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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.
[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. 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).
[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.
[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.For updates on Southern Silver and unique ideas on individual mining stocks, please sign up for our free newsletter below.
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.
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-$50 per share within 3-5 years based on fundamentals aligned with a gold price that retests the 2011 highs.This is a 10 year, monthly chart on NovaGold above. My chart line may be off by a smidgen but we should see strong support on the stock in the 4$ 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.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.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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Seabridge on Sale and on Support
Here in late August 2016 I believe the market is presenting us with a bow wrapped gift in the gold mining sector selloff, in particular in shares of Seabridge Gold (SA/SEA.TO). Seabridge is currently one of the most oversold gold miners in the sector, as it closed today right on its 200 day moving average (DMA). GDXJ as a proxy for the junior sector, closed just below its 50 day moving average (about $47) versus its 200 DMA, which is all the way down near $31.50. SA has had no bad news or financings announced to merit such a drastic variance from the sector. My guess is mainly that it is usually more volatile than the sector, which swings wildly in its own right.
Many of you know my bullish stance on gold and mining stocks and that I believe this new bull cycle just began early this year. After an entire sector triples in 7 months, guess what? Yes, it is due for a breather and even a jolting shake out to flush the Johnny come lately types out before any fresh highs can materialize. We all knew it was coming at some point, and there will be plenty more in the future. The fact is that SA is presenting an excellent extra point right now around/under $11 per share as it is already oversold and sitting right at very strong support levels. I anticipate the bounce to be fairly fierce in percentage terms so this can be traded, yet I am planning on holding a large position long term, for much higher prices.
Once the gold bull kicks into real gear and institutional investors can no longer stay out entirely, I think SA will be a hedge fun darling stock of sorts. The draw mainly being the massive gold in the ground assets the company owns spread over 3 very large projects, all in Canada. This relatively unknown gold company has over 45 Million ounces of proven and probable gold reserves, making it one of the top ten gold companies in the world in terms of reserves size Unfortunately in this brief report, I am not going to dive deeply into a fundamental analysis on Seabridge. The reason is that I think the biggest value in putting this piece out this morning quickly, is the timing, and the window will likely shut to buy SA shares near/under $11 swiftly.
However, I would strongly encourage you to look through the company’s corporate presentation, which lays out the value proposition nicely. In addition, I have linked 2 very recent articles featuring interviews with CEO Rudi Frank which, after reading, you’ll see that this is an exceptional story/situation in the gold sector. Insiders own over 30%, the reserves are enormous, low market cap, and I can go on and on. But most importantly today, let’s go to the charts!
On the daily chart above, clearly the share price is right on/below its 200 DMA, which will act as very strong support and a springboard. Even if the share price flushes to $10 today/tomorrow, the $11 area will then act as a magnet. Also note the RSI on top (circled) which shows a 26 reading as of yesterdays close. This isn’t all that extreme, but considering we’ve seen a 25% plus decline in value in 4 straight trading days, the drop is significantly worse than the sector at large, and when sitting right on major support, it is plenty to justify a strong bounce. But, let’s take a step back and check out the weekly chart….
A picture is worth a thousand words. Hello?? Maybe I’m wrong, but I’m not afraid to call out exactly at the time that I think the market is presenting us with a brief window to buy shares before a fresh move higher. The weekly trend line is very nicely still intact (if the share price melts below this week and next, it would obviously negate this trend). But as of now, near these prices, giving room for a bear trap flush to even $10, as long as we close out the week around $11, the longer term trend is looking lovely. Three chances to buy the intermediate lows on SA/SEA in the past year and I’m saying this is one of them today.
The fact is that even if I’m dead wrong, this is the type of setup and circumstance you want to see to enter a position, or buy more stock. I almost tripled the size of my position on Wednesday, mostly adding at $11 give or take 10-20 cents. I’m now overloaded in Seabridge and it’s one of my largest single holdings. I plan on lightening that up on a bounce to $13 or so, socking away a nice and potentially quick 15-20% profit in hours/days, maybe a couple of weeks. Then I’ll keep a nice large position on for much higher prices.
I can make a case for $50 a share on SA in 24-36 months or sooner and that is actually where I think the stock is going as gold retests its 2011 highs in that timeframe, or sooner. Seabridge will ultimately be a $50-$100 per share stock if they aren’t bought out along the way….watch and see! That will take plenty of time but right now Seabridge and the gold miners are presenting a very compelling risk/reward entry point for traders and investors and I would encourage readers to accumulate today around $11 and the closer to $10 it goes today/tomorrow, if it does, the more aggressive I would be in buying. You can check out the CEO interviews I reference here:
http://sprottglobal.com/thoughts/articles/seabridge-building-out-an-optionality-company/http://www.theaureport.com/pub/na/seabridge-is-turning-cash-into-gold
I’m long shares in Seabridge Gold and may buy more or sell my entire position without any notice.For updates on Seabridge Gold and unique ideas on individual mining stocks, please sign up for our free newsletter below.
Lithium Stocks: Close to a Fresh Run?
Chart 1
Chart 2
Chart 3
Lithium has been quite hot this year and the juniors in the sector have ripped. Do I think it is the flavor of the day so to speak? Yes. I am not a long term investor with much money exposed to Lithium plays. However, there is more room to run before implosion, which might be later this year but...not yet. To the contrary, all of the lithium junior stock charts are perfectly setting up for a fresh run to new highs starting as soon as this week potentially. Premium GIL members caught the low risk set up in Lithium X Corp (LIX.V/LIXXF) in March. I recommended it at $1.15 on LIX.V and we flipped it in the high $1's in just over a week for a 60% plus profit.LIX.V is one of the more liquid/established/well backed plays out there. If you can buy a position up to $2.10 CDN or $1.65 on LIXXF, go for it. This could be good for 30-40% in the next 2-3 weeks as LIX.V tests previous highs and/or breaks to new highs in the high $2's-$3 per share. It is a good set up right here because it has had a 4 week consolidation, RSI has cooled, and MACD is about to turn up. Give stop limits a little room and to be more conservative, buy half now and add another half at $1.65-$1.80 if it has another week consolidating. I doubt it, but it could.Another strategy is to buy here while the uptrend is intact (upward slanted blue line on the chart below….needs to close above this to keep its perfect uptrend in place) but stop out if it goes below the rising blue line, OR if it breaks the 50 day moving average. Personally, I added half on Friday and will add another chunk if it pulls back 15-25 cents early this week. If it falls below the 50 DMA, I’ll stop out of the trade altogether for a small loss.Same goes for Lithium Americas Corp (LAC.TO/LACDF) which is established and liquid. Buy up to 75-77 cents on LAC and 60-62 on LACDF. The sector will move together more or less but these two are the top juniors in the space. Another run is very likely coming, I just don't know if it's this week (70% chance), next week (20%) or (10%) that I'm wrong on it altogether!!On LAC you can use where the straight line and 50 day moving average converges as strong support. If it were to break and close below both, I would sell it. However, I bought a 2/3 position on Friday and would add the last 1/3 if we see the slight pullback early this week to the mid-high .60’s.MACD is still above zero on LAC/LIX and are likely about to turn up. If/when the green lines at the bottom right on the charts break through the red lines that is when the breakouts will begin to accelerate. We should see a 30% plus move on LAC as its first stop will be retesting the $1 previous high. For me, I’ll probably sell half of the positions when both stocks are testing previous highs, which should provide some resistance. I think they will break into new high territory but because these are trading positions for me, I am not interested in being greedy. There is 30% plus on the table realistically within a few weeks, which isn’t bad!!I also tried to dig up a “tiny cap” Lithium play that has the potential to provide even more significant upside than LIX/LAC. I ended up finding a very sweet looking chart in Ultra Lithium (ULI.V/ULTXF). This one is thinly traded so be careful. But if the Lithium sector as a whole turns higher as I predict, this one could double or triple pretty quick. It’s at 25 cents and 50 cents would be my guess as an easy target.I’m not bothering to get into the fundamentals of each company or the Lithium space. Why? Because it doesn’t matter. The sector is rising on market momentum and excitement at the moment and all companies involved in Lithium have been running in 2016. I understand the basic bullish premise about the scarcity of Lithium and Tesla as a market driver. However, after the run will come a crash, as happens with every move similar to this one.The action reminds me of graphite stocks in 2012 and rare earth plays in 2010-11. I’m all for taking some money out of the run but I have not dug deep enough to be compelled to get heavily involved in Lithium. My picks today are exclusively based on technical action, which is still very bullish. Markets like this that end up generating lots of momentum and hype, can keep going for a while. I don’t think they are done yet, thus my bet on a fresh leg higher.I am long LAC, LIX, and ULI. I may buy more or sell at any time without notice.For updates on LIX, LAC, ULI and unique ideas on individual mining stocks, please sign up for our free newsletter below.
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.
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Oban Mining: An Aggressive Gold Growth Story
Oban Mining (OBM.TO/OBNNF) is in a strong position, cashed up to the tune of $75 million. Management is one of the more aggressive that I’ve seen and they've done 14 transactions since 2015, gobbling up juniors and taking stakes in others. All of that activity in the depths of the gold bear market may pay off in a huge way and Oban seems to have the team to create a giant. Management calls this the “Next Osisko Mining Corp”, where most of the crew came from after Yamana and Agnico Eagle bought them out for nearly $4 Billion in 2014. The team at OBM has cumulatively discovered over 100 Million ounces of gold in their careers they reckon. That’s a lot of gold!The company already has 5.5MM ounces of gold in all categories in Quebec and Ontario, Canada. Prolific drilling will occur in 2016 with over 100,000 meters of drilling programs planned, so news flow will not be weak. The company has some players involved on the board and in the stock. Osisko Gold Royalties (separate company from the mining corp bought out/referenced earlier) owns just under 20% while Wexford, Dundee, and Sprott combine for another 15%. The only negative I see on the surface is that officers/directors own less than 4%, which in my opinion is nominal. But, it’s not nothing.I see the company as large shareholders in plays I like. One example is Metals Creek Mining, which OBM owns a big chunk of and will very likely buy out at some point. This gives them a solid presence in an attractive camp like Timmins and I see their resource base really flourishing in the years to come. Management knows how to build a mining company and they’ve done it before. Discoveries are inevitable with that quantity of drilling as well so I expect big spurts of enthusiasm in the share price this year.
It looks like we might be chasing the stock but it has “only” gone up 50-60% this year versus many of our favorites having already doubled tripled, and quadrupled. Plus, it always helps to take a step back and look at a longer term chart, here’s the weekly going back to 2014:
This bad boy is just getting started! Since we’ve just broken through the 50 week moving average, I expect the short term to be quite strong for OBM. Look at GDXJ as a comparison on the weekly:
The sector is more closely challenging their 200 week moving averages so Oban has some catching up to do. As long as they don’t announce any huge acquisitions the next couple of months, the share price should outperform the sector. Acquisitions are great but you need digestion periods to integrate and also slow down issuing shares. Oban has done a good job though and proof is their huge war chest post 15 deals.My first target for OBM.TO is $2.50-$3…..closer to $3. Then $5 will be next so we still have room for a triple within 12 months. I’m initiating a strong buy on Oban Mining at $1.59 with a 6 month price target of $3 and 12-15 month target of $5. This is a newer player on the block but could become a darling to institutional investors because they are liquid and will be a several hundred million dollar cap soon. If management pulled off another Osisko, we’re talking 18-20 bagger from here. In this new bull cycle, anything will be possible in time for capable companies that execute and aim big.Here’s a quick plug from management themselves:I’m long shares in Oban Mining and may buy more or sell at any time without notice.For updates on Orban Mining and unique ideas on individual mining stocks, please sign up for our free newsletter below.