the time that you want to be buying this stock and the downside looks limited to me.

NovaGold owns 50% each in two monstrosities called the Donlin Gold (Alaska) and Galore Creek (Canada-mainly copper but also has 8 million ounces of gold and over 100M ounces of silver) assets. Their partner at Donlin is Barrick Gold (world’s largest gold producer) and Teck Resources (Canadian mining behemoth) at Galore. Donlin is enormous with 34 million ounces of gold reserves and another 11mm ounces in the resource categories. The grade is solid at 2.2 GPT versus the global average at 1.12 GPT and the project is at the permitting stage after 16 years of development. Call it 45 million ounces, which is over $50 billion worth of gold at today’s prices, and the deposit has the potential to double in size from here.

Donlin dwarfs all other new gold deposits in North America to the tune of having more M&I gold resources than the next 4 projects combined (Livengood-Brucejack-Meliadine-Rainy River). New discovery potential abounds at Donlin and there is enormous leverage to the gold price where the NPV (net present value) at 5% increases 20 fold with just a double in the gold price to $2,500. NPV at 0% (not valid until closer to or even in production) is over $6B at today’s gold price and goes up almost 5X to $27 billion at $2,500 gold.

Galore Creek has over 9 billion pounds of copper, 8 million ounces of gold, and 136mm ounces of silver as well. 6 billion pounds of copper to be produced over 18 years and at $3 copper that will be nearly $1 billion in annual revenues with tremendous margins. NG/Teck project costs of only 80 cents per pound of copper, which is outstanding. I will let investors dig deeper on Galore and Donlin fundamentals as I most importantly want to get this piece published for early October 12th. The price is right to act now and that includes an opportunity to make 20-25% on a trade if that’s your style. But I think this stock can go to $20-$50 per share within 3-5 years based on fundamentals aligned with a gold price that retests the 2011 highs.

picture1

This is a 10 year, monthly chart on NovaGold above. My chart line may be off by a smidgen but we should see strong support on the stock in the 4$ area. The share price hit $20 in 2007 and $17 in late 2010 and I think the $12-14 range will be retested in the next 24 months, which is a triple or better.

Below is the daily chart which shows via the top upper right circle that the price is already becoming oversold near $4. The other circle adjacent to the red line (200 day moving average) is a gap in the chart, which will likely be filled. That’s nearly a 40% return from $4.05 and it could happen within just a few weeks. A very realistic shorter term goal is a 20-25% move back near $5.

pic2

The weekly chart below shows more signs that the lows are very near here close to $4. We see the long term uptrend line still intact with MACD at the bottom being quite stretched. MACD has been below zero for 10 straight weeks and could easily begin turning up anytime.

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Lastly, the company has a very impressive board of directors and institutional shareholder base. Thomas Kaplan of the Electrum Group is the Chairman and his firm owns over 26% of the company. When you add in Fidelity (8.5%), John Paulson (8%), the top 5 investors own over 50% of the stock. This is pretty unusual for a north of $1 Billion market capitalization company and speaks to the conviction of some very smart money.

I urge readers to begin acquiring shares of NovaGold for long term investment. Also, traders can begin adding as well for a potential 20-25% gain within a month or two (it could reverse within hours/days). You may want to add half immediately and keep some dry powder if the miners decide to have one more flush lower before a sustainable rally ensues. This is the exact type of gift that investors would have dreamed of just a couple of months ago when the share price was surging over $7.

I am long shares of NG

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