I believe we saw the bottom for gold and gold stocks in December. Besides the fact that the severity and duration of the cyclical bear market of the past 2.5 years rivaled the worst in history, we maintained the lows through a brutal tax loss selling season. Meaning, the fact that gold stocks held their lows during a time when droves of investors neutralized their stock market gains by dumping gold shares is quite bullish. Lots of folks who came to the gold game late in 2010 and 2011 feel burned and are either out of the sector entirely or are too shell shocked to make any offensive moves. That’s a shame for them because it is a buyer’s market and the gains ahead may prove extraordinary. I harp on investor psychology more than any other topic because the reality is that if you do not have your head on straight…I can’t help you!
I simply marvel at the amount of emails I get from people who have cost averages well above the initial recommendation prices. Even if I was some sort of wizard in the market, you and I have to be disciplined to buy stocks we like on weakness and sell some into strength. Traders can be more active along these lines and investors can be less active. However, any of us who are whipped around by our emotions, especially in a very volatile sector like mining stocks, are doomed to lose money over time. However, even a decent stock picker can make huge gains over time if there is discipline in buying when action is either dead or looks scary. Then, when everyone is super excited because the stock is going up 5 days in a row….we sell some!
I also despise the “all or nothing” mentality. If I buy a stock at $1 (100,000 shares) and it goes to $2 in short order and is extended, I have decisions to make. However, the decision does not have to be made on the entire block! Scaling out by selling 1/3 or ½ is perfectly wise in many cases. “But what if it goes right to $3?” Good! I still own half and benefited. “What if I only sell half and it goes back to $1?” Good! Now I can buy the shares back if I still like the company/fundamental story line and take the $$ I saved on the shares I sold to buy back the same amount of shares cheaper and travel the world with the difference! Or, if it is even more compelling and it was a pullback mainly caused by the general market etc, perhaps I will take the profits from higher sale prices and now have an even bigger position for when it goes back to $2. Flexibility and detachment are two very valuable traits to nurture in the kind of speculation and investing that I do. How are we flexible and disciplined at the same time?? Well in the scenario above I was disciplined taking half of my money off the table at a double. I now have zero principal risk at stake. But, this actually induces flexibility AND detachment because now I will cheer whether the stock goes directly to $3 or back to $1 (or somewhere in between obviously-this is an example). Stocks/sectors always look AWESOME at their highs and look like trash at their lows.
How many people were super excited when silver was at $45 an ounce and gold and silver stocks were going up every day in 2011? Many people were, including me. But, I have adjusted to the market and am now actually tremendously grateful that we have had 2 plus extra years to build potentially life changing positions in physical gold, silver, and mining stocks at cheaper prices. Worst case, we are early in a new cyclical bull cycle that will take miners/gold to higher levels over the next year or three. Best case, things are going to get crazy in the next few years. My prudent/conservative side looks at data and writes with the idea of being conservative when projecting. My gut says at some point in the next 3-5 years or less, gold stocks will enter a mania phase that will trump internet stocks in 2000 and real estate sentiment in 2007.
How scary was it to load up on gold stocks in October-December of 2013? Well, I’m looking at a list of my favorites that I sent out to premium members in late November and honed in on throughout December. Here are some new ideas to entertain for free members as well but clearly we got the best buys late last year:
CRK.TO-Crocodile Gold-New producer on target for 200,000 ounces produced in 2013. Cash balance of $25MM and cash flow positive from operations at $1325 average gold sales price last quarter. I really like this one: http://finance.yahoo.com/news/crocodile-gold-reports-operating-cash-224824353.html . Anything under 12-13 cents is very inexpensive and we may see another dip below 10 cents but this company is exploding with growth and the market will reward it sooner or later.
***Crocodile has tripled in 2 months
VIT.V-Victoria Gold-Trading at cash! Which is over $30 Million….fairly near term gold producer in Yukon: http://finance.yahoo.com/news/victoria-receives-10-million-second-192000326.html . Buy up to 12-13 just like Croc…..under 10 cents now.
SVV.V-Solvista Gold-Exciting discovery in Colombia. I expect drill results out soon and still $3-$4 million cash in the bank to drill…just did a private placement earlier this year at 45 cents…now 9 cents!
ORG.V-Orca Gold- http://finance.yahoo.com/news/orca-gold-corporate-123000071.html . Almost $60 Million in cash in the bank and $43 million market cap!! African exploration company with super successful management team. No brainer under 50 cents.
***Only up 20%
RBY-Rubicon Minerals-I was buying this stock in the 2008 crash at these prices and they have made huge progress on their flagship Phoenix deposit. They have over $100 million in cash and the stock is very cheap yet again. Will be an all star once the next cyclical gold bull kicks in….anything around/under a buck is a tantalizing buying opportunity.
***RBY more than doubled but now has pulled back due to financing
All of these are high quality junior gold mining stocks. I took some profits on RBY/CRK at $1.60 and $.29 respectively. However, I only sold 1/3 of my positions. I have very little principal risk and am now looking to buy my RBY back soon. If CRK goes right to 50 cents, I’m cool with that! But, if it goes back to 20 cents first I’ll throw the shares I sold right back on the books. It is important to stress that I am very reluctant to sell much of my junior gold stocks. I’ll trade with 1/3 of my positions because I tend to make up ground nicely overall due to the volatility. But, I think we have a long way to go on the upside. I know the initial mindset when looking at the above list of juniors is “well they already doubled so I missed the bottom”. SO WHAT!! What if they are on their way to going up tenfold?!? I think Rubicon could be $5-$10 longer term. Crocodile is firing on all cylinders and could be a $1.50-$2 stock in the next year or 3. These stocks could still be dirt cheap right now even though they doubled off their bottoms.
This bear market has been brutal and lasted over 30 months. Just like starting to work out our body again after time off, we see the most gains in the beginning. But, it doesn’t mean we can see more and more steady gains over time. Look at the chart for the junior gold mining stocks proxy GDXJ:
I believe we’re at least looking at a return to $60-$70 per share on GDXJ in 2014. However, I also believe we will see gold and gold stocks test the 2011 previous highs in the coming 2 years. GDXJ has been bludgeoned down from $140 per share which means a move from here to back there over time is over 300%. If that is indeed the case in the future, some of the better gold stocks will go up 10-20-50 fold. We are not in this sector for meek gains. We just got our teeth kicked in for over 2 years now it’s time to shine again. All I’m saying is if you’re a believer in what I’m saying, don’t sell yourselves short and stir yourself out of any lethargy/disdain you may have and take some action. The next 10-15% correction in gold stocks should be a great chance for people who missed the bottom to LOAD UP. But, you have to have your eye on your targets. Get pricing in mind and even consider throwing in some low bids now on your favorites. But realize that the pullback may occur after another 20% move up first so buy some of what you know you want to own now then be price sensitive with extra is my suggestion.
I’m being pretty aggressive in this note because I simply think most people are still licking their wounds in this sector. If gold is going to $2,000 in the future you’ll get bullish later anyways so it mine as well be now! I have also stressed for years regular accumulation of physical gold and silver. Platinum is also historically cheap when compared to gold so I have been a buyer of platinum as well. If you have been waiting on buying some or more physical gold/silver I believe now is a very good time to take action. I’m a regular (every 2 months or so) and aggressive buyer of Gold up to $1500 an ounce and silver up to $25-26 an ounce. Frankly, buying up to $1650 gold and $30 silver is ok for long term holdings as my price targets ultimately remain $3,000 gold and $150 silver.
Even though I put out the Rubicon Minerals recommendation to premium/elite members under 80 cents and it has gone up, I officially recommend it as a junior mining stock position in portfolios. $1.32 is the official buy price for free members and should be accumulated before/into the closing of their financing at $1.40 or better and on dips. Ruby is a very advanced and high quality junior miner that will likely be bought out sooner or later. Many are familiar with this stock but for a refresher or introduction you can view their most recent investor presentation:
The fact that this stock can be bought at the same price as pre/post 2009 crash is remarkable considering all of the work and money spent on their Phoenix project over the past 4 years. I think we’ll see $3 again on RBY for more than a double from here and later in the cycle this could be a double digit stock. This is a great one to sock away along with New Gold (NGD). NGD is up about $1 per share since our initial recommendation last month and has exceeded our buy up to price. However, I feel we will see $14-20 per share down the line so buying up to $6.50 is prudent and certainly on any pullbacks/weakness. RBY/NGD are two stocks I would put into the moderate risk category but they still have huge upside with very valuable assets and solid management.
Rubicon monthly chart over 10 years:
Most of the gold stocks are consolidating nicely above their 200 day moving averages, which is bullish and now the 200 and 50 DMA’s are support not resistance, which is good as well. If you think about it, even the fact GIL put out its top picks for 2014 as non-gold stocks is sort of a contrary indicator within itself. I certainly did throw in the towel on gold stocks but wanted to put forth new ideas that people would actually act on.
The idea that most people would not act on a straight gold play at this juncture is quite bullish. That said, I’m quite happy with our 2 top picks for 2014 Poly Shield (SHPR) and Cardero Resources (CDU.TO/CDYCF). They are both again/still terrific buys currently. I will be writing and publishing a full report on SHPR in the near future. I want to wait until we see the share restructure/Rasmus employment agreement and patents filed to do so. That is really what the market is waiting on then the stock will start to move up. In the interim, I think a large brand name contract could set the stock off also and I am expecting the issues mentioned above to be resolved very soon. It has been my only frustration waiting for these things to occur but lawyers/accountants and the like can take longer than we like to be completed. I do not have any real concerns about them actually getting done as I am confident the company and Rasmus’ interests are completely aligned.
The DNV certification being released in early March will send waves throughout the maritime sector and give us tremendous validation in the markets eyes. We are getting very close to seeing Poly Shield rock and roll….once it goes I don’t think it will stop. In fact, I see this story just accelerating rapidly as 2014 moves ahead.
Cardero Resources is the same investment thesis as I wrote up in December:
Now there is a gift from the trading gods to buy again in the mid/upper teens. Frankly, I believe even though it is currently a penny stock, Cardero has the lowest risk profile of our small cap recommendations. This is because they have strong financial backing and a very valuable asset that is being utterly undervalued by the market. Plus, met coal pricing and met coal stocks will rise again once the bear cycle ends just like they have been doing for gold stocks the past 2 months. And the bounce can and will be fierce for a stock like Cardero. So, I implore savvy investors to accumulate while it is quiet, cheap, and down from recent highs. We will be rewarded greatly in due season on Cardero.
My gut tells me that we are about to see a fresh up move in Zenyatta ventures (ZEN.V/ZENYF). The chart below is a weekly and you can see MACD on the bottom right is likely looking to turn higher in the coming weeks. The whole “head and shoulders” pattern still concerns me but the stock is worth 2-3X the valuation it is trading at currently in my opinion. The share price has shaken many people out and lulled the rest to sleep which is a perfect combination for a move up. I expect to speak with the company this coming week and will report back. But, I suggest nibbling on more Zenyatta here under $2.40 as the stock could be back in the $3’s in a flash and that’s where I think we’re headed in March.
As far as Medallion Resources (MDL.V/MLLOF) many people want an update. My question is what do you want me to update on? The stock has been in hold mode and the company is working hard behind the scenes but we need to see some news for the stock to command our attention again. I’m waiting on the same stuff as before and we simply need to see things happen. The long term story is intact but they need to execute to get us excited again. I think some good news is close but we will just have to be patient in the meantime.
Timberline Resources (TLR) just taught us a valuable lesson…..never sell into fear, anger, and/or capitulation. When I said I was sticking with it and put bids in at 13-12-11 cents recently some people threw in the towel. But, even though the news was bad, this company is not going away and even if I wanted to say I’m out….waiting until the emotion passes is the best time to move on. Timberline has terrific gold assets and production at Butte is truly getting close. Once they start producing, TLR’s balance sheet will be firmed up in no time and they have a lot of leverage in a higher gold price scenario. There are definitely other junior gold companies (like the ones I listed at the beginning which are all cash rich) in a better position than Timberline. So, not all gold stock eggs should be in their basket. However, the Butte production and Nevada exploration upside combination to their story is unique and the market will love it in a better gold price environment and once Timberline has their financial house in order soon.
As always I try to add nice value to free members. Premium/Elite members, however, enjoy some significant benefits that some of you may want to consider. Even though I only publish one full premium issue per month (this does not go out to free subscribers), the perks lie in the fact that premium members get ideas first/early. And, they receive stock ideas I do not cover for free subscribers. I had an email from a newer premium member that emailed me when Rubicon was $1.10 per share and said after buying at 70 cents he was up enough to pay for 20 years of my service. If he sold some around $1.60 last week make that half a century! I have only one Elite slot left open as I limit the number to 20 people. They get everything I am doing including trades and private placements. For more info on these services you can view here:
I hope everyone enjoyed this issue. Signing off from Medellin, Colombia….Adios!!
Disclaimer: Eric owns shares in each stock mentioned in this issue