World Of Wallstreet

FWIW: Hedges Came Off This Morning At 2AM

Lost a bundle on the hedges, but more than made up for it price pops of what was being hedged. 

We are clearly (to me) in some kind of "to the moon" liquidity driven / inflation anticipating / earnings don't matter much market move. Who knows how far it can go, but I bet it can go a long ways as the big banks will all go bankrupt if they can't reinflate the assets underlying the non-performing loans. I'm pretty afraid at what the ultimate outcome of this will be.  

 

I'm back to 100% invested in Jr producing gold miners (well a couple of percent in explorers). Top holdings are GORO.OB, DMM.TO (may lighten as CEO sold some on Friday), OGC.TO, TRY.TO, CGA.TO, APG.TO, SMF.TO and LMA.TO.

 

Obviously this is not for everyone, but the gains to date have been substantial and the 2010 estimated typical price operating cash / flow at $1000/gold is under 3 while the same for comparable well-known miners (such as those held by Northbeach2000) is are around 6. That's my margin of safety, such as it is.

 

Best wishes and do your own due-diligence,

 

MontyHigh, www.worldofwallstreet.us

P.S., I'm finding that I have less of a need to express myself via blogging while my confidence and investing abilities appear to be growing. If you let me know, dear readers, what kind of material you have found to be of value this web site... I will try, out of the high-state of service, to keep that kind of material coming.

Portfolio Update: Still Long Gold And Silver Juniors

My previous portfolio update was December 29, 2007. My basic stance has not changed. I'm still heavily concentrated in junior gold and silver mining stocks. The proportions allocated to different stocks have changed and there are a couple of new names.

Here's the before picture:

Here's my current allocation:

As you can see, the following stocks have been removed from the portfolio:

• RGLD (Royal Gold) - this gold royalty company's stock price just didn't respond to gold's price rise the way I expected it to. I removed it because I didn't really understand this and its business model and there were some fat pitches that deserved more money.
• ELR.TO - I exited this platinum miner after a little gain because of uncertainty about how much management was looking out for its stockholder interests. I exited right before the African power problems and missed the rise from the resulting platinum price rise.
• GPXM - I finally dumped this when I saw some liquidity after I concluded I really didn't want any Jr base metal miners.

Capital has been shifted out of the following two stocks to make room for opportunities with shorter term catalysts:

• SST.V (Silverstone Resources) - this silverstream purchaser is still undervalued relative to Silver Wheaton, but is apparently having trouble achieving its growth goals of 3 new silver stream deals a year. Its latest deal was outside of the standard business model of purchasing silver production from base metal producers. I'm still watching this, but am allocating money to "hotter" opportunities.
• Golden-Star Resources (GSS) - the mid-tier turn-around is still heavily undervalued and should be highly leveraged to the price of gold. And yet its price rise is lagging. I believe it has to show the market it can achieve its growth goals. But, according to management, that growth will not show up in the first quarter results as they continued thru the first quarter to have trouble scaling up the BIOX processing in their mill. I intend to enlarge this position sometime after the first quarter's announcements.

So here is where I have been investing freed up and new money:

• GORO.OB (Gold Resource Corp) - this is just a fat pitch with near-term catalysts. Click here to learn more. I've loaded up, perhaps more than I should have given its low liquidity. I expect quite a pop when the permit for the mill comes in.
• FR.TO (First Majestic) - this soon to be mid-tier was really starting to move when they announced a private placement with warrants. This dilution will probably keep the stock price capped where it is right now for a while. I'm pondering what to do with this position going forward. Eventually it will be just fine (if the price of silver holds about, say 15$/oz) as it is heavily undervalued relative to other mid-tier silver producers assuming it achieves its forecast growth. This growth requires little more than "turning the crank" to expand the mills of existing mines and I consider the growth to be low-risk. Its tempting to try to find a place to move the money to that has shorter term catalysts.
• AUN.V (Aurcana) - this is Mexican silver mine reopener which has a nice growth path (opening another mine in 2009) and which seems significantly undervalued if you believe that they can prove up historic resources. The company is currently considered (and valued) as a base metal producer because of the large copper and zinc byproducts from the first mine. When the second mine opens Aurcana will be a primary silver producer and should achieve higher ratios. I've expanded my position as I expect good news from the year-end and first quarter results and I expect them to prove up historic resources. There has been significant insider buying this quarter.
• MTO.TO (Metanor) - this Canadian gold mine reopener has really strong support under it (someone big is buying on any dips). Its a case where its currently undervalued and about to announce production start and where the exploration potential in the current mine and nearby is really good. Its a bit risky as the huge upside depends on the exploration panning out, but I think it will as the area has been a historic gold producer.
• MFN or MFL.TO (Minefinders Limited) - a 100K+ Au oz/year Mexican pit mine that is opening in April. This is a big enough mine to be a nice takeover target. I'm really impressed with the way management has avoided dilution and look out for the shareholders. They claim to have been extra thorough in their planning for and construction of their mine and that as a result they won't have the startup problems that plagued similar mines in Mexico. I'm holding at least until the production startup announcement.
• NGG.V (New Guinea Gold) - a smallish producer that is ramping up to 30K Au oz/year. The increased production announcement is due any day and should give the stock a nice pop. This is really an advanced development play where dilution can be avoided by using the cash flow from this 30K Au oz/year. The huge upside comes from proving up the historical resources in one new project and proving up additional resources at its starter mine. The management, which did the historical drilling, has good reason to believe the results of this proving up will be positive, but we the stock holders have to wait thruout the year for individual drill results and until late this year to get the NI43-101 reports. This one is a little riskier (since its closer to an exploration play) but not that risky (in my opinion) with huge upside.

Here's my current allocation totaled by metal. The only reason I still have any copper (even though copper has been fine lately) is that the stock in question (NRD.TO) is so illiquid I cannot exit. I'm not really concerned because its a small fraction of the portfolio and I expect (short of a major world-wide recession) to get the money out with significant profit in less than a year. I've got more gold than silver at this point because I'm less concerned about a possible gold price correction than a silver price correction. Silver may have more upside, but I think gold has less downside. With these Jrs and my sized positions it takes several days to exit.

I'm now heavily overweighted in Mexico. I'm not happy about that and am trying to watch conditions in Mexico closely. Mexico may be the most mining friendly country in the world right now, but I expect its going to have some troubles from falling oil production (and revenue) as its oil production has peaked. But for now I am heavily overweighted in Mexico.

In conclusion, since the last portfolio update I have been in the right industry group (precious metal mining stocks) and have harvested nice returns. I expect precious metals will remain an excellent place to be for at least another quarter. I was heavily in Jrs which have lagged the majors (although this may turn). I understand pretty well each company I'm invested in and have good, quantitative reasons to believe they will prosper more than than peers in the industry group.

I don't consider myself a world-class investor, but do think I've made substantial progress over the last five years and even significant progress since I started this blog. Lately I've been learning how important news announcements are to Jr mining stocks. Typically the stock price does not move until either a significant news release occurs or until one is anticipated. If it has been heavily anticipated it seems wise to exit the position when the release occurs, but it really depends on the news release.

Hopefully this portfolio update has given the reader some good ideas to pursue both in terms of individual stock and, maybe, in terms of how to think about investing.

Leave me a comment with a couple of your top holdings and a sentence or two about what you like about them.

Portfolio Update: Long Gold And Silver Juniors

Its been a while since my previous portfolio update (see here) and I've completed my change of direction. I've dropped junior base metal mining stocks almost completely and have switched to junior precious metal mining stocks. I expect I'll be posting an up-to-date profile of each of my holdings over the next couple of weeks.

The only base metal mining stocks I continue to hold (NRDS.PK and GPXM) are those that are so illiquid that I knew going in that I was going to hold until they achieved their potential (or went bankrupt trying). I knew I would not be getting out just because of some set backs or a change in my outlook on their commodity. NRDS.PK continues to be well-undervalued at foreseeable copper prices and GPXM continues to be a producing moly microcap with excellent exploration upside.

Here's my portfolio by individual company and metal. It does not include a roughly 5% position in SKF, the "ultra short" financial stock ETF. This probably deserves a separate post, but when I look at the bruising the house-building stocks have taken and how long they have been falling, I think the financial stocks are in for a long period of falling stocks prices and have a small bet accordingly.

After a close look, you'll agree that this is an insane portfolio according to the commonly accepted guidelines employed by certified financial planners. This is because:

• Its highly concentrated in a speculative sector (precious metal mining stocks) that seems to be at the top of a cyclical high.
• Every single stock is either a micro-cap miner (with significant aspects that make them incomplete from a conservative investor's standpoint) or is a troubled mid-sized  miner (I consider these to be turn-around candidates).

Here's why I do not consider this to be insanely speculative:

• If you include the discounted cash flow value of my day job and my paid off home the above portfolio is only 50% of my net worth.
• I am watching the precious metal sector very, very closely and intend to exit if it turns sour.
• Apart from metal prices, each of the stocks while having significant risk, has risk that is specific to that individual risk. This risk is thus diversified across the stocks.
• I understand each company pretty well and understand both their upsides and downsides.
• Each position (except NRDS.PK and SST.V) is small enough that I can exit within a day or two should I decide its appropriate.

Even with these considerations, I realize I am accepting much more risk than an ordinary investor would want to face. So, I don't recommend that you do what I am doing. That said, each of the above stocks are worth looking at as speculative buys. Each has a good potential to double (or more than double) over the next 12 to 18 months.

Here's my portfolio by metal.

Here's my portfolio by country. Those in the "other third-world" category are not in relatively low-risk countries (e.g. New Guinea, Ghana, etc.).

Portfolio Update: Going Precious, Historical Resources, Turn-Around

There have been some significant changes in my portfolio since the last time I posted my holdings September 26 (see here). I've moved mostly out of Cu, Ni and Zn mining stocks because I'm concerned that rising inventory levels will drag down metal prices. I've moved into Gold and Silver mining stocks. Here's my holdings by metal now:

I don't think the precious metal (PM) mining stocks have fully adjusted to the recent precious metal price rises and I'm bullish about the outlook for precious metal prices going forward given the debasing of the US dollar and other currencies. Furthermore, China, the fastest growing economy in the world, had hyperinflation in the 1930s and such political upheaval thereafter that I think the Chinese are going to hold precious metals for as a hedge against emergencies. This too should push PM prices up.

I'm not a real gold bug. I'd rather hold oil, but I think its too late to enter and am waiting on a pullback (which may never come). I'd rather hold the base metals, which are of practical use, but don't like the rising inventory levels. I'm still bullish about molybdenum, but haven't really added to my holdings. Moly has a bigger slice of the pie thanks to a nice price rise in ROK.V, my one big moly holding.

Now, here's my holdings by individual stock:

Here's a a couple of sentences giving what's attractive about each of the larger holdings. The smallest holdings also have a lot to like, but I don't want to bore you with the details. I think you'll see that in each case there are good reasons to feel the stock is undervalued relative to its peers.

• ROK.V - a just started producing Jr moly miner. Still grossly undervalued and with a bullish cup and handle technical chart pattern. This chart pattern is under some pressure, because of the overall market downturn, but I think it will still achieve its target of a 40% price gain. The next catalyst for ROK.V is drilling results which could be stunningly good. Click here for more.
• TAM.V - a Jr zinc/lead miner awaiting permits and financing. Wildly undervalued with "official" reserves because of lack of confidence in management and zinc prices going forward. Insanely undervalued if you include historical resources. Despite this, I would have lightened up on this because of the technicals and management issues, but its just too illiquid to get out of. A fantastic speculative buy.
• SST.V - a Jr version of Silver Wheaton (and grossly undervalued while directly comparable to Silver Wheaton). See this post and this post for more.
• NRDS.PK - an extremely undervalued heap-leach Cu copper mine reopening. Next catalyst is getting listed on a "bigger exchange". I probably would have exited this, but I can't because it is too illiquid. I knew this going in and still expect to extend the profit I currently have on paper.
• CS.TO - extremely undervalued because of hidden assets (cash and shares of SST.V). I'm holding this copper miner despite my lack of bullishness of copper because I really like the management. Next catalyst is the earnings announcement which should be excellent as their mine has recently increased its output. Click here for a complete profile.
• AUN.V - a mexican silver/ multimetal mine reopener that has just gone into production. A hidden asset play as they reopened without official (NI43-101) reserves. The management seems very competent and they expect to increase mine output and open another mine within the next year. There has been significant insider buying and the next catalyst is a NI43-101 report covering the resources that are about to be mined. Drilling to confirm the rest of the historical reserves should take place in 2008.
  
• GSS - a turn-around mid-cap gold mining company. Should be tripling their production (and becoming profitable) this year if they meet their guidance. This production increase is already overdue, but that's what makes this undervalued as a turn-around prospect. Click here for more.