tag:blogger.com,1999:blog-33037872988874924952024-02-19T11:11:37.371-05:00Alpha MiningA former small cap research analyst turned mining executive provides his views on the sector.
The blog is free and for information purposes only, so should not be construed in any way as investment advice.Rob Bruggemanhttp://www.blogger.com/profile/12299740045922559975noreply@blogger.comBlogger40125tag:blogger.com,1999:blog-3303787298887492495.post-29992293760557094652021-03-04T17:34:00.000-05:002021-03-04T17:34:05.886-05:00Trying to Build a 10-Bagger<p><b>Evolve or Die</b></p><p>This blog started as an experiment when I was toying with the idea of starting a mining newsletter. I figured that if I was researching junior mining stocks for my portfolio that I could potentially leverage/monetize that research by sharing it with others. In addition, I wanted to use it as a forum to help junior mining investors navigate the pitfalls of the sector. I got great feedback and enjoyed posting on the blog.</p><p>But circumstances changed and the newsletter idea and the blog were put on ice. Instead my focus shifted to running mining companies. In March 2019 I became Interim CEO of AbraPlata Resource Corp. (TSXV: ABRA / OTCPK: ABBRF), which had run out of cash and was defaulting on property agreements. I was tasked with cleaning it up 💩. </p><p>I put my own money into ABRA because I recognized the potential of the silver-gold project that the company owned. The good news for me and any of you that followed me into ABRA is that it is now a great, smoothly running company with a market cap of CAD$170 million. 🚀🚀🚀</p><p>Why were we so successful with AbraPlata? Three key factors:</p><p>1. assembling a great team</p><p>2. having a project with multi-million ounce potential</p><p>3. luck - silver prices went from $15/oz to $26/oz.</p><p><b></b></p><div class="separator" style="clear: both; text-align: center;"><b><br /></b></div><b><br /></b><b>Junior Mining Stocks - Investing or Gambling?</b><p></p><p>I think putting money in junior mining stocks is more akin to gambling than investing. Poker is a good analogy because your luck will depend on the cards you're dealt (property geology and jurisdiction), your poker skills (due diligence and experience), and the other players at the table (company executives and promoters). </p><p><br /></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiASKW4aj8GzdxRu22kTD-jbzLT1NwGvTluNDRA2jhUvGGIDcO3lR7vnySFSsRyQ7xsRQ8Jig7golWSSsDeI-7CPRIJvCMbrCTPVRerBWQSLAnc3RMa6EsMhyphenhyphen3yrmaDkC0v5q_oqiOFI6uF/" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="250" data-original-width="800" height="162" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiASKW4aj8GzdxRu22kTD-jbzLT1NwGvTluNDRA2jhUvGGIDcO3lR7vnySFSsRyQ7xsRQ8Jig7golWSSsDeI-7CPRIJvCMbrCTPVRerBWQSLAnc3RMa6EsMhyphenhyphen3yrmaDkC0v5q_oqiOFI6uF/w518-h162/image.png" width="518" /></a></div><p></p><p>Few other sectors have the potential for 10-baggers and that's what draws people in, much like a high stakes poker game. Picking the right junior mining stock can be life changing. But whether you win the game or not depends on luck, timing, and making good picks. My goal is to skew the odds in my favor so that my fate is not left in the hands of lady luck.</p><p><br /></p><p></p><p><b>Trying to Build My Next 10-Bagger</b></p><p>AbraPlata has been a 10-bagger for me and I continue to love the company and its potential, both as an investor and as Chairman. It's like my first child. But AbraPlata has a baby sister now. </p><p>I'm CEO of Canstar Resources Inc. (TSXV: ROX/OTCPK: CSRNF) which is exploring for gold in Newfoundland. My goal is to make Canstar a 10-bagger and this blog will serve as a journal detailing that journey.</p><p>I'll try to post periodically on this blog about the process of trying to build a 10-bagger company from the ground up. I realize these posts won't appeal to everybody, but I think those of you outside the mining industry may find the insight useful for selecting mining stocks in order to improve your odds. In return, if you like what I'm doing at Canstar I ask that you consider becoming an investor and going along for the ride.</p><p>Of course there is no guarantee that Canstar will ever be a 10-bagger. Wouldn't that be nice - a guaranteed 10-bagger? It will take luck and perseverance.</p><p>I'll also periodically post my thoughts on things like markets and metals prices. "Experts" say you can't time the market, but I don't believe that. Hint: I think we're near a bottom for gold and gold stocks. At the very least, its a much better time to buy gold stocks now than it was at the peak seven months ago.</p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjBKViiARcQ94aM1FvEtqMPEdCMVaHLBwtesO3TFurGxqaPMz72QGXXxEY_Noxd_X-9xnT6mw3D0ivTh_GUFgpDRv_ggZiZ0vNC0nnfk67aEENRNPttP8L7JioA1Fg2V9TovGDer-891erS/s1179/Gold+on+sale.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="612" data-original-width="1179" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjBKViiARcQ94aM1FvEtqMPEdCMVaHLBwtesO3TFurGxqaPMz72QGXXxEY_Noxd_X-9xnT6mw3D0ivTh_GUFgpDRv_ggZiZ0vNC0nnfk67aEENRNPttP8L7JioA1Fg2V9TovGDer-891erS/s320/Gold+on+sale.jpg" width="320" /></a></div><br /><p><br /></p>Rob Bruggemanhttp://www.blogger.com/profile/12299740045922559975noreply@blogger.comtag:blogger.com,1999:blog-3303787298887492495.post-39875110946444066332019-01-15T17:10:00.000-05:002019-01-15T17:10:05.952-05:002019 - Be a pig, but don't get slaughteredIt's cliche, but what a difference a year makes. We started 2018 with a very bullish market for metals and mining stocks. The euphoria, however, was short lived with the market starting to roll over in February with another leg down starting in July and a horrendous December. In fact, the major US indices recorded their worst December since the Great Depression. The Chinese Zodiac calendar had 2018 as the year of the Dog. In hindsight, I'd say that was pretty apt. RIP 2018!<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgzdBjwJipKnPDaZNU41f-F-WTSrHaNUiXfR9kgLphI-bCsTn137t7W4sCNqpcVbQH9AWwbRTD5WIelSGJApe3ALHxvWdqVFlzgwDTRL297BJOzrMZ8TX_9qylyYZhomMdb7SDsR1Hpk4U3/s1600/dead+dog.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="450" data-original-width="600" height="240" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgzdBjwJipKnPDaZNU41f-F-WTSrHaNUiXfR9kgLphI-bCsTn137t7W4sCNqpcVbQH9AWwbRTD5WIelSGJApe3ALHxvWdqVFlzgwDTRL297BJOzrMZ8TX_9qylyYZhomMdb7SDsR1Hpk4U3/s320/dead+dog.jpg" width="320" /></a></div>
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Since we're on the topic of the Chinese Zodiac calendar, 2019 is the year of the Pig (starting Feb. 5). I don't believe in zodiac signs or horoscopes but, interestingly, analyzing S&P 500 returns over the past 90 years indicates:<br />
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<li>The average annual S&P 500 return from 1929 to 2018 was 11.2%</li>
<li>The average S&P 500 return in Years of the Pig was 20.8%</li>
<li>The average S&P 500 return in Years of the Dog was 10.9%</li>
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Lo and behold, the year of the Pig has the best stock market returns of all 12 zodiac animals (the worst is the Year of the Snake with an average 0.6% return, so make sure you're in cash for 2025). Let us hope that the streak continues and that we can all be pigs this year. Given the macro economic backdrop, just be careful that you don't get slaughtered.</div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgjLyGEn3GvaZnsKexjAqI_6f89ia4lcV2zvCy99UXoxEawYZBoTsIA-Gq6T6ZNtd1vH7UEe8La1zoxwnWv3iWHQPzwoM-bF3TDX0wIjHiJnpsq8nukuphm9_QYpn16vlvfRjjXx5-AlzRR/s1600/2019+year+of+the+pig.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="358" data-original-width="751" height="190" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgjLyGEn3GvaZnsKexjAqI_6f89ia4lcV2zvCy99UXoxEawYZBoTsIA-Gq6T6ZNtd1vH7UEe8La1zoxwnWv3iWHQPzwoM-bF3TDX0wIjHiJnpsq8nukuphm9_QYpn16vlvfRjjXx5-AlzRR/s400/2019+year+of+the+pig.jpg" width="400" /></a></div>
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In large part, the December drop was triggered by treasury yields and the Fed. The global economy is clearly slowing and the US Fed is raising rates. Jeez, that is not entirely shocking when we are 10 years into an economic expansion. To me, the market drop was not warranted by the data. Without boring you with a ton of detail and charts (check out the <a href="https://fat-pitch.blogspot.com/" target="_blank">Fat Pitch blog</a> for some great charts and analysis), the facts are that interest rates remain low by historical standards even though the labor market is tight. We are not seeing massive wage inflation and an overheating economy that necessitates rapid rate hikes. Major economies continue to grow, albeit at a slower pace (3.5% in 2019 vs 4.0% in 2018). Corporate balance sheets are generally quite healthy, earnings are continuing to grow, and valuations are reasonable. Default rates remain low and high yield spreads have not blown out. All things considered, that is a pretty Goldilocks scenario.</div>
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<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgHsGWsq77nR1r1EeJyOf8pNGiAjA1XMUDOvj2lY6a_3GL3IKzyR3ynnDfRSAO1XqpySSMdbrAV3R62xsmLKV8nA7t12O3xTF_1sdpZUAJFcM0qSq7hqGVmVOVACxbNGBrCDopBEzO-vZVR/s1600/HY+spreads.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="657" data-original-width="1022" height="410" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgHsGWsq77nR1r1EeJyOf8pNGiAjA1XMUDOvj2lY6a_3GL3IKzyR3ynnDfRSAO1XqpySSMdbrAV3R62xsmLKV8nA7t12O3xTF_1sdpZUAJFcM0qSq7hqGVmVOVACxbNGBrCDopBEzO-vZVR/s640/HY+spreads.png" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Source: JPMorgan and Fat-Pitch.blogspot.com</td></tr>
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In simple terms, we are NOT in a recession (yet). While the probability of a US recession is trending up, the treasury spread is currently indicating only a 21% probability in the next 12 months. But, if treasury spreads continue to widen, then seems to be just a matter of time before the US is in recession. If consumers and investors become convinced that a recession is looming, it is effectively a self-fulfilling prophecy and a recession will happen. The other important concept to remember is that stock markets are forward looking. Values today reflect what the market is expecting to happen. So, even if we are not in a recession today, valuations will be negatively impacted if investors collectively believe that is where we are headed.</div>
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<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiSGNPSUphPNJ-MlT_Etic68hiFygZE1GZVUZhJNCZoHgg1F8UaFeu7uEyWCLhtzg6-1aM1n1yRAueVGZKQci7o6faFh4qiGgWW4jc72ODOd2O0ANnMCjVvZOWBGkuQSOl7p5RG1uYCbRen/s1600/US+Recession+probality.JPG" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="557" data-original-width="840" height="424" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiSGNPSUphPNJ-MlT_Etic68hiFygZE1GZVUZhJNCZoHgg1F8UaFeu7uEyWCLhtzg6-1aM1n1yRAueVGZKQci7o6faFh4qiGgWW4jc72ODOd2O0ANnMCjVvZOWBGkuQSOl7p5RG1uYCbRen/s640/US+Recession+probality.JPG" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Source: www.newyorkfed.org</td></tr>
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The December market crash potentially set up an opportunity that we only see every couple of decades: a 20% market decline when the economy is not in a recession. At the very least, it set up a tradeable rally that we have seen rapidly develop over the past two weeks. I added significant equity exposure in December, but I'm now starting to fade the subsequent rally.</div>
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<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEggYq8NdkVz9SJHts55CrzDJpWoVhaThvR589fWpznSRMzlqAEi39IBw3TSXlt3nBmHMy-aiZwqOij3EVEmNh5u0pYSwDRcIv3c4ZF3HbLzllX4u-KfOQAuYqvScy8ZjhTsWRH8Hzd2udVv/s1600/Bear+markets.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="673" data-original-width="1007" height="426" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEggYq8NdkVz9SJHts55CrzDJpWoVhaThvR589fWpznSRMzlqAEi39IBw3TSXlt3nBmHMy-aiZwqOij3EVEmNh5u0pYSwDRcIv3c4ZF3HbLzllX4u-KfOQAuYqvScy8ZjhTsWRH8Hzd2udVv/s640/Bear+markets.png" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Source: JPMorgan and FatPitch.blogspot.com</td></tr>
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With props to the Fat Pitch blog again for their great chart collection, the chart below shows how the S&P 500 behaved in the three prior instances when that index experienced three one standard deviation down days followed by a four standard deviation up day (which occurred on Dec. 26, 2018). In each one of these rare instances, the market as between 12% and 21% a year later. BUT, in each of those instances, the S&P 500 also retested the lows anywhere from one month to 5.5 months after the four standard deviation up day. If history is a guide, then December's drop was a buying opportunity, either as a buy and hold event or by waiting and buying if the market retests the December bottom. For those who want to be pigs, you could view the bounce off the December lows a tradeable rally, then sell the rally and buy again on a double bottom. That, of course, is assuming that history repeats itself.</div>
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<tr><td><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgEHq1o5QIM4rr6CWGNrCAnqBTUOXsOFIzkMivhH1um1qEZIfoKNzaMjZHnCYkyCO8oGxA2AJ0rW4xJd3big4NjmonntSgrUoxWud0MVr8hKp6M6SGeuIqurtK2DQ6ZbN-vpRBcAA2PNoIO/s1600/bottoms.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="538" data-original-width="748" height="460" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgEHq1o5QIM4rr6CWGNrCAnqBTUOXsOFIzkMivhH1um1qEZIfoKNzaMjZHnCYkyCO8oGxA2AJ0rW4xJd3big4NjmonntSgrUoxWud0MVr8hKp6M6SGeuIqurtK2DQ6ZbN-vpRBcAA2PNoIO/s640/bottoms.png" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="font-size: 12.8px;">Source: <a href="https://twitter.com/wgeisdorf/status/1078137812682190848" target="_blank">NDR</a> and Fat-Pitch.blogspot.com</td></tr>
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At the market lows, valuations did indeed look very compelling with the S&P 500 at a forward P/E of 14.4. Canadian valuations were even more compelling at roughly 13x, about 1.6 standard deviations below the long-term average. Assuming a recession isn't right around the corner, that suggested 10% upside simply based on mean reversion. But, as can be seen from the chart below, P/E valuations tend to trend and the recent uptrend in valuation is broken. While 14.4 is inexpensive, you will still lose money in the near term if we are on our way to a P/E ratio of, say, 10 like we did in the last downturn. My view is that the current situation may be similar to the situation in 2006. The economy is not yet in a recession, but growth is slowing and valuations have likely peaked for now. Simply buying the market dips, a very lucrative strategy for the US market for the past 10 years, is likely not to bear fruit any more. Now, sector and stock selection are likely to have a greater influence on returns.</div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg2CHty-TTpiJyABzeAFQzwBg9icxQvkDYvIgokT5-qNk5si-WpcdyM2MI3J3R4RuPUjntq2Cbld5f4ghMxWhyphenhyphenwVTrVNocQ6G3m09WRIZe0L4g50o91wZzxM1uQOPYGh78wljN8oaoDjiHp/s1600/SandP500+Forward+PE+ratio+chart.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="432" data-original-width="640" height="432" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg2CHty-TTpiJyABzeAFQzwBg9icxQvkDYvIgokT5-qNk5si-WpcdyM2MI3J3R4RuPUjntq2Cbld5f4ghMxWhyphenhyphenwVTrVNocQ6G3m09WRIZe0L4g50o91wZzxM1uQOPYGh78wljN8oaoDjiHp/s640/SandP500+Forward+PE+ratio+chart.png" width="640" /></a></div>
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Knowing what part of the market cycle we are in is tremendously important for market positioning and gains if you are not a passive investor. I came across the chart below a few years ago and I set it as my computer wallpaper. Market cycles play out over many years, so this graphic reminds me to periodically assess where we are in the cycle. In a nutshell, my goal is to take risks during Accumulation and Markup, but then preserve capital when we get into or close to the Decline phase.</div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiLbh4KoQsQUPo5Nnk26ryleVOtMp2FQ15JWM8F9qx9rgCQvou7qqaDqbRwUmxGfcivEyZeMrZI5DWt5EQMl3T3wfZlCX4odeKDUefYcLPSDBTl-dNYe1b5ME91bWr3p90_wahOdHv4j8Ae/s1600/understanding-market-structure.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1031" data-original-width="1587" height="414" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiLbh4KoQsQUPo5Nnk26ryleVOtMp2FQ15JWM8F9qx9rgCQvou7qqaDqbRwUmxGfcivEyZeMrZI5DWt5EQMl3T3wfZlCX4odeKDUefYcLPSDBTl-dNYe1b5ME91bWr3p90_wahOdHv4j8Ae/s640/understanding-market-structure.jpg" width="640" /></a></div>
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The challenge with the Market Structure graphic is that the patterns are obvious in hindsight but not in the moment. Given recent market activity, it seems to me like we are currently in the Late Markup stage or the Early Distribution stage. December may have marked the transition period from Markup to Distribution. But what if that is not the case and we are still in the Mid Markup stage? Getting defensive too early can mean missing out on big gains that typically take place during the Late Markup stage. This is why we look to data and trends, as well as historical behavior, for clues and to be nimble so that you can react.</div>
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My assessment is that we have entered the Distribution stage. While that suggests the market top is in, it would not surprise me to see the S&P 500 test the top end of the range. I added significant equity exposure in the December drop, but I tried to do so in a way whereby I was positioned for compelling upside while not exposing myself to massive downside. With my involvement with junior mining companies, I have plenty of exposure to high risk, high reward stocks. I also wanted to diversify more beyond mining, especially given that I had previously positioned myself for a bounce in copper stocks. Ooops!</div>
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One of the purchases I made in December was Vermillion Energy (TSX: VET) and I like this trade. Vermillion is a diversified energy company with low Canadian exposure, so hasn't been as hard hit as Canadian oil & gas producers from the political pipeline debacle in Canada. On top of that, it pays a healthy dividend (currently 8.7% and 9.7% at my cost) that looks sustainable. Vermillion was the baby being thrown out with the bath water in December and I bought some at an average price of $28.37. I'm up 13% on the trade so far, but I just sold April 2019 covered calls at $34 for $1.50. If the market recovery continues, my shares will get called away by April and my return will be 25% plus monthly dividends. Not a bad pass for four months! On the flip side, if the market takes a turn for the worse, I now won't lose money on the trade unless it goes below $26.87 due to the premiums I received for selling the covered calls. This is what I like - good return potential with moderate downside risk.</div>
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I also bought some preferred shares that are up nicely because pref investors seem to periodically do stupid things with instruments that are fairly illiquid.</div>
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Going back to my bad copper trade, I sold my Turquoise Hill (TSX: TRQ) for a tax loss in December. One thing that diminished my view on TRQ is that I heard Rio Tinto really screwed up building <a href="http://www.mining.com/rio-tinto-delays-start-oyu-tolgoi-expansion-due-technical-issues/" target="_blank">Shaft 2</a>. The shaft screw up might be worse than announced, which would be an expensive mistake that will cost TRQ and may delay a strategic move by Rio Tinto to acquire 100% of the massive Oyu Tolgoi project. I still like the low valuation on TRQ and will consider putting a position back on in the future.</div>
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For now, I took the proceeds from TRQ and bought First Quantum (TSX: FM), as its Cobre Panama build seems to be going well and the stock has much better liquidity than TRQ. I still like copper fundamentals, but there are major short-term headwinds due to concerns over China slowing. Consequently, this stock has barely bounced since last month's market bottom and it is reminding me how long-term fundamentals are often not synonymous with short-term gains when it comes to stocks. However, it is hard to give up on the trade as a resolution in the China-US trade war, more China stimulus, or further weakening could all benefit copper. I also find the First Quantum chart interesting from a technical perspective. Will support at $10 hold, leading to a bullish breakout? The descending triangle pattern suggests we will know soon. If support breaks, whether due to company-specific factors or macro factors, FM could easily drop to $8 or lower. On the flip side, if the situation becomes more bullish FM could easily move back up to $16 or $18. Conceptually, I like the upside potential versus the downside risk, but this failed copper trade is testing my patience. </div>
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2019 is off to an interesting start and I suspect it will be an interesting year. I think my mantra for the year is be a pig, but don't get slaughtered.</div>
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<u>Disclaimer</u>: This is a free blog with my thoughts and opinions. Do not construe it as investment advice. Consult your broker and do your own due diligence.</div>
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Rob Bruggemanhttp://www.blogger.com/profile/12299740045922559975noreply@blogger.comtag:blogger.com,1999:blog-3303787298887492495.post-63328146344236787442018-12-18T10:07:00.000-05:002018-12-18T10:07:04.773-05:00It is wise to listen to billionaires - Part I<div class="separator" style="clear: both; text-align: center;">
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When a person in the mining sector has built multiple successful companies and made over a billion dollars doing so, listening to their advice is a no brainer. Ross Beaty is such a guy, having built Pan American Silver when he saw an opportunity in silver and Lumina Copper when he later saw an opportunity in copper.<br />
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Rick Rule recently did a great <a href="https://www.sprottmedia.com/rick-rule-investing-ross-beaty/" target="_blank">interview </a>with billionaire Ross Beaty. The interview is worth a read given Ross' success in the mining sector. Here are the key statements I want to highlight for investors and managers in the mining sector:<br />
<ol>
<li>"This business is all about high risk and high reward...In public markets, given the fact of outsized risk, you want to be looking for things with outsized returns like 100% or 1000%."</li>
<li>"If you’re going to be building a public company, go for size. Don’t waste your time on little things."</li>
<li>"You can have a deposit that has 100 million ounces like Pebble (Northern Dynasty). It’s almost a goose egg of value if you can’t permit it and if you can’t make it work....I’d rather have 1 million ounces of high-grade gold than 100 million ounces of really, really low grade that you can’t make money on because that’s worth nothing."</li>
<li>"This is a cyclical business. I know it’s going to change. How could I be even more exposed to the turn? How could I build value that’s going to come when the markets turn, when the bear market turns into a bull market? I don’t know when it’s going to happen but I know it’s going to happen."</li>
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Pretty simple, really. Don't waste your time with small projects and don't waste your time with bad jurisdictions. If you're going to take the risk, the big reward better be there. The junior mining market is littered with mediocre projects that aren't going anywhere, yet management teams continue to spend money on them to justify their own existence.</div>
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Also, buy good projects with massive leverage when prices are low - timely advice given the market carnage we are currently experiencing (more on this in a future post). Timing is important, as is patience. This is why I keep reiterating my favourable outlook on copper (although I just took a tax loss on my Turquoise Hill position and moved it into First Quantum). Valuations in the sector are attractive at the moment and the underlying fundamentals are very supportive. This limits downside while positioning me for a potential bull market run. Sure, there is risk that China demand for these metals will slow due to trade tariffs, but that is why prices are low. I think the US and China can work through the trade issues. Even if they don't, China has a multitude of tools available to keep economic growth strong, and one of those is ramping up infrastructure spending.</div>
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One last point made by Ross Beaty also caught my attention: <i>"We had joint ventures with every company under the sun because if I could use someone else’s money on properties that we had exposure to, I felt that was like a zero-cost option on discovery. That worked because out <u>of all those dozens of projects, we really only made one major discovery</u>"</i> (emphasis mine). Mineral exploration is tough and requires a lot of capital. The odds of finding a large discovery are small. This is why I shake my head when investors trip over each other bidding up explorecos with a few good drill holes. In the end, most of them won't amount to anything. But, the rare one will be worth billions. That is why I call exploration stocks lottery tickets. Trade them on the discovery hype and then hold a reasonable size investment to see if you hit the jackpot. Similar to the lottery or any game of chance, the dumbest thing you can do is go all in with a big investment. This is in keeping with the words of another billionaire, Warren Buffet, who said <i>"Do not test the depth of the river with both feet."</i><br />
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<br />Rob Bruggemanhttp://www.blogger.com/profile/12299740045922559975noreply@blogger.comtag:blogger.com,1999:blog-3303787298887492495.post-53380861708090113472018-11-15T18:18:00.001-05:002018-11-15T18:18:02.078-05:00M&A could be an enema for crappy sector performanceYesterday saw another significant M&A transaction being announced in the mining sector, with Pan American Silver acquiring Tahoe Resources. This deal comes less than two months after the merger announcement between Barrick and Randgold, which was well received by the market.<br />
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<b>Drain the Swamp!</b><br />
I'd like to see a lot more of these deals announced because hopefully they will help clean up the mining sector and provide investors with some long overdue returns. While the broader market has seen a tremendous bull market over the past decade, the mining sector has been stuck in a quagmire. Not because of metal prices and not because of demand factors, but because the sector has done an extremely poor job of creating value. In large part, this is because some companies or management teams have been exceptionally good at destroying value. Public companies are supposed to make investors money and the mining sector has been atrocious in this regard.<br />
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<b>Investors Chase Performance - No Love for Mining</b><br />
Take a look at the 10-year charts below for Barrick, Randgold, Pan American, and Tahoe (all in USD). Given the timing, going back ten years puts us at a pretty low starting point given the big market crash that took place in October 2008. Yet, only Randgold and Pan American have seen their share prices increase. Pan American is up, but holding that stock for the past ten years would have only generated you a measly 3.6% annualized return. That is good relative performance, but weak absolute performance. Only Randgold generated a good annualized return (12.3%) over that decade period, which is why investors are applauding the Barrick deal.<br />
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The mining sector is highly cyclical, so returns for investors need to be higher than the market to compensate for that risk. Clearly, the opposite has been true. If you had simply invested in the S&P 500 ten years ago (green line on the chart below) you would have had superior returns with a hell of a lot less volatility. <br />
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Looking at these charts it is pretty evident why most investors these days don't care to invest in the mining sector. Volatility is high and historical returns have been poor.<br />
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<b>Mining Investment has Changed - Mining Brokers and Mining Funds are Disappearing</b><br />
The poor sector performance also explains why the availability of capital has changed. Retail brokers and portfolio managers are supposed to make money for their clients. Most mining-centric brokers have blown up their books or have been shut down by their compliance departments. On the institutional side, investors have pulled money out of mining funds to invest elsewhere and that has resulted in fewer mining funds with much less capital to invest. Just look at the recent <a href="https://investor.vanguard.com/mutual-funds/precious-metals-changes" target="_blank">change </a>in the $2.3 billion dollar Vanguard Precious Metals and Mining Fund, which is now called the Global Capital Cycles Fund. Effectively, the change in strategy for this fund alone withdrew about $1 billion of capital from the mining sector. Why? Lower risk and volatility plus more consistent long-term performance.<br />
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I know I'm painting a gloomy picture here, especially for somebody who is supposed to be espousing the virtues of mining investment. The reality is that buy-and-hold investment is a terrible approach in mining. Vanguard is right that risk/volatility are high and long-term performance is poor or inconsistent. The sector as a whole is poor at value creation, in part due to structural issues that result in the hyper cyclical nature of the mining industry.<br />
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<b>Buy When They Cry, Sell When They Yell </b><br />
The beauty of the mining sector's cyclicality is that there are self-correcting forces at play, but it takes time for them to play out. When capital is plentiful, mining companies will overbuild. That causes prices to fall, resulting in mediocre financial performance and plummeting share prices. Over time, inefficient mines will be shutdown and the sector will consolidate (like Pan American acquiring Tahoe). Capital will be scarce, so few new projects will be built and that will eventually result in metal deficits. And, voila, prices once again rise and the cycle starts all over again.<br />
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Due to the cyclical nature of mining, one investment strategy that can work well is a buy low, sell high strategy. It's a simple concept; the challenge is in effective execution. The best time to buy mining stocks is when the sector is deeply out of favour and the masses are selling. You're not going to pick the bottom and initially you'll probably face steep losses if you buy too soon, but as long as you buy quality producers and quality assets the odds are high that you'll make attractive returns when the sector comes back into favour. Just make sure you get out when the sector becomes hot and generalist money piles in, as that will be the time when mining management will once again overpay for mediocre assets and start destroying value. Again, timing the top is tricky but as long as your timing is decent the potential for large returns is good. <br />
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As a general rule, selling due to fear means the bottom will be lower than you'd rationally expect and buying due to greed (and ignorance) will mean that the top is likely going to be much higher than you'd rationally expect. Buying mining stocks in late 2015 or early 2016 would have been very lucrative. However, we still haven't seen a bull market in mining stocks, so selling positions in 2016 or 2017 would have been more profitable than continuing to hold them until now.<br />
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<b>Nearing Bottom?</b><br />
My sense at the moment is that we are close to an interim bottom in the mining sector. Sentiment towards the sector is apathetic due to a combination of poor historical returns, the trade war between the US and China, and headwinds from the strong US dollar. Valuations are becoming compelling and the economic outlook looks good for at least another year, driven by a very strong US economy.<br />
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As discussed above, I'm probably premature in my sense that the mining sector is at or near a bottom. Often the true bottom is marked by a sharp down leg caused by capitulation selling. Other times, the bottoming process is more gradual. All I know for now is that it feels like we may be close to a bottom, so I have started buying large cap stocks in the mining sector. As you will see below, I'm using historical data and my experience as a guide for what I'm buying. (As always, this blog is for information purposes only. Seek the advice of a broker and do your own due diligence.)<br />
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<b>My Investment Narrative</b><br />
First of all, I am heavily favoring base metal producers over precious metals producers. Secondly, in the precious sector, I am favoring royalty companies and smaller producers over the senior producers in the precious metals. Across the board, I'm trying to limit country risk and buying quality companies. Buying quality doesn't help returns, as often marginal producers perform better on the upside, but it does protect my downside because these companies are less likely to implode if things take a turn for the worse. Even if you lose the battle, live to fight another day!<br />
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<b>Value in the Base Metals</b><br />
Historical charts help explain my current investment rationale. As can be seen below, the 10-year performance of base metal stocks is much better than for precious metals stocks. A couple of the base metal miners, Lundin and Teck, have even outperformed the S&P 500 over the past decade. <br />
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I've been buying shares of First Quantum and Lundin because I think copper prices will turn. Fundamentals for copper are attractive at the moment, but that is not reflected by the price of copper. Base metal prices have been depressed since the middle of the year due to the US trade war on China. However, there are <a href="https://www.cnbc.com/2018/11/15/us-china-trade-war-beijing-written-response-to-us-trade-form-demands.html" target="_blank">indications </a>that China and the US may soon have productive trade discussions. A resolution to the trade war would be very positive for copper, as well as other base metals like zinc. But, even if copper prices remain stagnant, these companies offer compelling value at the current share prices. First Quantum and Lundin are trading at about 0.7 times their NAV10% and Lundin is trading at a piddly EV/EBITDA of about 3.0. There are risks around both companies (Panama and Zambia for First Quantum, acquisition risk for Lundin), but my sense is that those risks are fully baked in at the current price. Teck also looks interesting, but I have a hard time buying that stock because of the heavy exposure to coal.<br />
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<b>Side Note on Turquoise Hill</b><br />
I've also taken a decent size position in Turquoise Hill because it just got too cheap to ignore, despite the hefty country risk that comes with Mongolia. I have a suspicion that Rio Tinto will renegotiate the Oyu Tolgoi ("OT") deal with Mongolia in the next few months. <br />
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The government of Mongolia owns 34% of the OT project, but it has been having a hard time funding its portion of capex and that results in interest bearing loans from Rio or its lenders. The recent announcement that the $5 billion underground expansion of OT won't start until later than expected in 2020 likely means that the Mongolian government will have to pony up more cash or increase its loans. I think it would make sense for all parties to replace Mongolia's 34% interest in the OT project with a higher royalty (currently 5%), which apparently has been discussed in the past (<a href="https://www.afr.com/business/mining/rio-tinto-under-pressure-from-mongolia-to-lower-oyu-tolgoi-building-costs-20180123-h0nbg1" target="_blank">source</a>). As part of the renegotiation, Rio Tinto could clean up issues surrounding power sources for the mine, resolve a tax dispute, and replace the original agreement, which some believe involved some <a href="https://www.reuters.com/article/us-rio-tinto-oyu-tolgoi/swiss-probe-rio-tinto-over-possible-bribes-ex-mongolian-minister-expects-to-be-cleared-idUSKBN1GX2WL" target="_blank">payola</a>. Most importantly, if Rio Tinto can pull this off it would also be an ideal time to take out the 49% of Turquoise Hill that it doesn't already own. Even with a hefty premium, it would be paying an opportunistic price. The <a href="https://www.mining-technology.com/news/newsrio-tinto-acquires-majority-stake-in-ivanhoe-mines/" target="_blank">last time </a>Rio bought shares of Turquoise Hill, it paid around $20 per share! It would be a blockbuster deal and bring luster to a crown jewel in Rio's portfolio.<br />
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<b>Senior Golds - Meh!</b><br />
The chart for precious metals stocks is just plain embarrassing. Other than Newmont, which has performed in line with gold prices, gold miners have destroyed massive amounts of value. Kinross takes the cake, with the shares down 79% over the past decade (remember that horrendous $7B acquisition of Red Back Mining???).<br />
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Given the terrible track record of most of the large gold producers, why would I want to pay over 1x NAV and over 6x EV/EBITDA when I can buy the better performing base metal producers for less? No thanks! I've never understood the cachet associated with gold miners. In my opinion, they don't deserve to trade at premium valuations to base metals miners, who generally have been better corporate stewards, and they shouldn't be valued using a 5% discount rate (or, worse, 0% in some cases).<br />
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I'm not hot on gold at the moment because I don't see it performing well until the FOMC changes its <a href="https://fred.stlouisfed.org/series/FEDTARMD" target="_blank">stance </a>on rate hikes in the US. On sector sell offs, I'd buy royalty companies like Franco Nevada and Wheaton Precious before I buy a senior producer. Royalty company valuations are considerably higher than producer valuations, but these stocks have performed well and are trading towards the low end of their historical valuation ranges. I'd also consider buying smaller gold producers that get beaten down, as the senior golds will likely do more acquisitions as the sector turns. No positions yet, but I'd put some on if valuations go lower.<br />
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<br />Rob Bruggemanhttp://www.blogger.com/profile/12299740045922559975noreply@blogger.comtag:blogger.com,1999:blog-3303787298887492495.post-7956242646482911422018-09-28T12:20:00.000-04:002018-09-28T12:20:44.819-04:00Loose lips at Aurion ResourcesI was at the Precious Summit last week, so I wasn't keeping a close eye on the market. I saw the news that Aurion Resources (TSXV: AU) finally found the potential source of the gold boulders in Finland. Hole AM18042 drilled intercepted 0.65 metres grading 3,510 g/t gold (or, if you like your results smeared a bit, then it was 2.90 metres grading 789 g/t gold of which 2.25 metres was only 3.0 g/t gold). That is a whopper of a gold intercept, although it seems like they are looking for needles in haystacks.<br />
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I was happy for Aurion and its shareholders, even though I'm not a shareholder, because discoveries and gains are good for the entire junior mining sector. At least I was happy until today when I pulled up the Aurion stock chart and noticed some peculiar trading action. Aurion started drilling on June 21 and the stock got a bit of a pop on the news, which is normal. But then, the volume and price suddenly jumped on August 15. Then the price really jumped on September 13 and IIROC halted the stock. One week later, the news of the gold intercept finally hits the market.<br />
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The Sep. 19 <a href="https://www.aurionresources.com/news/2018/aurion-drills-789-g-t-au-over-2.90-m-at-aamurusko/" target="_blank">news release</a> states "A total of approximately 5,239 metres (m) in 35 drillholes have been completed since early July." 5,239 m with two drills over about 2.5 months means that they are drilling roughly 70 m per day or 35 m per day per rig and the average depth is 150 m. There are four target areas being drilled. For the sake of argument, let's say one drill has been focused on the Main Target. That means by August 13 that rig would have been drilling for around 40 days and completed an estimated 1,400 metres. At 150 m per hole, that would be around 9 holes. Holy shit, what a coincidence! Hole AM18042 was the 10th hole on the Main Target. Now, how long do you figure assays take to turn around in Finland? Maybe one month. Again, holy shit, what a major coincidence! That's right around the time the stock popped again, before IIROC wisely halted it.<br />
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Obviously I'm being facetious here. Somebody involved with Aurion must be tipping off investors on results, as it seems highly unlikely that the stock moves on August 13 and September 15 were coincidence. When I see action like this, I run the other way because I'm at an information disadvantage. It's action like this that gives the mining sector a bad name.<br />
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<br />Rob Bruggemanhttp://www.blogger.com/profile/12299740045922559975noreply@blogger.comtag:blogger.com,1999:blog-3303787298887492495.post-14620592354140175142018-09-26T11:40:00.003-04:002018-09-26T11:40:46.750-04:00Meet Garibaldi's baby VoiseyGaribaldi (TSXV: GGI) created lots of hype last year by making insinuations that they had discovered a new nickel deposit that could rival Voisey's Bay. Eric Sprott was a believer and validated the story, so lots of investors bought into GGI, resulting in a market cap north of $300 million. An impressive feat given the recent state of the mining sector!<br />
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Based on the latest drilling, I congratulate Garibaldi on the birth of baby Voisey. Aww, it's so small and cute! Dr. Peter Lightfoot must be a proud papa.<br />
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What this baby is still lacking is some size. The market seems to have clued in on this, when in reality it shouldn't have come as a surprise because this is how exploration typically plays out. Geology is tricky and involves a lot of luck. I've met Dr. Lightfoot and I think he is a very knowledgeable and enthusiastic gentleman. Maybe Nickel Mountain does grow into something big, but it will take lots of time and drilling...and some luck, which factored in large with the discovery of Voisey's Bay.<br />
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I took issue with Garibaldi last year for poor disclosure (e.g., disclosure of massive sulphide intervals without assays, core pics on the website) and excessive promotion that suggested this could be another Voisey's Bay. The playbook was different this year and the company was ominously quiet. But, drinkers of the Garibaldi Kool-aid hung in there. Some investors with rose coloured glasses even convinced themselves that the company was sitting on spectacular results and waiting for the right time to announce them. Come on people, this is mining! Good news travels by jet and bad news travels by boat. Also, while Garibaldi is hardly a shining star when it comes to good disclosure, not releasing material information in a timely manner is a big regulatory no no.<br />
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I'm not technically proficient enough to take a stab at the current resource size of Nickel Mountain. But, fortunately we have the insight of the <a href="http://angrygeologist.blogspot.com/" target="_blank">Angry Geologist</a>. While I add pictures of babies to maps, he/she puts the drill data in Leapfrog and comes up with resource estimates. If you're interested at all in GGI, definitely go check out the Angry Geologist <a href="http://angrygeologist.blogspot.com/2018/09/garibaldi-feedback.html" target="_blank">blog post</a>. The Angry Geologist currently estimates 304,535 tonnes grading over 2% nickel or 760,174 tonnes grading over 1% nickel (or about 0.5% of the Voisey's Bay resource). That means a lot more needs to be found before this is a viable deposit that could turn into a mine.<br />
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<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg_9GApTqu0KYZEde1THq2Ac_ETkNAfFwYCb7eTgeVrH62-6mJfoKdsttvoxOrVc5vXmOG_2y8k3r005pgXdtDdaEJ9hO0MbW6z7yS35hR9Khd0C5nO9Eo5AWHwQvujXvUb3UyKODhxRA24/s1600/Angry+Geo+GGI+plan+map.JPG" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="412" data-original-width="640" height="411" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg_9GApTqu0KYZEde1THq2Ac_ETkNAfFwYCb7eTgeVrH62-6mJfoKdsttvoxOrVc5vXmOG_2y8k3r005pgXdtDdaEJ9hO0MbW6z7yS35hR9Khd0C5nO9Eo5AWHwQvujXvUb3UyKODhxRA24/s640/Angry+Geo+GGI+plan+map.JPG" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;"><a href="http://angrygeologist.blogspot.com/2018/09/garibaldi-feedback.html" target="_blank">The Angry Geologist</a></td></tr>
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The lesson here is that junior mining investors often get ahead of reality, especially when spurned on with aggressive promotion. To their credit, Garibaldi did pull in capital at high prices to drill the deposit and most investors are now aware of the story. To me, there is still not enough evidence to suggest that this baby deposit will grow into a monster, like Voisey's Bay. But, it is a cute baby deposit with really nice grades in a market devoid of good nickel sulphide deposits.<br />
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Diamond Fields, the legendary company behind Voisey's Bay, offers some insight. It took a couple of years for drill results and new discoveries to demonstrate the size potential and there were pullbacks in the share price along the way.<br />
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<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgQ4zUl98dK0Oy5nnTXSISlMhzjCHJ5dlbyShmbXlkgilka4CL-6oLrJIyfLBZgGgwi36BN_AD01Nx0vRNh8INbsEeBXxVcvDWioWWCSvBStzBNbsl1tNne4o-cNa5j58819cwBS_JonJ6n/s1600/Diamond+Fields+chart.JPG" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="346" data-original-width="876" height="252" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgQ4zUl98dK0Oy5nnTXSISlMhzjCHJ5dlbyShmbXlkgilka4CL-6oLrJIyfLBZgGgwi36BN_AD01Nx0vRNh8INbsEeBXxVcvDWioWWCSvBStzBNbsl1tNne4o-cNa5j58819cwBS_JonJ6n/s640/Diamond+Fields+chart.JPG" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Diamond Fields chart - <a href="http://www.visualcapitalist.com/the-story-of-voiseys-bay-the-auction-part-2-of-3/" target="_blank">Visual Capitalist</a></td></tr>
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<br />Garibaldi's market cap is now about $200 million and they have about $20 million in cash. The two small, high grade nickel zones are not compelling enough on their own to get me to buy at the current valuation, but there is certainly potential for additional zones. Given the current market backdrop, I still believe there are more compelling investments in the junior mining sector with more attractive risk-reward profiles. However, I might be a buyer of GGI if the share price gets closer to $1.25 to $1.50 or would pay more if the company hits another zone of massive sulphides that proves their hypothesis of multiple lenses.<br />
<br />Rob Bruggemanhttp://www.blogger.com/profile/12299740045922559975noreply@blogger.comtag:blogger.com,1999:blog-3303787298887492495.post-63284340745041433102018-09-14T17:10:00.002-04:002018-09-14T17:10:51.323-04:00Everybody loves copper - Rio Tinto should buy Turquoise Hill stakeMarkets don't like uncertainty because uncertainty equals risk. For this reason and US dollar strength, we've seen metal prices plummet over the past few months. This uncertainty stems from the escalating trade war situation between the US and China, the big fat pig with an insatiable appetite when it comes to metals consumption.<br />
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<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg5d46xDLHR56_eskojHtmaDzr7KFdS9QCTK5Bxfh20ie0hQ-SZMV5L2rgJwXybqxQQCGznahuMSxvh0K3FdkEHlRyBB3AoQIuBbmqM8YYUu9qhLDFqbH4ETp8eFAuZVpGyo7wLWzPDUZP0/s1600/China+Cu.JPG" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="572" data-original-width="982" height="371" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg5d46xDLHR56_eskojHtmaDzr7KFdS9QCTK5Bxfh20ie0hQ-SZMV5L2rgJwXybqxQQCGznahuMSxvh0K3FdkEHlRyBB3AoQIuBbmqM8YYUu9qhLDFqbH4ETp8eFAuZVpGyo7wLWzPDUZP0/s640/China+Cu.JPG" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;"><a href="http://www.visualcapitalist.com/chinas-staggering-demand-commodities/">http://www.visualcapitalist.com/chinas-staggering-demand-commodities/</a></td></tr>
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Ironically, despite the recent metal price weakness, large mining companies have never been so eager to acquire large new copper assets. Lundin (TSX: LUN) is still <a href="https://www.reuters.com/article/us-lundin-min-ceo/lundin-mining-has-hefty-ma-appetite-for-copper-says-incoming-ceo-idUSKCN1LT31F" target="_blank">looking </a>to acquire copper assets, after it lost Nevsun (TSX: NSU) to Zijin. BHP (ASX: BHP) just <a href="https://www.reuters.com/article/us-lundin-min-ceo/lundin-mining-has-hefty-ma-appetite-for-copper-says-incoming-ceo-idUSKCN1LT31F" target="_blank">acquired a 6.1% equity stake</a> in SolGold (LSE: SOLG), which is advancing a big copper porphyry discovery in Ecuador.<br />
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South32 (ASX: S32) is also looking for copper exposure. South32 already has a <a href="https://trilogymetals.com/news/2017/trilogy-metals-grants-south32-an-option-to-form-a-5050-joint-venture-in-the-ukmp-for-a-minimum-investment-of-usdollar150-million" target="_blank">$150M JV deal with Trilogy Metals</a> (TSX: TMQ), the base metals spin out from NOVAGOLD (TSX: NG) that has two large copper assets in Alaska that are infrastructure-challenged. The challenge in finding large copper projects to acquire may also have factored into South32's recent US$1.6B takeover of Arizona Mining.<br />
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Big copper projects are hard to find. Almost two-thirds of the copper discovered in the past decade is contained in the four largest deposits. Large new deposits are required to replace depleted mines and meet the ever growing demand for copper. The rise of electric vehicles("EVs") is one of the bullish arguments for copper demand, with an estimated 15% of copper growth coming from the EV sector. One of the things I like about copper, compared to energy metals like cobalt and lithium, is that copper will benefit no matter what battery or energy storage medium becomes dominant. If it is electric, it is going to need copper.<br />
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In my mind, a big question is what is Rio Tinto (LSE: RIO) going to buy? Rio has lots of cash and in June 2018 it point blank <a href="https://www.reuters.com/article/us-rio-tinto-copper/rio-tinto-ready-to-splash-out-on-copper-idUSKBN1JP0LB" target="_blank">stated </a>that it would be willing to pay a big premium to secure a prime copper asset. Most of Rio's current cash flow comes from iron ore, but it covets more exposure to copper. This is reflected in its exploration spending, with 53% of its exploration budget going to copper.<br />
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<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhZO3JXVTfsdU9h0y764ON8M_bi68RUw4HvPfFEEoaTt-7aW-KJwMlqEn5CN8vYK3hVT5U0xbfrwIahn8SJAYUtY1T6o16ZmMlYTizuXtW9HD-6CaxaidNYuA9-HCnmgBwrosgjUalCf4wM/s1600/Rio+explor+expend+by+commodity.JPG" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="313" data-original-width="426" height="235" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhZO3JXVTfsdU9h0y764ON8M_bi68RUw4HvPfFEEoaTt-7aW-KJwMlqEn5CN8vYK3hVT5U0xbfrwIahn8SJAYUtY1T6o16ZmMlYTizuXtW9HD-6CaxaidNYuA9-HCnmgBwrosgjUalCf4wM/s320/Rio+explor+expend+by+commodity.JPG" width="320" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Source: Rio Tinto</td></tr>
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Rio Tinto could make a big splash going after a big copper producer like First Quantum (TSX: FM). It seems like takeover rumors about BHP or Rio Tinto going after First Quantum pop up every three years or so and one of these times the rumors will probably come true. I think Rio would need to pay a 50% premium to get a deal done, which it certainly is capable of doing. I'm not currently long First Quantum, but I do trade the stock periodically and may pick some up for copper exposure and the possibility of a takeover bid.<br />
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One copper stock I have been buying recently is Turquoise Hill Resources (TSX: TRQ). Turqouise Hill (which used to be Ivanhoe Mines) owns 66% of the massive Oyu Tolgoi copper deposit in Mongolia. The Mongolian government owns the other 34%. I won't go on a rant here about how bad Mongolia is - it takes time to come out of the dark ages. The important points are that Rio Tinto already owns about 51% of Turquoise Hill and Oyu Tolgoi is a monster of a copper deposit. Production is still ramping up and will be 340% higher by 2025.<br />
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<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhf7lSFTbzvO0S3BZT2N3bGtl4uG4UCmeXZJSOIiA-PXaFa_MWutrBhHW_cklKNRzK8PKUZ8UWkeYJTJtoqRUpHXZzWnU3AEadcFir35nmXMLn00C4LcIrEt5_tSpW0cBXANtczXcNwG1zp/s1600/Oyu+Tolgoi.JPG" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="593" data-original-width="789" height="480" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhf7lSFTbzvO0S3BZT2N3bGtl4uG4UCmeXZJSOIiA-PXaFa_MWutrBhHW_cklKNRzK8PKUZ8UWkeYJTJtoqRUpHXZzWnU3AEadcFir35nmXMLn00C4LcIrEt5_tSpW0cBXANtczXcNwG1zp/s640/Oyu+Tolgoi.JPG" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Source: Turquoise Hill Resources</td></tr>
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It seems like a no brainer for Rio Tinto to acquire the other 49% of Turquoise Hill. And now would be a good time, judging from the relative share price performance. As illustrated in the 5-year chart below, the spread between the two stocks is widening. This would be a low risk acquisition for Rio Tinto and a seemingly good use of its cash. Therefore, I am long Turquoise Hill shares. It gives me exposure to rising copper prices and, with a little luck, a takeover bid from Rio Tinto. The risk in the position is that there are no other bidders for Turquoise Hill, but with the stock near its 15-year lows it seems like a decent entry point here.<br />
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What about in the small cap space? Copper projects need to be big. Big projects need infrastructure. And big projects near infrastructure get developed. So, by definition, juniors only make the big time if they have new discoveries. I'm watching juniors like Regulus Resources (TSXV: REG) and Chakana Copper (TSXV: PERU) because I like their teams and I like Peru, but they will only succeed if they can find big deposits with enough high grade to make the economics work. The rule of thumb seems to be that you need at least a billion tonne resource with 200 or 300 million tonnes of that ideally being around 1% copper, depending on gold credits. SolGold's Cascabel project seems to be getting to that size, so I think it is also an emerging acquisition target. <br />
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiubyQ1foPdeOPo3sRA2qwq5e0LGNb0Ug2VCeWsQrJYu45WHmzAi_HZXEhBzGn9MtPUS9o4mE9T_0yqUqH0apL08_zIyetoCRmlhQ91Y6_tqggkyfMkX6MI2nITRsmWMPYeWPm0AWEsnPz3/s1600/Cascabel.JPG" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="220" data-original-width="696" height="202" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiubyQ1foPdeOPo3sRA2qwq5e0LGNb0Ug2VCeWsQrJYu45WHmzAi_HZXEhBzGn9MtPUS9o4mE9T_0yqUqH0apL08_zIyetoCRmlhQ91Y6_tqggkyfMkX6MI2nITRsmWMPYeWPm0AWEsnPz3/s640/Cascabel.JPG" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Source: <a href="http://ir.euroinvestor.com/Tools/newsArticleHTML.aspx?solutionID=3676&customerKey=Solgold&storyID=13768251" target="_blank">SolGold</a></td></tr>
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The SolGold CEO seems "eccentric", shall we say, but the dynamics are getting pretty interesting between Newmont Mining and BHP. A small cap Canadian vehicle with exposure to SolGold is Cornerstone Resources (TSXV: CGP). Cornerstone has a 15% stake in the Cascabel project and it owns about 10% of SolGold's shares. The team at Red Cloud calculate that the Cascabel stake and SolGold stake are worth about CAD$0.29 per Cornerstone share. I'm trying to pick Cornerstone shares up below CAD$0.20 as a way to play SolGold.<br />
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<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhVPjWF_igZu-VXwdgtcZcDmUoGuiWHu_rtliGNEINY_mJNO2pbcEwOtS9RJaTD9_xlwd6MbkLV8Kmz10yRCv7Zoy7bW67rsKa8agBR_k4IZ0o_P8xiTF4S3IE5nz8hyphenhyphen-vAMouI_wj8XJ8a/s1600/Hurricane+Trump.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="546" data-original-width="700" height="311" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhVPjWF_igZu-VXwdgtcZcDmUoGuiWHu_rtliGNEINY_mJNO2pbcEwOtS9RJaTD9_xlwd6MbkLV8Kmz10yRCv7Zoy7bW67rsKa8agBR_k4IZ0o_P8xiTF4S3IE5nz8hyphenhyphen-vAMouI_wj8XJ8a/s400/Hurricane+Trump.jpg" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Source: <a href="https://chippewa.com/opinion/cartoon/hands-on-wisconsin-how-to-cover-hurricane-trump/article_d00503df-190b-561b-9f1f-a12be4f3df78.html" target="_blank">The Chippewa Herald</a></td></tr>
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<br />Rob Bruggemanhttp://www.blogger.com/profile/12299740045922559975noreply@blogger.comtag:blogger.com,1999:blog-3303787298887492495.post-7628781679826077732018-08-31T17:06:00.001-04:002018-08-31T17:06:56.884-04:00A little dump with the pump in the oil & gas sector - Perrison PetroleumNotice that there haven't been any egregious scams like West High Yield ("WHY") in the junior mining sector this year? The reason for that is probably that the junior mining sector has been performing terribly in 2018. The lack of investor enthusiasm in the sector and the absence of new dumb money attracted to hot sectors makes it tough to run a good scam. Consequently, the junior mining sector still has its share of BS, over promotion, and low level scams, but the real egregious stuff is taking place where the suckers are. Crypto/Blockchain and marijuana.<br />
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Today, however, I saw a news release for an oil & gas company that reminded me of WHY. Perisson Petroleum Corporation (TSXV:POG) claims that they have an MOU with Lan Cheng Limited, a private investment fund comprise of "a network of wealthy individuals, associated institutions and private equity groups which invest in large diverse projects on a project-by-project basis." Under the MOU, Lan Chen will invest US$50M to acquire 4.9% of Perisson's shares at a price of USD$1.0946 per share.<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjqRy3kCWIY_V3QhSCGhlQfVRQxqO71o9rntH90SKsP0KBZ5Z92I4It36THSBy4PAL9xYcD4x2y7FX33kvyKlaK0444sRgGmOtLTktyescOuWxebo4-jxHgQTEL9q56DjuL5QbzHmfHxYyw/s1600/make+it+rain.gif" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="318" data-original-width="573" height="177" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjqRy3kCWIY_V3QhSCGhlQfVRQxqO71o9rntH90SKsP0KBZ5Z92I4It36THSBy4PAL9xYcD4x2y7FX33kvyKlaK0444sRgGmOtLTktyescOuWxebo4-jxHgQTEL9q56DjuL5QbzHmfHxYyw/s320/make+it+rain.gif" width="320" /></a></div>
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Hahahahaha, sure!!! Unless Lan Cheng consists of a network of bleeping morons looking to part with their money or they confused USD with CNY in the MOU, this is preposterous. The shares were trading at $0.07 when this supposed financing was announced. Why would any investor pay 20 times the market price? As we saw with WHY, they don't.<br />
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Why fabricate such ridiculous news? Take a look at the chart below. Volume on POG suddenly spiked on August 10 with 1.9 million shares traded. Another 1.9M share spike took place on August 20. Rather suspicious trading activity given that the news release about this miraculous financing came out on August 21! Sure looks like a good old pump and dump job to me.<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEha9ysL4gpKvL459pLHI67CBe5F5uGDPuJN9U0C9lLAGsRTZ9gVK3KlA7D6fe7cKdYfZDZqxBRZYNudNUrEyWKo-7ca7dwfs3TKYUOB1L4z3jHQ1-KnJ9W3-oOV7Sq2CZ1igfm2-x75zTMZ/s1600/POG.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="624" data-original-width="1366" height="291" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEha9ysL4gpKvL459pLHI67CBe5F5uGDPuJN9U0C9lLAGsRTZ9gVK3KlA7D6fe7cKdYfZDZqxBRZYNudNUrEyWKo-7ca7dwfs3TKYUOB1L4z3jHQ1-KnJ9W3-oOV7Sq2CZ1igfm2-x75zTMZ/s640/POG.png" width="640" /></a></div>
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This deal would imply that Perisson is worth US$1.02 billion. Sure. This is a company that deliberately reduced its share price to pennies earlier this year by doing a 10 for 1 stock split that increased the shares outstanding to 888 million. The same company that couldn't file audited 2017 financials on time "<i>due to an unexpected and critical business trip overseas involving management of the Corporation that has extended far longer than expected (for the arrangement of arranging critical financing and conducting due diligence on the Corporation’s previously announced Kazakhstan oil field acquisition." </i><br />
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Perisson has a fancy website that quotes Confuscious and waxes poetic. Who needs information on mundane things like management and directors, strategy, and news releases on a website when you have cool messages like this one...<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj8jfmwNsGbg-ShNACATBMF2Adyv3TdrsKzCY045iPCMldV3P3_xIIHR_8UqmElo-YfFex6KfMTW9Cl9VbMlmym217ZVDYB3s2fiyQ5R1yoexCChjqFMUm7yCsWXLLLtSAAJ_x4WXcrFO99/s1600/POG+website.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="473" data-original-width="501" height="302" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj8jfmwNsGbg-ShNACATBMF2Adyv3TdrsKzCY045iPCMldV3P3_xIIHR_8UqmElo-YfFex6KfMTW9Cl9VbMlmym217ZVDYB3s2fiyQ5R1yoexCChjqFMUm7yCsWXLLLtSAAJ_x4WXcrFO99/s320/POG+website.JPG" width="320" /></a></div>
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It is tough to figure out what Perisson even is or wants to be. Oil in gas in Alberta...no, Manitoba...no, Colombia...no, Kazakhstan. If all those fail (which, it appears, they have), why not strive for a global integrated oil & gas company?</div>
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In June 2018, Perisson announced a non-binding MOU to acquire a controlling interest in a Chinese refinery named Hebei Xinquan Petrochemical Co. The transaction was expected to close in July (oops, almost September now). Hopefully that closes soon, as it sounds important. Per the June 4, 2018, news release on the deal, "<i>the Xinquan Refinery will represent a key step in Perisson’s long term plan to become an integrated global oil and gas company.</i>"<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgRjL46_6PGF7fyGM0jKu2_R4FyEMkaGp-AX9ivombnpyGMi2H-QrSLRdhC4nvqcJE9px_rm2oFM2B-U7eZ_MXnzpTtXHDVImbZZo0Sb-RYPSUTuDwK0pgR2YmSHL2GzMzprmq8B3qz-dUf/s1600/rabbit.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="194" data-original-width="259" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgRjL46_6PGF7fyGM0jKu2_R4FyEMkaGp-AX9ivombnpyGMi2H-QrSLRdhC4nvqcJE9px_rm2oFM2B-U7eZ_MXnzpTtXHDVImbZZo0Sb-RYPSUTuDwK0pgR2YmSHL2GzMzprmq8B3qz-dUf/s1600/rabbit.jpg" /></a></div>
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Going through the news releases on SEDAR, it becomes very clear that Perisson's past is littered with bogus claims about transformative deals and large financings. A $20M convertible debenture financing with a 12% coupon was mentioned in February 2018 only to come in at $3M with a credit-card like 18% coupon in April 2018 (and this looks like it was subsequently made convertible at $0.05/share). Back on December 7, 2016, Perisson stated that it was "<i>approaching closing of its previously announced private placement in the amount of CDN$10 million in secured convertible debentures and has increased the maximum amount of the financing from CDN $10 million to CDN$50 million.</i>" The $50M was never raised, nor was the $10M that sounded like it was firm. <br />
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Sadly, there doesn't seem to be any accountability for "fake news" in the junior stock world. POG shares were halted a week after the obviously bogus financing news was released and the halt was only because the stock shot up to $0.29. Trading resumed after a clarifying news release, which didn't clarify much. Let the dumping resume!<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEihZ7AROcQ2J5quoA5mnOq0lIpb0vXNP5mGm-Fu1r35LdQ1Uu2j_QQmI4NTgsmTXzC5JWXMJwlYA9RgArpVrGDBOzNFbXAiw5b0jLCrZDF5S9I4PAy1iSTA3eL3iiRYMHHw9BfEhb6z4rBP/s1600/Pump+and+dump.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="549" data-original-width="984" height="178" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEihZ7AROcQ2J5quoA5mnOq0lIpb0vXNP5mGm-Fu1r35LdQ1Uu2j_QQmI4NTgsmTXzC5JWXMJwlYA9RgArpVrGDBOzNFbXAiw5b0jLCrZDF5S9I4PAy1iSTA3eL3iiRYMHHw9BfEhb6z4rBP/s320/Pump+and+dump.png" width="320" /></a></div>
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<br />Rob Bruggemanhttp://www.blogger.com/profile/12299740045922559975noreply@blogger.comtag:blogger.com,1999:blog-3303787298887492495.post-25972780175649235462018-07-11T15:34:00.001-04:002018-07-11T15:34:07.304-04:00Trade tariffs create risks and opportunities in base metal stocksIf you're not familiar with the <a href="http://www.visualcapitalist.com/" target="_blank">Visual Capitalist</a>, I highly recommend that you check out the website and signing up for the daily email. Content is always visually stunning and covers a broad range of topics. Yesterday's <a href="http://www.visualcapitalist.com/base-metal-boom/" target="_blank">post</a> - The Base Metal Boom: The Start of a New Bull Market? - by Nicholas LePan is an excellent one, although the timing was unfortunate. Base metal prices took it on the chin overnight as The Donald announced that the US will potentially slap tariffs on another $200 billion of goods from China after August 31.<br />
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While I agree with the Visual Capitalist article that the electric vehicle boom and electrification of everything will drive the next metals boom, the immediate reality is that base metal consumption growth is totally driven by China. This growth isn't from the Chinese making lots of EVs and installing solar panels everywhere; for the time being, it is still primarily from infrastructure growth and economic expansion. The chart below, extracted from the Visual Capitalist piece, shows China's dominance in metal consumption.<br />
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<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjPs_lGsoPy4N3w9OMul63vmQMLG3wEnQuK58QFzCHpvb2-WkBFvuqzylo8hTMVKilK-KWzpmG0BPkstv6Dr_H8lax5wFw5_94yvXRmbiUo45A1_enlXnEG6T9__NDFrwD7rnPLxBOCvSJf/s1600/VisualCapitalist+graphic.JPG" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="386" data-original-width="755" height="324" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjPs_lGsoPy4N3w9OMul63vmQMLG3wEnQuK58QFzCHpvb2-WkBFvuqzylo8hTMVKilK-KWzpmG0BPkstv6Dr_H8lax5wFw5_94yvXRmbiUo45A1_enlXnEG6T9__NDFrwD7rnPLxBOCvSJf/s640/VisualCapitalist+graphic.JPG" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Source: visualcapitalist.com</td></tr>
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Therefore, when the U.S. announces tariffs on $200 billion of goods, it makes sense that base metals fall. Those tariffs will potentially reduce China's exports, which in turn will slow China's growth and its consumption of base metals. That is why copper prices dropped 3.6% overnight, bringing the one month decline to 16%.<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhd-4GsGuFv-buAuUZgbIX-7rhIJy9bImWNMLmPVzIupS-eOwOpiuvj9nKuCCMsPLu1YY-ecqfXf5r4fDokZdoQv_lUyIgK3dZrEq1zfKiXR33rgnmmLdxMFIeT2zUcWUGt-Ct11Hd0NkNt/s1600/24+hour+Cu.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="284" data-original-width="461" height="197" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhd-4GsGuFv-buAuUZgbIX-7rhIJy9bImWNMLmPVzIupS-eOwOpiuvj9nKuCCMsPLu1YY-ecqfXf5r4fDokZdoQv_lUyIgK3dZrEq1zfKiXR33rgnmmLdxMFIeT2zUcWUGt-Ct11Hd0NkNt/s320/24+hour+Cu.JPG" width="320" /></a></div>
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It used to be said that copper has a PhD in economics. Perhaps that was true in the past, but that is no longer the case . Now it would be more apt to say that copper has a PhD in China economics and the chart below of copper prices (area chart, right axis) compared to the iShares MSCI China Index Fund (blue line, left axis) shows the strong correlation. The fate of us mining investors is solidly in the hands of the China economy and, consequently, U.S. policies aimed at China.</div>
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<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh_KV2Y_REpRcaf_re05QLEmCpPeMRNLV-OxPGuJsfXje5yFUIuPC62DBqlhrCYbFcKYQ4VPp2urVIpr1d3pn-kOfmg7IqWx71sbEPVeC_8dqb3nbkom4hGyS0qjHguNurcIIAVYUHxWm7n/s1600/Cu+vs+MCHI.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="758" data-original-width="1449" height="332" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh_KV2Y_REpRcaf_re05QLEmCpPeMRNLV-OxPGuJsfXje5yFUIuPC62DBqlhrCYbFcKYQ4VPp2urVIpr1d3pn-kOfmg7IqWx71sbEPVeC_8dqb3nbkom4hGyS0qjHguNurcIIAVYUHxWm7n/s640/Cu+vs+MCHI.jpg" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Source: barchart.com</td></tr>
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What are the investment ramifications of all these tariffs? China certainly doesn't look like it is going to back down, so expect retaliatory measures. That could lead to additional tariffs from Trump, since China exported about $500B of goods to the US last year. China only imported $130B of US goods, but it has other non-tariff ways of retaliating as outlined by <a href="https://www.bloomberg.com/news/articles/2018-07-11/trump-s-tariff-barrage-pushes-china-fight-to-point-of-no-return" target="_blank">Bloomberg</a>. In other words, expect ongoing tariff noise in the markets for at least the next couple of months.</div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhbOH1OdDxX3xsZMFbWqiUeN3Nw_4LQjUKDZeWWsIlmsg5S8rXwtd3XIDTUziWNAAfMEep2KgBug-zYjDuk8Mz7psPPhVnKhVK1Hk2hh5YhSRsbtENeWQWaGGsdFONvbaCVL_7EksCMBI9I/s1600/Trump+trade+tweet.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="254" data-original-width="510" height="159" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhbOH1OdDxX3xsZMFbWqiUeN3Nw_4LQjUKDZeWWsIlmsg5S8rXwtd3XIDTUziWNAAfMEep2KgBug-zYjDuk8Mz7psPPhVnKhVK1Hk2hh5YhSRsbtENeWQWaGGsdFONvbaCVL_7EksCMBI9I/s320/Trump+trade+tweet.JPG" width="320" /></a></div>
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I won't get started on my views on politics or global trade. My views won't change anything and I don't get upset by things that I cannot change. Instead, I try to identify ways to make money (or avoid losing money) from the changes made by bonehead politicians. In this case, I think we will see short-term investment opportunities created from the ongoing US-China trade war.</div>
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<b>Short-term Ideas</b></div>
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In the short-term, I think the <i>trade </i>war sets up <i>trade </i>opportunities in equities. The trade war creates uncertainty and uncertainty equals risk to investors. As a result, we are seeing a selloff of base metals stocks. Panic selling is likely to be overdone, so I think there will be trading opportunities in stocks like First Quantum (TSX:FM). <u>As always, this post should not be construed as investment advice, consult your own broker, do your own due diligence, etc. etc. This is a high risk approach that is not for the faint of heart or those who can't afford to lose money - equities trading is a lot like gambling. I'm just blogging here to tell you how I approach these situations and to help me crystallize my own thoughts into actionable ideas, not to provide advice.</u></div>
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First Quantum stock is volatile and liquid, making it a great trading stock. As I write this, FM's share price is down 7.5%. Don't worry about whether that is too much, too little, or just right. In the short-term, fundamentals don't matter. It's more about investor psychology. The way I approach these situations is that I don't typically buy the sell-offs on the first day. Typically it takes three or four days for a sell-off to run its course. The other tool I find very useful for picking entry points is Bollinger Bands. Take a look at the First Quantum chart below with Bollinger Bands showing two standard deviations from the 20-day moving average. There have been three instances in the past year where rapid sell-offs have taken the stock significantly below the lower band and in each case the stock has bounced back quickly. That's the trading set up I'm looking for and I did actually buy FM two weeks ago at $17.72.</div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEibFW8ks25rkDkQe6uxhGoAQQhQfQEgjFgxrTDTaTLluo6yCqQpYi59LyxprlBI4OUwYDK1zV48Wg5fr8wNMo47vX5P31X_pnNqPIW9R3eLO0AR4gxlPz-7TmVd5F-x81XAJp3oztEdTZJE/s1600/FM.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="734" data-original-width="1312" height="358" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEibFW8ks25rkDkQe6uxhGoAQQhQfQEgjFgxrTDTaTLluo6yCqQpYi59LyxprlBI4OUwYDK1zV48Wg5fr8wNMo47vX5P31X_pnNqPIW9R3eLO0AR4gxlPz-7TmVd5F-x81XAJp3oztEdTZJE/s640/FM.jpg" width="640" /></a></div>
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Based on the current lower band, as well as technical support levels, I'd buy FM if it dropped to $16.50 to $16.75 in the next few days. Bollinger bands are dynamic, driven by moving averages, so the entry point will change on a daily basis and intuition does come into play. I try to wait until I see signs that the stock is stabilizing before buying, rather than just catching a falling knife.</div>
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Once I'm in, the tougher question is when to sell the stock. If this is a short-term trade as opposed to an investment, then sometimes I sell intraday so as to not carry risk overnight. That's what I did the last time I bought FM because it was just before a long weekend. If I hold the position, I always consider a stop loss or selling at a loss if the stock doesn't bounce to preserve my capital. If the stock bounces, which happens more often than not, then consider putting on a trailing stop loss (something I only do virtually rather than in actual practice) or selling when stochastics exceed 80, indicating that the stock is getting overbought.</div>
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<b>Long-term Ideas</b></div>
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Since I don't think the trade war noise is likely to go away any time soon, I am reticent to have much long-term exposure to mining stocks, especially juniors, at the moment. I'll hold my Tinka Resources (TSXV:TK) stock because I work for the company and believe that the near term exploration potential and longer-term takeover potential outweigh the prevailing bearish zinc sentiment. On other junior and senior mining stocks, I believe that we will see better entry points in the coming months.</div>
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I am still a believer that mining stocks will do well, just as they typically do in the latter part of the economic cycle. Likewise, regardless of whether a US trade war with China is real or rhetoric, China will continue to grow, electric vehicles will become more dominant, and electrification and battery storage will increase metals demand. If you liked Cobalt before, all of the reasons to like it are more or less still intact but now you can buy Cobalt 27 (TSXV:KBLT) for under $8 rather than paying $12 or $13. That stock is looking very interesting at these prices.</div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh-x8pdL-u380_P0KlxCS6pIF_8vb_BpBn4C9yGXCePU76GK_QaDDbG2lO-bEc5B46CVwdUnS1BUFFW2oRdVoy49T4QsJWD2g2jae7p9koc1sGS_0iqjB74-n090EnLgFR4KtQSdUm3Fo1x/s1600/KBLT.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="380" data-original-width="827" height="294" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh-x8pdL-u380_P0KlxCS6pIF_8vb_BpBn4C9yGXCePU76GK_QaDDbG2lO-bEc5B46CVwdUnS1BUFFW2oRdVoy49T4QsJWD2g2jae7p9koc1sGS_0iqjB74-n090EnLgFR4KtQSdUm3Fo1x/s640/KBLT.JPG" width="640" /></a></div>
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First Quantum still seems expensive to me as a long-term buy, perhaps because Rio Tinto recently came out and said they would pay a big premium for good copper assets. I'm sure Rio Tinto doesn't read my blog, but if they did I would recommend not talking up copper asset values when you're looking to buy them.</div>
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In addition to Cobalt 27, I think Trevali (TSX:TV) looks quite interesting at the moment. That stock is at a 2-year low, which seems very overdone relative to zinc fundamentals. I have lots of zinc exposure through Tinka, otherwise I'd be taking a serious look at Trevali both as a short-term trade (Q2 production will be announced July 18) or maybe as a long-term buy. Sure zinc prices have declined over the last six months, but that helps ensure that there is no demand destruction or excess new supply. In other words, the zinc market looks like it may remain balanced and that's a good thing.</div>
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Happy trading!</div>
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Rob Bruggemanhttp://www.blogger.com/profile/12299740045922559975noreply@blogger.comtag:blogger.com,1999:blog-3303787298887492495.post-1266143667612247852018-04-19T09:08:00.000-04:002018-04-19T09:08:07.687-04:00Silver outperforms gold for a changeThere seems to have been increased talk about silver over the past few weeks. Rather than rehashing the reasons why, here are a couple of good articles about how it may be silver's turn to shine:<div>
<a href="http://www.theassay.com/articles/indicators-point-silver-rally/?dm_i=2UAF,OK9G,5SHBNH,2IKKY,1">The Assay - Indicators Point to a Silver Rally</a></div>
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<a href="http://silverseek.com/commentary/new-silver-bull-coming-17196">Silver Seek - New Silver Bull Coming</a></div>
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I'd also previously indicated on this blog that a gold-silver ratio of 80 has historically marked the bottoms for silver.</div>
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<br /></div>
<div>
Interestingly, silver moved up 2.5% yesterday while gold was only up 0.2%. Could this be the start of a mean-reversion trend that sees silver move back towards its more typical range of 1-to-65 versus gold? That would imply that silver should be trading at $20.75/oz, based on the a gold price of $1,349. I hope so, given the significant silver exposure in my portfolio. However, I have a hard time believing that silver can have a significant rally without gold's participation. If gold can break out of its range and trade above $1,370, then I think silver will do very well.</div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhwZh6iZ2xyJE35iPF1fZowE3sRN8UIAMs3ixPV75Nssjfv8Rexp5WKTqjrY6lVpc_tFtMgL62hpQZNnTOU7X8T6M6avbUge_BoUJ4Vf1EEe8qUdfbUpejQERgqDSBQHuDon9yDEpX3BaS8/s1600/Ag+vs+Au.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="486" data-original-width="1496" height="206" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhwZh6iZ2xyJE35iPF1fZowE3sRN8UIAMs3ixPV75Nssjfv8Rexp5WKTqjrY6lVpc_tFtMgL62hpQZNnTOU7X8T6M6avbUge_BoUJ4Vf1EEe8qUdfbUpejQERgqDSBQHuDon9yDEpX3BaS8/s640/Ag+vs+Au.jpg" width="640" /></a></div>
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While on the topic of relative performance, Scotia Mining Sales had an interesting graphic yesterday showing the performance of over 50 gold and silver mining stocks. I thought the variability of performance was quite interesting, especially given that gold, silver, the GDX and GDXJ were all huddled right around the 0 mark. Picking the right stock in the past year certainly made a big difference on returns. </div>
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<div class="MsoNormal" style="color: #222222; font-family: Calibri, sans-serif; font-size: 11pt; margin: 0in 0in 0.0001pt;">
<b><span style="color: red; font-family: Arial, sans-serif; font-size: 10pt;">Red </span></b><span style="font-family: Arial, sans-serif; font-size: 10pt;">= Gold<o:p></o:p></span></div>
<div class="MsoNormal" style="color: #222222; font-family: Calibri, sans-serif; font-size: 11pt; margin: 0in 0in 0.0001pt;">
<b><span style="color: #00b0f0; font-family: Arial, sans-serif; font-size: 10pt;">Blue </span></b><span style="font-family: Arial, sans-serif; font-size: 10pt;">= Silver<o:p></o:p></span></div>
<div class="MsoNormal" style="color: #222222; font-family: Calibri, sans-serif; font-size: 11pt; margin: 0in 0in 0.0001pt;">
<b><span style="color: #ffc000; font-family: Arial, sans-serif; font-size: 10pt;">Yellow</span></b><b><span style="font-family: Arial, sans-serif; font-size: 10pt;"> </span></b><span style="font-family: Arial, sans-serif; font-size: 10pt;">= Streaming/RoyaltyCo<o:p></o:p></span></div>
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<b><span style="font-family: Arial, sans-serif; font-size: 10pt;">Black </span></b><span style="font-family: Arial, sans-serif; font-size: 10pt;">= Index / Commodity</span></div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjauQl_wsdVM8gPCINvcqB4EgVra5jok3SJsE_h2bvZXFFlFSYM25ZAlXpw2L9M-dI4EkwJiHyLAXgxu_Gqe3NXwTENPjXZaPBIBKbHWYy6_T43hiKS1m89GY6jdc1C6N8sqDOEywCUGMLC/s1600/Precious+stock+performance+YoY.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="799" data-original-width="903" height="564" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjauQl_wsdVM8gPCINvcqB4EgVra5jok3SJsE_h2bvZXFFlFSYM25ZAlXpw2L9M-dI4EkwJiHyLAXgxu_Gqe3NXwTENPjXZaPBIBKbHWYy6_T43hiKS1m89GY6jdc1C6N8sqDOEywCUGMLC/s640/Precious+stock+performance+YoY.png" width="640" /></a></div>
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Source: <span style="color: #222222; font-family: Arial, sans-serif; font-size: 13.3333px;">USD-Adjusted Price date from Bloomberg, Chart and Colour Scheme from Scotia Mining Sales</span></div>
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I don't own any of these stocks at the moment, but have done well in the past with Franco-Nevada, a relatively safe way to play gold. B2Gold (one of the favorites of the IKN Blog) looks interesting. On the flip side, while I've traded Pretium in the past before it started mining, I wouldn't touch it now with a 10 foot pole because there is way too much risk that lower than expected gold grades are going to persist. If gold and silver do break out, a good way to play it is to buy producers with relatively high cash costs because that provides exponential margin growth when precious metals prices move. While I'm not a huge fan of Kinross because of the baggage it carries from bad acquisitions, that stock does typically have high leverage to gold prices and can soar in a positive gold environment. In the silver space, Endeavour Silver has fairly high cash costs and greatly benefits from higher silver prices.</div>
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No meme in this post, but I do have a joke. What do you say when you drop a gold bar on your toes? Au!!!</div>
Rob Bruggemanhttp://www.blogger.com/profile/12299740045922559975noreply@blogger.comtag:blogger.com,1999:blog-3303787298887492495.post-26337876244682403782018-04-10T16:22:00.001-04:002018-04-10T16:22:24.469-04:00Tin - no longer a boring metal!?!Tin is a boring metal. It is used predominantly for solder (yawn!), and for applying a thin, corrosion resistant layer on metal (a.k.a. tin-plating) (double yawn!). Or, so at least I thought.<br />
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Recently, Rio Tinto Ventures hired MIT to study which metals would be most impacted by new technologies such as autonomous and electric vehicles, renewable energy, energy storage, and advanced computing and IT. Never in my wildest dreams would I have expected tin to come out at the top of that list, edging out lithium and cobalt.<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjE2lf3y5YaHQwYVJSvalzJqcPYwbGr8PCOlpBrBP-LiqWFWSWTwuGsrOV91wwzKRMTARSOXWQbhTkJSQDFrFtdQUKUo9FGZxfPic0Ui1wt_8X3XZxm_nmhiB-j7etntXMJzqvz3E47TavA/s1600/Rio+Tinto+MIT+tin.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="622" data-original-width="1173" height="338" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjE2lf3y5YaHQwYVJSvalzJqcPYwbGr8PCOlpBrBP-LiqWFWSWTwuGsrOV91wwzKRMTARSOXWQbhTkJSQDFrFtdQUKUo9FGZxfPic0Ui1wt_8X3XZxm_nmhiB-j7etntXMJzqvz3E47TavA/s640/Rio+Tinto+MIT+tin.JPG" width="640" /></a></div>
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We've all heard lots of hype about lithium, cobalt, nickel, and even vanadium being the hot metals associated with electric vehicles and batteries. Lithium has lost some of its luster due to Tesla's struggles as well as potential that <a href="https://thelithiumspot.com/2018/01/19/sqms-new-deal-the-lithium-market-sell-off/" target="_blank">SQM could flood the lithium market</a>. I still like cobalt due to the supply concentration from the DRC, a <a href="https://www.economist.com/news/briefing/21737021-president-joseph-kabila-seventh-year-five-year-term-he-struggling-hold" target="_blank">hellhole of a country</a> that, ironically, has amazing mineral endowment. But, this is the first time I've seen or heard anything about tin possibly becoming a hot metal.<br />
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<a href="https://media1.tenor.com/images/c5510b43ed460b57516becf1d10f2ad8/tenor.gif?itemid=11031427" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="255" data-original-width="498" height="163" src="https://media1.tenor.com/images/c5510b43ed460b57516becf1d10f2ad8/tenor.gif?itemid=11031427" width="320" /></a></div>
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How does one play tin? I don't think there are many tin companies. One TSXV-listed company I found is Alphamin Resources Corp. (TSXV:AFM). Alphamin is in the process of building a tin mine with some spectacular grades and expects to be producing tin in Q1 2019. But, guess what? It is located in the DRC! So, between its undesirable geopolitical risk and being in the undesirable phase of building a mine, I personally will pass on Alphamin. However, if you are OK with the DRC, then take a closer look because Alphamin is a real company with a $194M market cap and it looks destined to become a producer.<br />
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Another tin company on the TSXV is Eurotin, which has the ticker "TIN". It has a $7M market cap, despite not even being able to sustain its website. I'm sure that a tin rally might bring this back to life, but I don't have the time to go digging to see if this is a diamond in the rough.<br />
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Strongbow Exploration (TSXV:SBW) looks like another decent tin play. Strongbow holds the fully permitted South Crofty tin mine in Cornwall, UK. A 2016 PEA suggested pre-production capex of $118.7M with a 23.4% IRR and after-tax NPV(5%) of $130.5M at US$10/lb tin. Those economics are not terribly compelling, but they could be if tin goes on a tear. Strongbow appears to have solid management and backing from the Osisko group.<br />
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Strongbow was kind enough to provide a summary of tin projects in its corporate presentation. The comparison suggests that their resource is quite small, but their presentation suggests growth potential of 17 to 21 million tonnes. So, a cursory glance suggests that Strongbow is interesting tin company in a good jurisdiction...not the DRC!<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiG8f7djyiEhyR-1XrDoqpeVi4AcSxOhdb9VnspDZ1w8z7wlFn1yjbTV7rRdSuyrPSXG250-_tSa4p75OAqnKfz-8ebV821PHmOMctQFxFdwwUL1JeHgIeupTkE_4Rzf3ldDp99IBCmn2py/s1600/Tin+projects.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="336" data-original-width="415" height="259" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiG8f7djyiEhyR-1XrDoqpeVi4AcSxOhdb9VnspDZ1w8z7wlFn1yjbTV7rRdSuyrPSXG250-_tSa4p75OAqnKfz-8ebV821PHmOMctQFxFdwwUL1JeHgIeupTkE_4Rzf3ldDp99IBCmn2py/s320/Tin+projects.JPG" width="320" /></a></div>
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Part of the reason I was so excited to see MIT flag tin's potential is because one of my clients (and major holdings), Tinka Resources (TSXV:TK), has a significant tin resource. The Ayawilca Tin Zone has an Inferred Mineral Resource of 10.5 million tonnes at 0.70 % Tin Equivalent (0.63 % tin, 0.23 % copper, 12 g/t silver) containing 145 million pounds of tin (66,000 tonnes), 53 million pounds of copper, and 4 million ounces of silver. Relative to the table above, that puts it in the middle of the pack in terms of size and grade. Considering that the market is not giving Tinka minimal, if any, value for the tin resource, that adds a compelling angle to Tinka. The bullish outlook for tin by MIT will cause Tinka to emphasize the tin resource some more. Given the beating Tinka's share price has taken this year, culminating in a financing at a disappointing price this month, some positive news to get retail investors excited again is very welcome. Go <u>TIN</u>ka!<br />
<br />Rob Bruggemanhttp://www.blogger.com/profile/12299740045922559975noreply@blogger.comtag:blogger.com,1999:blog-3303787298887492495.post-91563132301268257822018-03-09T17:34:00.000-05:002018-03-12T15:06:23.127-04:00What did I learn at PDAC?<div class="separator" style="clear: both; text-align: center;">
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The annual Prospectors & Developers Association of Canada, or PDAC, convention in Toronto has ended. I was there, as were 25,000 other people. While I actually didn't attend the convention much, here are a few things I learned and observed at this PDAC:<br />
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<ol>
<li>Some people can never have enough free pens or squishy toys. I'd like to see a concerted effort by the mining industry to eliminate all the free junk that is given away at conferences like PDAC. When you feed a pigeon, you'll get more and more pigeons that suddenly show up. Ask yourself if you really want to attract <strike>pigeons </strike>pen collectors. People who covet free trinkets are not who we want to attract to an investment conference. On a side note, thanks to Lundin Mining (LUN.TO) for providing small chocolate bars that I gave to my kids so they would still love me after PDAC.<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjYcpalmM-qalqzeHCyRcF7OqAQUUSEFbJLoFK_8KI6JRC1tnWNSJ8vTFh5x7aHJYgEGFgl-b4RJNXbnhbUbyN-EHm71gX0JliQwUEwxRFl4gsKiHZTgccMu956o2NSarvf6UpChmUNGUcz/s1600/free-stuff.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="241" data-original-width="306" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjYcpalmM-qalqzeHCyRcF7OqAQUUSEFbJLoFK_8KI6JRC1tnWNSJ8vTFh5x7aHJYgEGFgl-b4RJNXbnhbUbyN-EHm71gX0JliQwUEwxRFl4gsKiHZTgccMu956o2NSarvf6UpChmUNGUcz/s1600/free-stuff.jpg" /></a></div>
</li>
<li>Copper exploration is hot. There are a lot of big mining companies looking for large scale copper projects. Since there are not a lot of those for sale due to the lack of exploration in the past 5-10 years, producers are now funding juniors to go out and drill. This is good for copper explorers, since there isn't much new institutional or retail money flowing into the mining sector right now. We should all pool our money and hire the <a href="http://angrygeologist.blogspot.ca/" target="_blank">Angry Geologist</a> to go out there and find the next behemoth copper deposit for us.</li>
<li>Cobalt remains one of the hottest metal plays, perhaps because the DRC seems destined for a civil war. The DRC accounts for a whopping 58% of global cobalt production and <a href="https://www.cbsnews.com/news/children-cobalt-mining-congo-cbsnews-investigation-ziki-swaze/" target="_blank">child labor </a>is abundant. It seems wise to avoid the DRC and get some exposure to cobalt. Clearly, investors are positioning that way, as Cobalt 27 Capital (KBLT.V) just closed a $200 million financing.</li>
<li>Most institutional investors and corporates remain very leary of Ecuador, despite its mineral potential. I'd include myself in that camp and also avoid Bolivia. On the other hand, I think Argentina is moving in the right direction (at least for now) and they have better wines.</li>
<li> Solgold (SOLG.L) has a very large advertising budget..maybe because of point 4. Investors couldn't miss Solgold, whether they were picking up luggage at the airport, driving downtown, or getting in a hotel elevator. This week's share price chart suggests that the advertising splurge did little for the share price.</li>
<li>The market remains fascinated by battery metals and even nickel is getting a boost from it. Perhaps that is in part due to nickel typically being associated with cobalt, but keep in mind that smelters typically only pay for 50% of the cobalt. Unfortunately, there are not many good ways to play nickel. After Inco, Falconbridge, and Breakwater were taken out in the last big nickel surge, the only producer left is Sherritt (S.TO). Sherritt is still recovering from its epic mess at Ambatovy, but the worst of that mess is probably behind it now. And, no, I still don't believe Garibaldi has a world class nickel discovery.</li>
<li> A banker made one of the most sage comments of the week (shocking, I know). He stated that the mining sector won't take off unless gold and/or copper lead the charge. Those sectors are large enough to draw in generalist funds, which are severely underweight the materials sector. When the mining sector starts to turn, those generalist funds will be dragged into the sector, which they neither like nor understand. However, they won't be able to avoid investing because the sector has a high beta and not participating means that the generalists will get blown away by their benchmarks. So, whether you like zinc, nickel, or something obscure like vanadium, let's all cheer on gold and copper!</li>
<li>Silver is in the doldrums. I think history teaches us a lot about investor psychology, so sometimes looking at long-term charts can provide good perspective for prevailing situations. At the moment, gold is trading at 80 times the value of silver; the 30-year average is 66. Interestingly, the turning points for silver over the past 30 years have been right around the 80x mark. I generally don't care about silver and just stick with gold. The last time I liked silver was around 2006 and it did very well that time. Now, I would once again consider myself a silver bull. If gold finally breaks out, I think silver will soar even more. Now is a great time to be buying silver stocks, in my opinion, and I've been adding to my position in little-known AbraPlata Resource (ABRA.V), which has a resource that equates to almost two ounces of silver equivalent per share outstanding (and not in the way that Seabridge has a huge resource that can't economically be extracted). I do work for the company, so reach out to me if you want to learn more. Shameless self promotion, I know, but AbraPlata is so undervalued that I couldn't resist plugging it here. I also continue to like Dolly Varden (DV.V) and Endeavour Silver (EDR.TO), whose high cash costs translate into huge leverage to rising silver prices (I have no relationship with those two companies).<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjU-59AZ5bButpGY0obpmYq4jHU4vSwwn_uGnooTJU9maJOfCEW545haDlfnDnk8rnL5u3EPFT6pWFgcsMgfaTI9DyrKBWcFeWut1zzq8ffSDaNKFaQQmwXrUF-WvfLSF5PR1RITCTwpMCS/s1600/goldsilver+chart.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="503" data-original-width="809" height="396" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjU-59AZ5bButpGY0obpmYq4jHU4vSwwn_uGnooTJU9maJOfCEW545haDlfnDnk8rnL5u3EPFT6pWFgcsMgfaTI9DyrKBWcFeWut1zzq8ffSDaNKFaQQmwXrUF-WvfLSF5PR1RITCTwpMCS/s640/goldsilver+chart.JPG" width="640" /></a></div>
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Rob Bruggemanhttp://www.blogger.com/profile/12299740045922559975noreply@blogger.comtag:blogger.com,1999:blog-3303787298887492495.post-86736054891286874172018-02-11T18:03:00.000-05:002018-02-11T18:03:27.879-05:00Hammer time! Friday's bullish market reversalPrior to being a junior mining IR consultant and blogger, I used to be in equities research and trading. Back in those days, I studied the markets intensely looking for buying opportunities. I used a variety of technical indicators, technical analysis, fundamentals, and intuition to guide my decisions. As discussed in this post, I think there is a good chance that we saw a market reversal on Friday. That sets up what could be a significant buying opportunity.<br />
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The equities market is constantly evolving and changing. This bull market is quite different from the last, as there is a lot more computer-based trading, a lot more passive investing (i.e., investors buying ETFs instead of actively managed funds), and a remarkable lack of volatility. Most investors have become accustomed to the low volatility, making the recent market pullback seem shocking when, in fact, it is quite normal (historical charts <a href="https://www.yardeni.com/pub/sp500corrbear.pdf" target="_blank">here</a>). <br />
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<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi2cpWbxmrCg7t8fRiHyWrzeo3XumR5V1nklbl34iYflgTjhnF1IRxxEj37ul0ZtePxotx92Fjh9vXknxGWnZxouFkLFLnzsVodeegnlsK08varOvQZa_XN1E5_mD79bL0Iq1KAIbkGNCG8/s1600/Yardeni.JPG" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="410" data-original-width="730" height="356" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi2cpWbxmrCg7t8fRiHyWrzeo3XumR5V1nklbl34iYflgTjhnF1IRxxEj37ul0ZtePxotx92Fjh9vXknxGWnZxouFkLFLnzsVodeegnlsK08varOvQZa_XN1E5_mD79bL0Iq1KAIbkGNCG8/s640/Yardeni.JPG" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Source: Yardeni.com</td></tr>
</tbody></table>
My belief is that we are in the latter stages of a bull market and that the bull market is intact. Valuations are expensive and interest rates are on the rise, but global growth trends are supportive. Consequently, I expect equity markets to recover and trade higher.<br />
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In the short term, equity markets are not efficient and investors are not always rational. Many decisions are driven by fear and greed. During corrections, investors who may have been buying out of greed may suddenly panic and sell. As the sell-off intensifies, selling pressure can escalate and buyers may think twice before acting.<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhoL3wU1eIxZGwro8OAw_DJCDdhl8GLcrma80wjXuWtfoP2Ke3YhDc-cbDKGmbEVbNS2W4q4InTOlHW0SZHI24fMvnW6Icyq_k9iv20-PDV-ppYgad-BCHHfMkOBL_O-TgM3I2DTuU1XNhs/s1600/hammer.JPG" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" data-original-height="257" data-original-width="251" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhoL3wU1eIxZGwro8OAw_DJCDdhl8GLcrma80wjXuWtfoP2Ke3YhDc-cbDKGmbEVbNS2W4q4InTOlHW0SZHI24fMvnW6Icyq_k9iv20-PDV-ppYgad-BCHHfMkOBL_O-TgM3I2DTuU1XNhs/s1600/hammer.JPG" /></a>I'm not a die hard believer of technical analysis, but I do believe it is a valuable tool. The reasons for that are often rooted in psychology. For example, an investor waiting to buy shares during a correction may wait until a stock or an index is at a support line or at a certain moving average before buying stock. Similarly, investors often prefer to buy stocks at round numbers. Just look at Apple shares on Friday, which found support at $150/share. There is nothing special about $150 from a fundamental perspective; it is just a nice round number where more investors will place bids.<br />
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Candlestick patterns can also be useful, especially for spotting trend reversals. One of the most reliable bullish candlestick patterns is a hammer, which is a candle with a long tail and a short body at the top. This candlestick pattern forms when a security trades down significantly from the open, then rallies back to close just below or above the opening price. What this signifies is capitulation selling (scared investors dumping) that triggers bullish investors to step in. Sellers are cleaned up and buyers take control.<br />
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As can be seen on the chart below, the S&P 500 held support at the uptrend line on Friday and subsequent buying resulted in a nice reversal candlestick. It is not a perfect hammer, but I think it conveys a similar message that we may have seen the bottom of this correction.<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi5BY3kQh6Eu-lJgLX4IvHW5jVgd8-xkj-us3yQi1KVYoH3QQZ08Ufrk0Gkkzjj0xhbJoO00tpEBukaC2oQHRRi8xHVFdmHlJgrf8-t7pm5qBfvLf9NqG9MpDrjTz2wOivrULbdjF3OBea9/s1600/SP500+reversal.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="836" data-original-width="1409" height="377" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi5BY3kQh6Eu-lJgLX4IvHW5jVgd8-xkj-us3yQi1KVYoH3QQZ08Ufrk0Gkkzjj0xhbJoO00tpEBukaC2oQHRRi8xHVFdmHlJgrf8-t7pm5qBfvLf9NqG9MpDrjTz2wOivrULbdjF3OBea9/s640/SP500+reversal.jpg" width="640" /></a></div>
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Other tools I use to aid in identifying overbought and oversold markets are sentiment indicators. An easy indicator to use is the percentage of stocks trading above their 50-day moving average. Generally speaking, markets are overbought when this number is high and oversold when this is low. I've drawn lines at 20% and 80%. This indicator is not very precise for picking market bottoms or tops, but can be useful for market timing. As long as there is no trend change (i.e., bull market to bear market), buying when this indicator is at an extremely low level can be quite lucrative.<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgcnyWUaa-JfAOJxTWdeVmNGNYh0MLx4lWjYrRcWeWxbjxxob0wKEDTpjbbAZw29Y5aFWQATtjPjOFbsJNmSiVTJ7ci9efDWdNY-LwF4xnGkboKHMLCwYJe296H0GwC_qK-jW6I1JzFdVu0/s1600/SPXA50R.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="620" data-original-width="1409" height="280" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgcnyWUaa-JfAOJxTWdeVmNGNYh0MLx4lWjYrRcWeWxbjxxob0wKEDTpjbbAZw29Y5aFWQATtjPjOFbsJNmSiVTJ7ci9efDWdNY-LwF4xnGkboKHMLCwYJe296H0GwC_qK-jW6I1JzFdVu0/s640/SPXA50R.jpg" width="640" /></a></div>
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I would be remiss if I didn't throw out some caveats and words of caution. The two most important things I learned on the trading desk were:<br />
1. Gather as much information as possible (e.g., fundamental analysis, technical analysis) and try to be right more than you are wrong; and<br />
2. Recognize when you are wrong and preserve your capital.<br />
In the context of this blog post, that means that if you go on the assumption that Friday's market action was a reversal based on candlesticks, then you better watch trading closely on Monday to make sure that the reversal pattern is substantiated rather than negated and have an exit strategy. For example, if you buy SPYs for exposure to the S&P 500, take your losses and get out if the uptrend line is broken.<br />
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The other important thing I've learned in the markets over the last two decades is that, at times like these, it is best to buy securities that are liquid and high quality. Sure, you could use this pullback to buy more of your favorite junior mining stocks, but that adds a lot of risk. The other mantra of this blog is to look for low risk, high reward opportunities. In this case, to me that means buying things like call options, ETFs, and large cap stocks. If you buy the S&P 500 at 2625 and it goes back to its highs, you achieve a gain of 10%. On the other hand, if Friday's reversal fails and you exit the trade at 2500 you will have a 5% loss. My gut instinct is that there is a higher probability that markets go higher from here rather than lower, so 10% upside potential with 5% risk seems attractive. Of course every investor's circumstances are different, so do your own due diligence, consult an adviser, and keep in mind that this blog is free and should not be construed as investment advice.<br />
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What would I buy in the mining sector? Quality names that are attractive takeover candidates. The reason I like takeover targets is that the takeover potential tends to put a floor on the share price, since the likelihood of a takeover bid will increase if the share price drops. I really like Atlantic Gold (TSXV: AGB), which has a fully diluted market cap of CAD$394 million (plus CAD$135M in debt for an Enterprise Value of approximately CAD$530M) and is one of the few gold companies that has successfully put a mine into production. This is a notable feat - just ask Pretium, TMAC Resources, Klondex, Red Eagle, etc.<br />
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Atlantic Gold is now a low cost gold producer in Nova Scotia, Canada. Production is currently about 80,000 ounces of gold per year, but that is expected to increase to 200,000 ounces per year. It's costs are first quartile, meaning juicy margins and the ability to survive even if gold prices decline. Atlantic is also a good size - not too big and not too small - as an acquisition target. I believe there is a strong chance of a takeover bid in 2018.<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj2s-k_83f20Vsf3hczPsS5tvKFugY0cj9Dy6wQYKbI7sGS806ZFGv6Lus_lMNi_qktemMig00ZHhQt58tNeP33e9Ug4e9MR00Ap50RuvtWU997emgL1tcIYIR-lYu-EY80w4zYNLGlsN7-/s1600/Moose+River.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="479" data-original-width="799" height="380" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj2s-k_83f20Vsf3hczPsS5tvKFugY0cj9Dy6wQYKbI7sGS806ZFGv6Lus_lMNi_qktemMig00ZHhQt58tNeP33e9Ug4e9MR00Ap50RuvtWU997emgL1tcIYIR-lYu-EY80w4zYNLGlsN7-/s640/Moose+River.jpg" width="640" /></a></div>
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Atlantic Gold is one of the few stocks that I've been keeping an eye on, as it has been putting out lots of positive news lately. It hasn't pulled back much on the back of the recent market decline and gold's failure to break out, but it is 12% off its highs and is currently oversold (based on stochastics). I think this is an attractive entry point.<br />
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The other stock that I've been patiently waiting on to pull back is NexGen Energy (TSX: NXE). The uranium sector is out of favor (for good reasons), but NexGen truly has an amazing discovery in the Athabasca Basin that keeps getting larger. NexGen is a stock to just buy and forget about. At some point the uranium sector will turn around and a major mining company is going to covet NexGen. I've missed the opportunity to buy NexGen at $2.50/share the last couple of times it traded down to that level, but this time I plan to pick some shares up. Even in the absence of a takeover, NXE has been trading in a range between $2.50 and $3.50, which presents potential upside of 40%.<br />
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Finally, if you want to know what not to buy, do yourself a favor and go read the <a href="http://incakolanews.blogspot.ca/" target="_blank">IKN blog</a>. Avoid companies run by promoters, liars, former Bre-X supporters, and gringos that piss off the locals. Now is a good time to dump any crappy stocks you have and to buy quality.<br />
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<br />Rob Bruggemanhttp://www.blogger.com/profile/12299740045922559975noreply@blogger.comtag:blogger.com,1999:blog-3303787298887492495.post-79513634009981754232018-01-17T21:35:00.000-05:002018-01-17T21:35:01.113-05:00ML Gold following the Garibaldi model, but without the egregious market capI was tied up with a financing and not on top of the news, so I missed it last week when ML Gold (TSXV:MGL) announced that drilling at its Stars Property in central BC intersected 311 metres with visible chalcopyrite mineralization (<a href="http://www.mlgoldcorp.com/index.php/news/2018-news-release/199-first-drill-hole-intersects-311-metres-with-visible-chalcopyrite-mineralization-on-stars-property-in-central-bc" target="_blank">link</a>). Thanks to reader DH for bringing this to my attention.<br />
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So, once again we have a junior mining company announcing a new discovery prior to releasing assay results. Garibaldi Resources (TSXV:GGI) demonstrated last year how to send your share price skyrocketing this way without any assay results. In my opinion, GGI over promised and under delivered, although the best example of failing to live up to the hype was New Nadina (TSXV:NNA). That stock crashed in spectacular fashion at the beginning of 2018. Somewhere out there is some poor sucker who paid $4.50 for NNA shares, which are now trading at $0.41. Ouch!<br />
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While there are similarities between MLG and GGI, a big difference is that MLG is trading at a market cap of $19M while I was criticizing GGI when it had a market cap north of $300M. Making money is all about risk-reward and taking on high risk only makes sense when justified by a high reward. MLG shares are trading at $0.23. If the 311 metres of copper mineralization at the Stars Property doesn't amount to a major discovery, which is the most likely outcome based on geological probabilities, MLG shares could very well go back to $0.10 and you'll lose more than half of your investment. However, in the rare event that this is a real discovery, then the stock could go up tenfold to $2. This, in other words, is a classic junior mining lottery ticket - the odds are that you'll lose your money, but you have a chance of winning big if you get lucky.<br />
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Even when buying a lottery ticket, I like to get the odds on my side as much as possible and to make sure that I'm not getting hoodwinked. So, I did a little bit of due diligence on this project. The Stars Property is in a porphyry belt and is situated 58km north of Imperial Metals' Huckleberry Cu-Au-Ag mine. That is a good sign, although Huckleberry is currently on care and maintenance waiting for higher copper prices (in other words, grades are low and/or costs are high). The two main targets at Stars have geophysical anomalies and soil samples confirm the presence of copper and moly at surface, especially in "Zone B". According to the ML Gold website, there have been historic shallow holes that have ended in copper mineralization, including hole CS-02 which ended in mineralization grading 0.56% Cu at 110m.<br />
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Hole CS-02 piqued my interest, so I dug a little more and found a technical report dating back to 2002 by Doublestar Resources (<a href="http://aris.empr.gov.bc.ca/ArisReports/26893A.PDF" target="_blank">link</a>). As is often the case in the junior mining sector, MLG has cherry picked the good information from the historical drilling and neglected to mention other material information that is not quite as rosy....<br />
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Hole CS-02 was the only good hole. The others were all sub 0.1% Cu mineralization, which is also known as "waste."<br />
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To be fair, this report was from 2002 when copper was trading at around $0.70/lb. Plus, there was a glimmer of hope in the 2002 report, as follows:<br />
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In the current market environment where investors clearly like to speculate on potential discoveries, my initial sense was that MLG is probably worth a trade. Liquidity is good and a sniff of some decent grade copper should send the share price higher. But only stay in as long as results are good. As seen with Golden Predator, GT Gold, Garibaldi, and Novo, the speculative froth doesn't last too long.<br />
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One of the reasons for my hesitancy in jumping on the MLG bandwagon is that I have a decent sized position in AbraPlata Resource (TSXV:ABRA), which has a similar size market cap as MLG (I also work as a consultant for ABRA, so consider me biased!). In my opinion, ABRA has better looking porphyry targets than MLG. More importantly, ABRA has more value in the event that the porphyry targets are duds, as it has a silver-gold project with an Indicated resource (pit constrained) containing a hefty 81 million ounces of silver and 755,000 ounces of gold (140 million AgEq ounces or 1.8 million AuEq ounces). MLG also has a gold-silver project in Nevada, but it only has an Inferred resource (pit constrained) resource containing 310,000 ounces of gold and 2.4 million ounces of silver (341koz AuEq). <br />
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After doing a bit more research, however, I realized that MLG also has a very large iron ore project in northern Quebec. As it turns out, MLG used to be known as Cap-Ex Iron Ore and the stock traded north of $6 back in 2011 (see 10-year chart below). I made the connection to Cap-Ex Iron Ore because MLG still shows the research coverage they used to have on their <a href="http://www.mlgoldcorp.com/index.php/investors/analyst-coverage" target="_blank">website</a>, which is rather nostalgic. <br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgG7EI1sv3JZqRLEbhs_O5m9a24Gq0v1oAiPeE_1BYmSOCzHdUxsgoVwsgfUs3aCzfdxEjSJCdndMZN__ESkln_hLZu2IabSItIIbCZ0M-gWLhMtvWaZ3ue-BxB5ijD0Z_mX6qHj8JujGCB/s1600/MLG.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="390" data-original-width="866" height="180" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgG7EI1sv3JZqRLEbhs_O5m9a24Gq0v1oAiPeE_1BYmSOCzHdUxsgoVwsgfUs3aCzfdxEjSJCdndMZN__ESkln_hLZu2IabSItIIbCZ0M-gWLhMtvWaZ3ue-BxB5ijD0Z_mX6qHj8JujGCB/s400/MLG.JPG" width="400" /></a></div>
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All in all, MLG looks interesting for a speculative trade on the Stars property and I plan on taking a position. The company has some other decent looking assets, so there is some downside protection in the (likely) event that the copper mineralization is either low grade or confined to a small area. I'll try to get some more insight into the company plans and will also see if I can get some technical insights from geologists on the porphyry potential at Stars. Happy trading!Rob Bruggemanhttp://www.blogger.com/profile/12299740045922559975noreply@blogger.comtag:blogger.com,1999:blog-3303787298887492495.post-63537685917364334012018-01-17T09:30:00.001-05:002018-01-17T09:30:53.717-05:00Crypto crashFor some morbid reason, it gives me pleasure to see Bitcoin and other cryptocurrencies crashing. Maybe it is because there is way too much talk about cryptos now or maybe I'm jealous of all those Bitcoin millionaires <a href="https://interestingengineering.com/bitcoin-millionaires-can-trade-their-cryptocurrency-for-a-lamborghini" target="_blank">buying Lambos</a>. For their sake, I hope some of the fortunate ones did cash in and buy real assets because cryptos appear to be crashing...and I don't think we've seen capitulation yet when things will really crash.<br />
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Cryptocurrencies have not had a good year so far and the sell off has now accelerated due to rumors that China and South Korea may implement regulations that could go as far as banning trading in cryptos.<br />
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Below is the one month chart for Bitcoin. Yep, that is almost a 50% drop in a month. That is what happens when there is no real underlying value and price is set simply by supply and demand. Bitcoin increased roughly 1500% in 2017 and it will be interesting to see how it fares in 2018.<br />
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<br />Rob Bruggemanhttp://www.blogger.com/profile/12299740045922559975noreply@blogger.comtag:blogger.com,1999:blog-3303787298887492495.post-68146438083144737252018-01-05T18:26:00.000-05:002018-01-05T18:26:47.570-05:00Casey Report to blame for Aurania surgeFurther to yesterday's post, which speculated that James Dines caused the sudden surge in the price of Aurania Resources' shares (TSXV:ARU), it turns out that it was the Casey Report. Author E.B. Tucker raised the "buy-up-to-price" for ARU to $15. WTF E.B.?!?! Why would you tell your followers to buy up to that ridiculous level? Unless you think there is imminent news about a major discovery, why not recommend accumulation of stock at current prices and then to buy on dips? You even state in your article that ARU shares are tightly held, with insiders controlling 70% of the stock. That does not seem like a good way to make your subscribers money.<br />
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<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEihana0mt69MSPEQVTEpOLPmvlFMOnJ_GouleYjbDPR4NbVBpddmhMeUfFKMOaRZoyiKbN9HmyzY27MZfdR5E4s-3kKC8zM84REZMolyze3qPTRb2VBFrxI-SYEXKen70HN2awJP_M56Sbb/s1600/Casey+Report.JPG" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="297" data-original-width="581" height="203" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEihana0mt69MSPEQVTEpOLPmvlFMOnJ_GouleYjbDPR4NbVBpddmhMeUfFKMOaRZoyiKbN9HmyzY27MZfdR5E4s-3kKC8zM84REZMolyze3qPTRb2VBFrxI-SYEXKen70HN2awJP_M56Sbb/s400/Casey+Report.JPG" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Casey Report excerpt</td></tr>
</tbody></table>
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In an interesting twist, Aurania issued a <a href="http://www.aurania.com/aurania-resources-comments-increase-market-activity/" target="_blank">news release</a> on Friday afternoon commenting on the increased market activity and linking it to the Casey Report article. The "company is not aware of undisclosed material information" news releases are useless. It is a breath of fresh air to see a company actually comment with useful information. Well done Aurania!Rob Bruggemanhttp://www.blogger.com/profile/12299740045922559975noreply@blogger.comtag:blogger.com,1999:blog-3303787298887492495.post-39309004198356168752018-01-04T22:39:00.000-05:002018-01-04T22:39:07.128-05:00New year, same stupid investor behavior (Aurania Resources)Happy New Year to all! May 2018 bring us mining investors the joy that marijuana and cryptocurrency investors saw in 2017. Despite no exposure to those sectors, I had a very good year in 2017 and will remember it fondly.<br />
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2018 is off to a good start for metal prices and mining stocks, thanks in large part to US dollar weakness. I think this is going to be a good year, but then I usually start the year off with such wishful thinking. We are getting into the latter part of this economic cycle, so the time is right for materials stocks to finally do well. My favorite metals for this year are zinc and silver, but I also like copper.<br />
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg43ExWZjjPN47Hf0_XrAgmuiOWWVMOZCFH9DJNoKwGG0JAxvolf60_0_BWtqnm5Cmofxv65_dKX4vkjaJ_PsMt2uh0ZbAVBYbrcPb57Dz6Naf8G1XH-pJHLgbmAZvzENO1Y91_h_19D8sG/s1600/cycles.JPG" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="355" data-original-width="479" height="237" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg43ExWZjjPN47Hf0_XrAgmuiOWWVMOZCFH9DJNoKwGG0JAxvolf60_0_BWtqnm5Cmofxv65_dKX4vkjaJ_PsMt2uh0ZbAVBYbrcPb57Dz6Naf8G1XH-pJHLgbmAZvzENO1Y91_h_19D8sG/s320/cycles.JPG" width="320" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;"><a href="https://www.fidelity.com/viewpoints/investing-ideas/sector-investing-business-cycle" target="_blank">Fidelity</a> - Sector Performance by Stage of the Economic Cycle</td></tr>
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Reflecting on my strengths and weaknesses, I often let fundamentals and my cynicism get in the way of making profits. I didn't jump on the cobalt or lithium band wagon because I didn't understand those sectors/metals well enough, even though I could tell they were hot. Duh, you don't need to understand the sectors when anything associated with those metals is likely to go up. A fool and his money are soon parted, so I may as well be positioned to take some fool's money. This year, I will try to hold my nose and buy stocks just because they're in a hot sector or because investors are naively drinking promotional Kool-Aid. What will the hot metal be in 2018? I'm not sure yet, but I've already seen a few articles predicting it will be vanadium (<a href="http://www.northernminer.com/news/vanadium-metal-watch-2018-analyst-says/1003792703/" target="_blank">link</a>).<br />
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Even though we are barely into the new year, the fun and games in the junior mining sector have already begun. Today, we had a mix of companies getting their <a href="http://www.stockhouse.com/news/press-releases/2018/01/04/lico-energy-metals-announces-clarification-of-january-3rd-2018-news-release" target="_blank">wrists slapped by regulators</a> (TSXV:LIC), share prices doubling thanks to a newsletter recommendation (TSXV:ARU - more below), and mysterious share price moves just before a stock is halted pending news (TSXV:MYA - up 37.5% before the halt).<br />
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<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhJ39vbju0sLZOuPnWIyoNztXhJhnjKH-dUz_Jd5MqOvU_pjUKo1-2stY7jF7IO9at9kQHKvwyom686TUcvEPbJ9lz3ZEQANk95x-2gRPXsUIP7YgGmYNYclkyBJQdrOPCh9oun7Waz06e2/s1600/MYA.JPG" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="409" data-original-width="885" height="183" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhJ39vbju0sLZOuPnWIyoNztXhJhnjKH-dUz_Jd5MqOvU_pjUKo1-2stY7jF7IO9at9kQHKvwyom686TUcvEPbJ9lz3ZEQANk95x-2gRPXsUIP7YgGmYNYclkyBJQdrOPCh9oun7Waz06e2/s400/MYA.JPG" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Maya Gold 3-month chart - price pop before halt pending news. Sketchy!</td></tr>
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Aurania Resources' (TSXV: ARU) stock started going on a tear at around noon EST. Volumes jumped and "investors" were tripping over each other to buy stock, causing the price to more than double in a couple of hours and finish the day up 61%. I noticed the action and thought that Aurania had done it and found the lost city of gold in Ecuador! Alas, the company issued the mandatory "no material change" new release. Rumor has it that a newsletter writer recommended the stock. My guess is James Dines, as his subscribers typically exhibit this type of "must-own-it-right-now" buying behavior. One of the sheep paid as much as $7.57/share, giving the company a market cap of $172M. These people need to realize that with a little patience they can buy shares for a lot less, increasing their potential returns.<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiz4JpoUbXLyADiN0tfHVdsqzKFoMRY4emHfGVTJla1gDdfJeVYGnic1QVmCuL5ERvlVAJIHq6o5ZOXLK_i-iF3Vcr0LXBVp7rBXblGCTjl15zMgT3azS69DlF59Pq_m7A1rcKvPpU_-J9W/s1600/ARU.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="409" data-original-width="887" height="183" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiz4JpoUbXLyADiN0tfHVdsqzKFoMRY4emHfGVTJla1gDdfJeVYGnic1QVmCuL5ERvlVAJIHq6o5ZOXLK_i-iF3Vcr0LXBVp7rBXblGCTjl15zMgT3azS69DlF59Pq_m7A1rcKvPpU_-J9W/s400/ARU.JPG" width="400" /></a></div>
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I don't know Aurania well enough to opine on the odds of them making a discovery. They have a big land package and a very interesting <a href="https://www.bloomberg.com/news/features/2017-12-20/he-struck-it-rich-in-ecuador-now-he-s-looking-for-the-lost-cities-of-gold" target="_blank">story</a>, so I wish them luck. What I do know, however, is that the current market cap of Aurania is $114 million. There are lots of companies with defined, meaningful gold resources and interesting potential for new gold and copper discoveries that trade for much lower market caps. New year, same stupid behavior.<br />
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<br />Rob Bruggemanhttp://www.blogger.com/profile/12299740045922559975noreply@blogger.comtag:blogger.com,1999:blog-3303787298887492495.post-49755829971636194362017-12-11T11:11:00.000-05:002017-12-11T11:11:26.440-05:00My simple quantitative approach to spec stocks like GaribaldiI came across an interesting <a href="https://www.youtube.com/watch?v=h8SGctygo_k" target="_blank">video </a>of Eric Sprott recently. Eric is a legend in the mining sector and I respect his knowledge and work ethic. Eric has also been one of the supporters of Garibaldi Resources (TSXV:GGI), a company that has received significant scrutiny on this blog, <a href="http://incakolanews.blogspot.ca/" target="_blank">IKN</a>, and the <a href="http://angrygeologist.blogspot.ca/" target="_blank">Angry Geologist</a>. So, you would think that I disagree with Eric Sprott on Garibaldi. However, that is not the case.<br />
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In the video, Eric indicates that he is looking for 10 and 20 baggers. We all love those, don't we? Eric has had a lot of them in his lifetime and is much wealthier than most of the rest of us. Let's be clear, however, that investing in these types of stocks is probably not a core investment strategy. I'm sure that Eric has also invested in many such stocks and lost money. He is in the fortunate position that it won't have much of an impact on his overall wealth or quality of life. My guess is that some investors in stocks like Garibaldi and Novo Resources (TSXV:NNO) have way more exposure in their portfolio to these stocks than they should. That is fine if they bought early (high risk, high reward) and dangerous if they bought later (high risk, low reward).<br />
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Could Garibaldi have a world class discovery that is ultimately worth billions? Sure. The nickel grades are unusually high and large areas are yet to be tested. Yet, it is a quantum leap to assume that this translates into a high probability of a world class discovery. As highlighted by the <a href="http://angrygeologist.blogspot.ca/2017/12/garibaldi-mighty-massive-sulfides-return.html" target="_blank">Angry Geologist</a>, the truth machine (aka the drill rig) has so far only uncovered relatively discrete zones of massive sulphide mineralization.<br />
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Rather than me getting into a pissing contest with guys like Eric Sprott, which I'd prefer not to, let's have some fun with numbers to analyze Garibaldi. My suggestion is that you plug in your own assumptions to come up with your own values. <br />
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Assumptions:<br />
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<ol>
<li>Probability of Garibaldi having a world class nickel project = 5%</li>
<li>Value of Garibaldi if successful = $4.5 billion (based on the takeover value of Voisey's Bay; I actually think the value today would be lower)</li>
<li>Probability of Garibaldi having a small project = 95%</li>
<li>Value of Garibaldi if E&L is not another Voisey's Bay = $50 million </li>
<li>Garibaldi has 105 million fully diluted shares outstanding and that number will go up to 120 million to fund additional drilling</li>
</ol>
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Probability weighted value per share = (0.05x$4,500,000,000 + 0.95x$50,000,000)/120,000,000 = $2.27</div>
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Based on this calculation, GGI shares would theoretically be attractive if trading below $2.27 per share. Personally, I wouldn't put more than 1% of my portfolio value into such a speculative position. I'm picking numbers out of the air here, which leads to a wide margin of error, but I think the exercise is an important one to guide investment behaviour. The odds of GGI going back to $0.42 per share (i.e. $50M/1.2M shares) seem far, far greater than the odds of the share price going to $37.50 (i.e., $4.5B/1.2M). Like I mentioned in an earlier blog post, this is analogous to a lottery ticket or any game of chance. The odds are that you will lose. If you still want to invest, try to get the odds on your side and don't risk too much on these speculative investments. You shouldn't be losing any sleep at night.<br />
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My view on GGI is that shares will drift now that the most significant drill results have been released. Hole 14 was rushed through the lab, implying that holes 10 to 13 were less impressive, which would also explain why they have not been promoted by Garibaldi. Winter weather has set in and we probably won't see more drill assays, other than holes 10-13, for another six months. That is a long time to wait to get the next batch of evidence to see if the E&L deposit might be world class or not. So, if you think Garibaldi might be onto something potentially world class, then make your assumptions and do this simple probability weighted value calculation to pick your entry point. <br />
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It is also important to change your assumptions based on new data. Unless you are lucky enough to possess reliable intuitive skills for spotting winners, I believe data is important and your friend when it comes to investing. That is why this blog and others jumped on Garibaldi initially. Stating mineralized intervals and posting selective pictures of core samples was misleading and clearly fooled some investors. It also set a disclosure precedent that other companies like New Nadina (TSXV:NNA) started following. Assays don't lie or exaggerate. People do.<br />
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Do your own due diligence, make your own assumptions, and good luck!<br />
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<br />Rob Bruggemanhttp://www.blogger.com/profile/12299740045922559975noreply@blogger.comtag:blogger.com,1999:blog-3303787298887492495.post-25110928763550307992017-12-11T09:51:00.000-05:002017-12-11T09:51:16.431-05:00Would you rather...Receive one of the following:<br />
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<ul>
<li>$16,000 US dollars</li>
<li>1,000 ounces of silver</li>
<li>13 ounces of gold</li>
<li>500 pounds of cobalt</li>
<li>5,400 pounds of copper</li>
</ul>
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or:</div>
<div>
<ul>
<li>1 Bitcoin?</li>
</ul>
<div>
Whatever your fancy, the valuations are all currently about the same.</div>
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The pullback in Bitcoin I noted a week ago, which looked substantial at that time, now looks like a minor blip on the chart. Exponential action!</div>
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Was Thursday's high on Bitcoin the top? Probably not. People don't seem to learn, so history repeats itself again and again with bubbles (<a href="http://www.thebubblebubble.com/historic-crashes/" target="_blank">lots of bubbles documented here</a>). Below is a chart for one of the first documented bubbles, tulip mania. One thing I've learned from bubbles and market crashes is that the decline in price when a bubble pops is typically several times faster than the exponential rise up. So, when the Bitcoin/cryptocurrency bubble pops, it is likely going to be mind blowing! If 20% daily gains and losses are normal for Bitcoin, a sharp selloff is going to look like 40 or 50% in a day. You see, many of the speculators buying Bitcoin now probably acknowledge that this is a bubble and they are betting that they can get out quickly with minimal losses. Usually that is not the case. Something will trigger a gap down, servers will crash, and losses will be staggering for those who jump in too late.</div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhwDMFP-oB7r1UCJhKj56mjT6KX3PYm5vyV3BtKndl7nWzInwA_4r7s7j7uKGtR8ZooJ6LZASdrobqbmqY0y6BmoyP4Bpibj5CnB9l9YlfrI_XHetZk7zfOvEXCkCeWyI11soV5ZeFWcAN6/s1600/tulips.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="781" data-original-width="690" height="320" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhwDMFP-oB7r1UCJhKj56mjT6KX3PYm5vyV3BtKndl7nWzInwA_4r7s7j7uKGtR8ZooJ6LZASdrobqbmqY0y6BmoyP4Bpibj5CnB9l9YlfrI_XHetZk7zfOvEXCkCeWyI11soV5ZeFWcAN6/s320/tulips.JPG" width="282" /></a></div>
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Bitcoin seems to have gained some legitimacy with futures now trading on the CBOE. My view remains that Bitcoin is a bubble that will crash. The only question is when. Tulip bulb prices could not be justified at 10 guilders, yet they went to 60. Bitcoin could well go to $50,000 or even $100,000. All I know is that something unexpected will trigger a sudden and sharp collapse. We will know the top is in when we see a 50% drop. History repeats itself.</div>
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While Bitcoin had a stellar week, precious metal and base metal prices took a beating. Who wants tangible assets when you can now get cyber assets? Metals have to be mined and then stored in warehouses. Cryptocurrencies can be "mined" using computers and stored using Blockchain. So what if they are constantly being <a href="https://www.theguardian.com/technology/2017/dec/07/bitcoin-64m-cryptocurrency-stolen-hack-attack-marketplace-nicehash-passwords" target="_blank">hacked</a>, waste massive amounts of <a href="https://digiconomist.net/bitcoin-energy-consumption" target="_blank">electricity</a>, and if most of the computing power resides in <a href="https://spectrum.ieee.org/computing/networks/why-the-biggest-bitcoin-mines-are-in-china" target="_blank">China and Mongolia</a>?</div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjBIC_ZgNorlyD4E4LXMsWqxQ6kQ3C8h3JR-kJb57SFye4ZiXXYy-e5fQm4byZ3cNzJbkcTe6QDf2Bm7CLTT4mqPP20tFzJQ99wQFiHtT-tvCIe99jdQ5bqAtTSRo19czhLkVafSwyVtVXf/s1600/einstein.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="221" data-original-width="228" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjBIC_ZgNorlyD4E4LXMsWqxQ6kQ3C8h3JR-kJb57SFye4ZiXXYy-e5fQm4byZ3cNzJbkcTe6QDf2Bm7CLTT4mqPP20tFzJQ99wQFiHtT-tvCIe99jdQ5bqAtTSRo19czhLkVafSwyVtVXf/s1600/einstein.jpg" /></a></div>
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In classic fashion reminiscent of the dot com craze and marijuana mania, failed mining companies and even a failed biotech are rushing to become Blockchain or cryptocurrency companies. In many cases, all it takes is just the announcement that you intend to get into the sector that can move your stock. And, in some cases like Routemaster Capital (TSXV:RM) and Vogogo (TSXV:VGO), you don't have to mention anything publicly and you claim no material changes while your stock shoots up on volume right after you raise money at low prices. A classic case of "investors" chasing returns, which usually does not pan out.</div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgwzz2R83jxTcdleyay7UVD2R8zBtKTlAHCk7AH1gvBkKhaavEsnuj-N8GKjC4ShyphenhyphenhIYhEDnLh70eV7fD2P5tdBhHCQ5G6GRhy5OZvLJ71HnjaPacs5RlTrKSY_KMKfceQY7h59TlTwWRw3/s1600/charts.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="669" data-original-width="1213" height="352" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgwzz2R83jxTcdleyay7UVD2R8zBtKTlAHCk7AH1gvBkKhaavEsnuj-N8GKjC4ShyphenhyphenhIYhEDnLh70eV7fD2P5tdBhHCQ5G6GRhy5OZvLJ71HnjaPacs5RlTrKSY_KMKfceQY7h59TlTwWRw3/s640/charts.JPG" width="640" /></a></div>
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Call me old school, but I still like metals and mining (and fundamentals). Bitcoin will likely be gone in a decade, but all of our electric, autonomous vehicles will still be using lots of copper, zinc, cobalt, lithium and nickel. I especially like zinc in the short-term, as inventories are hitting critically low levels. I think zinc prices will soon start another run up and if I had any Bitcoins I'd be selling them and buying zinc mining stocks.</div>
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiWABF9ANwZWh5uU6vagS9u0L2Ok773mY4SYUJf3O30AVJZdpIA_O09K4AR3RsSpe-NJL1yqLhrzu63p45_oG3JVjFwR1EIKQhpTadWvGGwD5QLEnSomjNe3F74U8zL0Ommm0TNblQf5joq/s1600/Zn+inventories.JPG" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="521" data-original-width="883" height="235" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiWABF9ANwZWh5uU6vagS9u0L2Ok773mY4SYUJf3O30AVJZdpIA_O09K4AR3RsSpe-NJL1yqLhrzu63p45_oG3JVjFwR1EIKQhpTadWvGGwD5QLEnSomjNe3F74U8zL0Ommm0TNblQf5joq/s400/Zn+inventories.JPG" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Source: Scotiabank</td></tr>
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Rob Bruggemanhttp://www.blogger.com/profile/12299740045922559975noreply@blogger.comtag:blogger.com,1999:blog-3303787298887492495.post-55794578941128040142017-12-01T10:51:00.000-05:002017-12-01T11:12:53.643-05:00Garabaldi doesn't add upThanks to the BC Securities Commission, Garabaldi Resources (TSXV:GGI) has disclosed the drill hole coordinate and composite grade intervals that should have been in the drill results release. Let's do a quick recap. The company started making a lot of noise about a massive nickel discovery on <b>September 1</b>. Assays were finally released on <b>November 20</b> (more than 11 weeks after Sep. 1) in a news release that looked like it was hastily written and incomplete. It then took another 9 days for the company to issue the full disclosure required by the BCSC.<br />
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Why would Garibaldi not want to be forthcoming with this information? Perhaps, because the facts don't live up to the hype. The Angry Geologist analyzes the data <a href="http://angrygeologist.blogspot.ca/2017/11/garibaldi-bcsc-to-rescue.html" target="_blank">here </a>and highlights that the massive sulphide intercepts are really quite small and appear to be confined to a small zone. Stuff like this makes the Angry Geologist angry and you won't like him when he's angry!<br />
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I'd also like to point out some simple math. In the Sep. 1 GGI news release, the company publicly stated that the first drill hole intersected <b>two long intervals totaling 176 meters</b>.<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiXMcqHCd5hUrPcnlKpZr3rtwNL1Q8M_Ly1qRv8ubZAyWQl7IdGjF8-oYBOxVHJPEmXpzCuecvOphmxNIVjcyqE9JdaP0TuenQhnEgKYBGpVfCPQrvPdzBgBC3Ew1c5bp1Zy8Pnvvh4fU-g/s1600/GGI+news.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="215" data-original-width="737" height="115" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiXMcqHCd5hUrPcnlKpZr3rtwNL1Q8M_Ly1qRv8ubZAyWQl7IdGjF8-oYBOxVHJPEmXpzCuecvOphmxNIVjcyqE9JdaP0TuenQhnEgKYBGpVfCPQrvPdzBgBC3Ew1c5bp1Zy8Pnvvh4fU-g/s400/GGI+news.JPG" width="400" /></a></div>
$16 million was raised on the back of this and other statements. Who needs assays when you have core logging and XRF readers, right? Well, let's see what the assay data, released almost three months later, came up with:<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgaGR2d0HnEpPTEPwfkqbymyNgCfUHfjxDcrit7cMJ7QpR7MqdGRaciGdXCkXi2vCebqWC_lmJqZjF_Ip0ynPm-LOtbqnv_Xom4lGJBpmZNcFMyTMbfK3oLmsgcwTDCCjC_IFuU5tHG_t5r/s1600/GGI.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="214" data-original-width="701" height="121" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgaGR2d0HnEpPTEPwfkqbymyNgCfUHfjxDcrit7cMJ7QpR7MqdGRaciGdXCkXi2vCebqWC_lmJqZjF_Ip0ynPm-LOtbqnv_Xom4lGJBpmZNcFMyTMbfK3oLmsgcwTDCCjC_IFuU5tHG_t5r/s400/GGI.JPG" width="400" /></a></div>
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Add the intervals and you get 60.5+5.23+9.68+4.5=<b>79.91 meters</b>. What happened to the two large intervals totaling 176 meters? There seems to be about 96 meters of mineralization missing! That is about the height of a 32 story building, which I would argue is not insignificant.<br />
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People lie. Assays don't. In this case, I doubt Garibaldi intentionally meant to mislead investors, but they should have known better than to make these statements in the first place. Those pesky class action lawyers might start contacting the gullible investors who purchased shares at $4 or $5 per share and then the $16 million you raised might have to go to lawyers and settlements rather than into the ground.<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEig2liotdglEVfWvcvUt8qCm_XQsdwt4pqR8dycQ_LyT2Kg7zwVgtyd_cCoIPrGAVUq_ge9tJId7PKBiDumpj9GIAxu-ULMSIYUWhanNS2cRwCu2RNcI0kMKHDNjLo8VYsgaP5ktxqm4Dhn/s1600/bettercallsaul.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="286" data-original-width="630" height="145" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEig2liotdglEVfWvcvUt8qCm_XQsdwt4pqR8dycQ_LyT2Kg7zwVgtyd_cCoIPrGAVUq_ge9tJId7PKBiDumpj9GIAxu-ULMSIYUWhanNS2cRwCu2RNcI0kMKHDNjLo8VYsgaP5ktxqm4Dhn/s320/bettercallsaul.png" width="320" /></a></div>
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<br />Rob Bruggemanhttp://www.blogger.com/profile/12299740045922559975noreply@blogger.comtag:blogger.com,1999:blog-3303787298887492495.post-55602793167329839932017-11-29T16:25:00.000-05:002017-11-29T16:25:20.439-05:00Vogogo says no material undisclosed information - seems legitI usually keep an eye on streaming news headlines when at my desk. One of the releases that caught my eye today was from Vogogo (TSXV:VGO) confirming no material undisclosed information. Does the company really not have an explanation for the 20% move up in the stock today and fourfold increase in the past five weeks? I call BS and decided to dig a little.<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi23_S2PzoCls_zIDbJVzfZ3ZQ8PsYBCHF6DQHlruzRbBcNfPTWTh5-wwFi0uhcvMh9c6kCxBeTBXvteETJDmoluva8PJ66dogRFsyzCa4j2iJ8lzTWPjEZhiTii5-W5bxbpHLlmlu93IOx/s1600/Seems+Legit.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="510" data-original-width="640" height="255" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi23_S2PzoCls_zIDbJVzfZ3ZQ8PsYBCHF6DQHlruzRbBcNfPTWTh5-wwFi0uhcvMh9c6kCxBeTBXvteETJDmoluva8PJ66dogRFsyzCa4j2iJ8lzTWPjEZhiTii5-W5bxbpHLlmlu93IOx/s320/Seems+Legit.jpg" width="320" /></a></div>
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The company website suggests a dormant company with the contact person listed as accounting@vogogo.com (<a href="http://www.vogogo.com/" target="_blank">link</a>). News releases provide the following description of the company: "<i>Vogogo has provided payment processing and related transaction risk services and continues to own certain </i><i>rights and software with respect to such services.</i>" Looking back, it appears that Vogogo had set up a Canadian bitcoin exchange that failed in mid-2016 (<a href="https://www.cryptocoinsnews.com/bitcoin-services-vogogo-closing-payment-processing/" target="_blank">link</a>), roughly a year after raising $12.5M through a brokered financing.<br />
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As of Sep. 30, the company still had $6.9M in cash and the MD&A indicates that: "I<i>n the latter half of 2016 and into 2017, the Board has been focused on identifying a vend-in opportunity for Vogogo with the over-arching goal of leveraging the Corporation’s cash in an operating business to create shareholder value.</i>" Somehow, Vogogo raised $6M on Nov. 1 by issuing 60 million units priced at $0.10/unit, of which the insiders took down 7.1M units. The stock was already trading at $0.38/share by that time, having suddenly started a sharp move up on increasing volume starting on Oct. 23. VGO closed today at $0.61 with 1.3M shares traded and the company has the balls to claim that there is no material undisclosed information? The stock chart tells me that some investors have been given more information than has been provided publicly, especially since this company has given the public absolutely zero information. IIROC may want to dig a little deeper on this one rather than taking the company's response at face value.<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjrBHAHvaUXfBM27_bxgkcTIChuUYVPxphj5qLrxFb3sC9_ZTjr7ZAVCa9fsW64U_PxYLGlwmIB3CCsvl1BmP6dpEf__6qH98SGQcWoUTOm5BQOtpooR6KFAIzSDJwLekWhY3wOV_hLQeEL/s1600/VGO.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="379" data-original-width="836" height="181" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjrBHAHvaUXfBM27_bxgkcTIChuUYVPxphj5qLrxFb3sC9_ZTjr7ZAVCa9fsW64U_PxYLGlwmIB3CCsvl1BmP6dpEf__6qH98SGQcWoUTOm5BQOtpooR6KFAIzSDJwLekWhY3wOV_hLQeEL/s400/VGO.JPG" width="400" /></a></div>
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<br />Rob Bruggemanhttp://www.blogger.com/profile/12299740045922559975noreply@blogger.comtag:blogger.com,1999:blog-3303787298887492495.post-5618093357393258532017-11-29T15:38:00.000-05:002017-11-29T15:38:20.155-05:00Beginning of the end of the Bitcoin bubble?Us mining professionals have been getting sick of cryptocurrencies because they have been sucking investment dollars out of the junior mining space. We are also sick of watching others make money while junior mining stocks are, at best, lackluster.<br />
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But, wait, what is this...is the Bitcoin bubble about to pop? Bitcoin and its cryptocurrency brethren have been going exponential recently, which is typically the last and most violent move up when something is in a bubble. Go check out the nice graphic by Visual Capitalist earlier this week on Bitcoin's rise to $10,000 (<a href="http://www.visualcapitalist.com/visualizing-journey-10000-bitcoin/" target="_blank">link</a>). As per their table below, Bitcoin moved from $9,000 to $10,000 in a mere two days.<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjHQ3AZ-KQi3FYoQ0xE19suXzdxEra-bz0y4we9R_PspbjNPuw2TDLIyaJXDQsoVgm0hbBx9DukphRa1z0op9ukYnRFjsTiIjV8gvKPRMSBmq2vE1neIAVEGRjtpbkD1coRr4CjHuCIVG-r/s1600/Bitcoin.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="437" data-original-width="637" height="273" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjHQ3AZ-KQi3FYoQ0xE19suXzdxEra-bz0y4we9R_PspbjNPuw2TDLIyaJXDQsoVgm0hbBx9DukphRa1z0op9ukYnRFjsTiIjV8gvKPRMSBmq2vE1neIAVEGRjtpbkD1coRr4CjHuCIVG-r/s400/Bitcoin.JPG" width="400" /></a></div>
Today, Bitcoin's rapid rise came to a screeching halt at around 9am. It hit $11,300, then fell 20% to $9,000 by 2:30pm before rebounding to $10,000. Something that can move this much this quickly does not have fundamental underpinnings. It is a bubble and it will pop. Why do I care? Cryptocurrencies are going to make junior mining investment look tame and I'm hoping dollars flow out of cryptocurrencies and back into boring old silver and gold. The gold chart looks good and sooner or later I think gold prices will pop. Bitcoin will also pop, but in a different way.<br />
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<br />Rob Bruggemanhttp://www.blogger.com/profile/12299740045922559975noreply@blogger.comtag:blogger.com,1999:blog-3303787298887492495.post-54084357364868383902017-11-27T10:22:00.000-05:002017-11-27T10:22:16.359-05:00Cryptocurrencies - creating value out of thin air (and electricity)<div>
In junior mining, we often see companies seeded with cheap capital, followed by a pre-IPO round at a higher valuation and then an IPO at a higher valuation. That is very similar to something I saw this morning relating to cryptocurrencies. <b>NetCents (CSE:NC)</b> is creating a new cryptocurrency called NetCents coins. They are pre-selling the first batch of 5 million for $2/coin and plan to release a second batch of 5 million at $4/coin. The coin exchange will then go live next month and coins will be valued based on demand. Very similar to junior mining, right? Well, there is that one difference, which is that a mining company needs to have a real asset. With cryptocurrencies, there is no underlying asset and money can only be made based on the greater fool theory. Bubblelicious!</div>
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Cryptocurrency talk is going mainstream, so the top probably isn't that far off but things are likely to get even crazier before the bubble implodes, as it always does. Sadly, electricity consumption related to Bitcoin now exceeds the power consumption of 159 countries (<a href="http://www.businessinsider.com/bitcoin-mining-electricity-usage-2017-11" target="_blank">link</a>). That should be good for thermal coal consumption, since most of the electricity usage for Bitcoin is in China.</div>
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The thing that will ultimately kill Bitcoin and other cryptocurrencies is that barriers to entry are very low, as evidenced by NetCents. Apparently there are now over 1,100 cryptocurrencies, so the whole argument about finite supply is completely moot. Paper money can be printed by central banks, leading to hyperinflation. Cryptocurrencies can be created by anybody, which will also lead to hyperinflation. Ultimately, the trading price will revert to the fundamental underlying value. Zero.</div>
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Rob Bruggemanhttp://www.blogger.com/profile/12299740045922559975noreply@blogger.comtag:blogger.com,1999:blog-3303787298887492495.post-35413349062388720522017-11-27T09:59:00.003-05:002017-11-27T09:59:51.149-05:00Follow up on prior posts (WHY, GGI, GQM, LA, IBAT, MXL)How time flies. This blog has now been up and running for almost two months, so I thought I'd take a look back at the posts and see how some of the stocks mentioned have been doing.<br />
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<b>West High Yield (TSXV:WHY)</b> - Let's start with everyone's favourite train wreck. WHY is trading again and the stock continues to highlight how gullible and dumb some retail investors are. The US$750M takeover deal was clearly a scam, yet there seem to be no repercussions on the perpetrators. The situation could have been a lot worse if the ASC had not halted trading shortly after the "deal" announcement was made, although it should have never opened for trading in the first place. My guess is that somebody somewhere, whether inside the company or outside, was getting ready to sell shares to the suckers who believed WHY was worth US$750M. Interestingly, a number of insider transactions dating back to 2006 have suddenly been filed on SEDI by Frank Marasco and his holding companies. Who are the idiots that would back this guy in light of the circumstances? This stock should be trading an order of magnitude lower and the guys involved in the bogus deal should be fined and banned. Drain the swamp!<br />
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<b>Garibaldi Resources (TSXV:GGI)</b> - It was a wild week for GGI last week. It briefly traded at $5.05 on Monday morning, when the company finally released the assays for the hole it has been talking about for seven weeks. Despite the lengthy wait for assays, the news release came across like a rushed hatchet job with terrible disclosure. Brent Cook from Exploration Insights, one of the few newsletters I have a lot of respect for (which is why subscribers pay for it), even chimed in on CEO.ca. (Note that in my previous GGI post that I attributed the life cycle of a junior miner chart to Brent Cook, but it was actually created by Pierre Lassonde and popularized by Brent)<br />
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Despite some arm waving in the news release - <i>hey, don't worry about the assays released here, we've drilled an even better hole </i>- investors lost interest and the stock sold off sharply. It touched a low of $1.71 before catching some bids and moving back up above $3.00. In other words, these investors are happy to value the company as high as $500M on rampant speculation, then dump the shares when the news wasn't extraordinary. There is a saying that "bulls win, bears win, pigs get slaughtered." I guess by pigs they mean the idiots willing to value Garibaldi at hundreds of millions.<br />
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Frankly, I was ecstatic to see GGI (and its neighbour <b>Metallis Resources - TSXV:MTS</b>) sell off because the success of this promotion was setting a dangerous precedent in the junior mining market. The IKN blog described the market approach GGI had taken, in its typically colorful and entertaining language, and highlighted how <b>New Nadina Explorations (TSXV:NNA)</b> was following this recipe for how to suck in naive investors who invest based on greed rather than fundamentals (<a href="http://incakolanews.blogspot.ca/2017/11/garibaldi-ggiv-and-new-nadina-nnav.html" target="_blank">link</a>). Investors are clearly hungry for new discoveries, but they are likely to get burned if they invest based on hype and speculation rather than actual information and some comprehension of the probabilities of success in the junior mining space. A few drill holes should not be extrapolated to suggest that this is a world class discovery. It is a discovery, but only time and drilling will tell how big it really is...which sounds a lot like the <b>Novo Resources (TSXV:NVO)</b> situation, doesn't it?<br />
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<b>Golden Queen Mining (TSX:GQM)</b> - I used to work as an analyst/trader on a proprietary trading desk. We'd call the GQM situation "catching a falling knife." GQM's share price dropped 28% in early October without any news. Apparently a newsletter writer put a sell on the stock. Sometimes, an unexplained drop can be tempting as a buying opportunity. More often than not, however, market action can be more informative than company information. Since the newsletter sell recommendation, the stock has been halved again, the company has announced that it is planning a US$25M rights offering (backstopped by the Clay family), and the interest rate on the US$31M loan agreement (with the Clay family) is going from 8% to 10%. Catching a falling knife is dangerous!<br />
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<b>Los Andes Copper (TSXV:LA)</b> - I mentioned this stock when it was $0.40 and it has been bouncing around in the 30s since. I think the company is more hype than substance and they rely on paid newsletter writers to promote the stock. Paid promotion tends to have a short-term impact or it puts lipstick on a pig. Investors should be reticent to follow newsletter writers that are paid by their company clients. They are biased and their disclaimers often spell that out, but few investors read those. The Angry Geologist, who is much more technically proficient than me and posts his insightful work for free, also does not like LA. Check out his post <a href="http://angrygeologist.blogspot.ca/2017/11/the-valleys-are-full-of-crappy-copper.html" target="_blank">here</a>.<br />
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<b>International Battery (CSE:IBAT)</b> - this stock demonstrated the influence that paid promotion can have. The paid fluff piece by oilprice.com took the stock from about $0.32 to as high as $1.38. It has since pulled back to $0.64, which is still double where it was prior to the promote. The company did manage to raise $1.14M at $0.65/unit. Hopefully that money isn't just spent on more promotion. You see, promotion can be addictive. Once you do it and see what it can do, you want to do it again or your shareholder base pressures you to do it. But, you need to find a new batch of <strike>suckers </strike>newsletter subscribers every time.<br />
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<b>MX Gold (TSXV:MXL)</b> - Last, but not least, we have a mining company that jumped on the cryptocurrency bandwagon to "mine" bitcoin. The company cancelled a proposed acquisition, but has ordered Bitcoin "mining" equipment. The stock is down 40%, so these guys can't even make money in a sector that makes junior mining look tame.Rob Bruggemanhttp://www.blogger.com/profile/12299740045922559975noreply@blogger.comtag:blogger.com,1999:blog-3303787298887492495.post-73242696074089607922017-11-20T12:11:00.002-05:002017-11-21T11:53:43.926-05:00After 7 weeks, reality bites and Garibaldi investors sell the newsFirst, my apologies for how quiet this blog has been for the past two weeks. Most things in mining land have seemed very tame lately when compared to the rubber-necking we did on the horrific car crash that was West High Yield (TSXV:WHY). My travel schedule has also been jam packed lately thanks to the stellar mineral resource estimate issued by Tinka Resources (TSXV:TK) and starting work for AbraPlata Resource (TSXV:ABRA), which has a ridiculously low valuation in the silver-gold sector because few people have ever hear of it (Disclaimer: I work for TK and ABRA plus I am long those stocks, so consider me biased on these companies and do your own due diligence).<br />
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Let's turn our attention today to Garibaldi Resources (TSXV:GGI), which finally released some assay results (<a href="http://www.garibaldiresources.com/s/NewsReleases.asp?ReportID=808068&_Type=News-Releases&_Title=Garibaldi-Drilling-Tracks-Nickel-Copper-Rich-Massive-Sulphide-Conductors-To..." target="_blank">link</a>) from its E&L project at Nickel Mountain. This company is likely giving us a real life demonstration of the life cycle of a mining stock, which as I'm sure you all know suggests that mining company stocks often hit their zenith during the exploration phase. Pierre Lassonde came up with the conceptual life cycle of a mining company many years ago and Brent Cook has done a great job using it to explain stock behavior, but investors don't seem to learn. The thrill of the lottery keeps them coming back, as evidenced right now by GGI (not to mention Novo Resources), and things usually don't pan out in the long run. Based on my personal experience, I would say that most junior exploration companies fail to transition from exploration to mining. As a result, the second hump in the Lassonde curve fails to ever materialize for most junior explorers. </div>
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<i>Credit - Created by Pierre Lassonde, graphic from Brent Cook and Exploration Insights</i></div>
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After waiting a mere seven weeks from the date the new discovery was announced (<a href="http://www.garibaldiresources.com/s/NewsReleases.asp?ReportID=801676&_Type=News-Releases&_Title=Garibaldi-Intersects-Broad-Intervals-Of-Nickel-Copper-Sulphide-Mineralizati..." target="_blank">link</a>), Garibaldi provided a piss poor news release that I would have thought would raise some questions from IIROC. There are no assay tables and no drill hole collar info. Instead, there is some good old fashioned grade smearing on hole EL17-04 and summing of intervals on hole EL17-01. Best of all, there is a whole lot of arm waving about a drill hole EL17-14. More on that later.</div>
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The highlight of the actual assay results in the GGI release was hole EL17-04, which hit 4.8m grading 7.2% Ni, 3.4% Cu, 0.82g/t Pt and 0.78g/t Pd. These are excellent grades associated with a massive sulphide zone where minerals have concentrated. Most companies would be very pleased with this intercept, but GGI has led investors to believe that this is the second coming of Voisey's Bay and it will take a lot more than an intercept 4.8m thick to define a world class nickel deposit (>100Mt of 1% Ni). So, GGI did what any good, promotional mining company would do and highlighted a broader interval of 48.2m grading 1.1% Ni, 0.69% Cu, 0.38g/t Pt and 0.23g/t Pd. That looks like a respectable interval, but the very helpful Drill Hole Interval Calculator at corebox.net reveals that the 43.2m interval above the massive sulphide lens only grades 0.425% Ni, 0.39% Cu, 0.33g/t Pt and 0.17g/t Pd (<a href="http://www.corebox.net/drill_interval_calculator?data=48.2,1.1,0.69,0.38,0.23,4.8,7.2,3.4,0.82,0.78," target="_blank">link</a>). That is low grade disseminated sulphide material worth less than US$100/t that is only likely to be economic if the project has sufficient scale and if metallurgical recoveries are high enough.</div>
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I suspect GGI management figured that the 4.8m massive sulphide interval in EL17-04 wasn't going to live up to the hype, so the news release highlighted hole EL17-14 because it intersected 16.7m of massive sulphides. Yup, it took seven weeks go get assay results for the first four holes and yet the company is already trying to put the focus on a drill hole 10 holes ahead, the assays for which are likely two months away. Good disclosure practices mean nothing to this company and shareholders are culpable for fueling this behaviour. GGI shares have sold off hard this morning, dropping as much as 30%, as investors sell the news. When you over promote or over promise, this is what tends to happen. The company tried to keep the excitement going by talking about hole EL17-14, but clearly investors aren't falling for that based on today's selling.<br />
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While I don't like the games associated with over promotion, GGI demonstrates why this is so prevalent in the junior mining space. The company certainly has attracted a lot of attention, early investors/speculators have made great returns even with today's share price pullback, and GGI has raised $16M without releasing a single drill hole. In the long run, however, these plays tend to fizzle out; the reason they call discoveries like Voisey's Bay world class discoveries is that there are so few of them. Nonetheless, GGI has shown us that it a very profitable trade can be to buy on initial discovery news, even in the absence of assays, and then to sell before or on the news. Hit me up if you spot the next discovery...I'll buy stock and then criticize as I'm making money.<br />
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Rob Bruggemanhttp://www.blogger.com/profile/12299740045922559975noreply@blogger.com