2010-05-04T21:53:47.127-07:00From Sunday's update:
2010-05-02T20:02:24.725-07:00From our last Great Trades blog update, in March:If recent history repeats itself, we should soon see a short-term pullback, which should be followed by new highs in the S&P 500.The previous 10 times this EMA has peaked over 600 in the past year, the market has had a short-term pullback. Every one of those pullbacks has proven to be a buying opportunity, followed by new highs in the S&P 500. Unlike the previous 10 times the TICK 10-day EMA peaked over 600, this time the market pullbacks were very brief, primarily limited to intra-day sell-offs. After this EMA dipped back under 200, it bounced back up toward 600 as the S&P 500 (SPX) rallied to a new high, peaking at 1219.80 this past Monday.On the next day, Tuesday, something happened that we warned about in the last update:However, a break of 20 resistance in the VIX could again spur a sharper pullback in the market.Tuesday's break of 20 resistance in the VIX coincided with the largest market drop in months, as the SPX dropped from near 1220 on Monday to near 1180 on Tuesday. Since that VIX spike sent the VIX well above its upper Bollinger Band, and also sent other short-term indicators into very oversold territory (e.g., TRIN), the SPX bounced back to as high as 1209.36 on Wednesday and Thursday, dropping the VIX back under 19. On Friday, the VIX broke through 20 resistance again, as the market plunged again, with the SPX closing at 1186.69, closing out the week with a bearish engulfing candlestick sell signal on the weekly chart.Now, the VIX is again above its upper Bollinger Band, but only slightly, at 22.05 vs. 21.59. The upper Bollinger Band is rising sharply, so the VIX can likely continue higher and still stay near its upper Bollinger Band. The TICK 10-day EMA is back under 200, but it can go significantly negative before rebounding, as it did in February, October, and a number of times in the previous 12 months.The key level to watch for now is this past week's low, which was 1181.62 on the SPX. The Russell 2000 has already broken below its Tuesday low by over 3 points, and that small-cap index has been leading the market higher in recent months. If the other market indices follow, we should see a more significant market pullback. As this article points out, the three to one ratio of bullish to bearish newsletter writers is a red flag warning that could mean the market is in for a sizable correction.On the Nasdaq 100 (NDX or QQQQ), the rising wedge uptrend since the February low was finally broken on Friday:This breakdown from the rising wedge, along with the weekly bearish engulfing candlestick, VIX breakout over 20, and the excessive bullishness of newsletter writers, increases the likelihood that the market is in for more selling. A number of other indicators point to more selling to come, though there's a possibility of a short-term bounce first after Friday's sharp sell-off. Any market bounce should be used to sell non-mining stocks.While the stock market looks like it's in for some more selling, the gold and silver markets look very strong. We've advocated accumulating gold, silver, and quality mining stocks on pullbacks, and that strategy has worked quite well:Considering the longer-term trend higher in gold in its powerful bull market, this pullback should prove to be a great buying opportunity for longer term, for gold and silver as well as quality mining stocks.After the strong rally in stocks over the past year+, this looks like a particularly good time to reallocate portfolio assets from non-mining stocks into gold and silver. While stocks look like they could be in for more selling, gold is breaking out to new highs on the year, and is very close to breaking out to new all-time highs.Holding a portfolio allocation of long gold and short the Nasdaq 100 from early 2000 for 9 years would have made over 10 times your money, with similar results for silver:Shifting portfolio allocation from gold and silver to the Nasdaq 100 and back based on stochastics signals (botto[...]
In 2006, we didn't like the fundamentals for the U.S. stock market, so we decided to "cease active trading in the U.S. stock market" on expectations of "a tougher market for traders in coming months/years." We did "a strategic reallocation from the overall U.S. stock market to undervalued commodity stocks." Unfortunately, we didn't anticipate that the collapse in the U.S. financial markets would have such far-reaching ramifications, devastating commodity stocks along with the rest of the stock market.
While we continue to hold our portfolio of undervalued commodity stocks for the long term, as we believe commodity stocks will be big winners when the global economy recovers from the current recession amidst decreased future supply combined with recovering demand and high inflation, we have resumed active trading of the U.S. stock market in our trading accounts. We believe that for the foreseeable future, the overall U.S stock market will be a great market for active trading, and not such a great buy and hold market outside of commodity stocks.
We resumed active trading of the overall U.S. stock market in our dormant trading accounts 3 months ago (on October 10, when we had a buy signal), focusing on the market indexes rather than individual stocks, as the wide swings in the overall market have overwhelmed most stock picking in this volatile market. During this time, we've been developing our trading model based on a variety of technical indicators to time the significant turns in the U.S. stock market. We've had tremendous success with this model to date, as it has predicted every significant turn in the market over the past 3 months. It's still a work in progress, and we continue to fine tune it, but we plan to post its changes to market allocation to establish a published track record.
For those interested in the trading model's market allocation changes, please see the Great Trades blog.
2008-10-17T11:41:16.259-07:00By WARREN E. BUFFETTOmahaTHE financial world is a mess, both in the United States and abroad. Its problems, moreover, have been leaking into the general economy, and the leaks are now turning into a gusher. In the near term, unemployment will rise, business activity will falter and headlines will continue to be scary.So ... I’ve been buying American stocks. This is my personal account I’m talking about, in which I previously owned nothing but United States government bonds. (This description leaves aside my Berkshire Hathaway holdings, which are all committed to philanthropy.) If prices keep looking attractive, my non-Berkshire net worth will soon be 100 percent in United States equities.Why?A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors. To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation’s many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now.Let me be clear on one point: I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as to whether stocks will be higher or lower a month — or a year — from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.A little history here: During the Depression, the Dow hit its low, 41, on July 8, 1932. Economic conditions, though, kept deteriorating until Franklin D. Roosevelt took office in March 1933. By that time, the market had already advanced 30 percent. Or think back to the early days of World War II, when things were going badly for the United States in Europe and the Pacific. The market hit bottom in April 1942, well before Allied fortunes turned. Again, in the early 1980s, the time to buy stocks was when inflation raged and the economy was in the tank. In short, bad news is an investor’s best friend. It lets you buy a slice of America’s future at a marked-down price.Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497. You might think it would have been impossible for an investor to lose money during a century marked by such an extraordinary gain. But some investors did. The hapless ones bought stocks only when they felt comfort in doing so and then proceeded to sell when the headlines made them queasy.Today people who hold cash equivalents feel comfortable. They shouldn’t. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value. Indeed, the policies that government will follow in its efforts to alleviate the current crisis will probably prove inflationary and therefore accelerate declines in the real value of cash accounts. Equities will almost certainly outperform cash over the next decade, probably by a substantial degree. Those investors who cling now to cash are betting they can efficiently time their move away from it later. In waiting for the comfort of good news, they are ignoring Wayne Gretzky’s advice: “I skate to where the puck is going to be, not to where it has been.”I don’t like to opine on the stock market, and again I emphasize that I have no idea what the market will do in the short term. Nevertheless, I’ll follow the lead of a restaurant that opened in an empty bank building and then advertised: “Put your mouth where your mon[...]
2008-09-19T14:41:34.765-07:00This has been a brutal market, not only for housing and financial stocks, but for mining stocks as well. In May, we thought the bottom may have been put in for the junior mining sector selloff. However, that bottom lasted only a couple of months, as the sector broke to new lows and headed much lower during the summer amid the financial sector collapse. The selling accelerated in recent weeks, resulting in panic liquidation of junior miners at prices that would have been unthinkable just a few months ago. Panic and fear among investors has forced many to capitulate and sell whatever they could to raise cash as stocks seemed to endlessly move lower and lower. Though a number of marginal mining juniors won't make it because of high costs, insufficient ore, low grades, onerous debt, or political risk, the selloff has been driven primarily by the lack of liquidity, not by fundamentals (other than for high-cost producers that are losing lots of money while depleting their reserves).Last week, the selling of mining stocks hit a crescendo, as the XAU and HUI mining indices dropped nearly in half from their highs less than 2 months earlier. Junior miners have been hit even harder than the larger cap indices, with many losing as much as 90%+ of their value since last year. However, since last week's panic lows, the XAU and HUI mining indices have rebounded 20% and 24%, respectively, even as the overall stock market had selloffs of over 500 Dow points on Monday and around 450 points today. Our favorite mining junior, Metalline Mining, has rebounded 30% since last week's low, closing higher on both big market selloff days. However, even after these rebounds, the junior mining sector is still much, much lower than it was a few months ago.Metals have begun to decouple from the stock market, showing relative strength. Zinc has actually moved higher since it hit a low on August 12, even as the stock market has dropped over 1200 Dow points to new 3-year lows, and other commodities have been selling hard, with oil dropping from near $150/barrel to $91/barrel yesterday. With the oldest U.S. money-market fund failing to maintain the trusted $1.00 par value today, and with 3-month T-bills dropping to the lowest rate since 1954, spot gold surged $85 higher, the biggest one-day gain ever, and silver jumped even more -- 15% higher, for the biggest one-day gain since 1979. With the safety of paper dollars in question, even at the bank, gold and silver represent the safest stores of value. The flow of money that has been leaving commodities and commodity stocks in recent months is starting to flow back.If money continues to flow back into the sector and the bottom is indeed in for the junior mining sector this time, there are some incredible investment opportunities for long-term investors, including our favorite, Metalline Mining. When we first wrote about Metalline Mining (MMG) here, it was under $1.00. It was coming out of a mining bear market selloff to under $.80 and proceeded to rally to over $5.00 within 6 months as zinc and other metals rallied. Many investors looked back and wished they'd loaded up on MMG when it was under $1.00. Now, MMG's back below $.80 again and we believe it will again make a move much higher. We're not sure about the timing, as we've been wrong about short-term price action before, but we're confident that investors will again look back and wish they'd loaded up on MMG under $1.00. Insider buying shows that MMG management recognizes this buying opportunity.Since the beginning of summer, MMG has lost over half its market value from what we believe was already a deeply undervalued level, even as the fundamentals have improved dramatically. In late July, the company announced a new resource model more than doubled the amount of zinc present in the oxide zinc deposit covered by the ongoing feasibility study, with preliminary analysis indicating open pit mining on the much larger resource would be much more prof[...]
2008-05-22T22:31:35.161-07:00Victory Nickel is a nickel junior with a huge amount of nickel in 3 different projects with excellent infrastructure -- a relatively small one with very high grades requiring minimal capex to go to production, a very large one with lower grades but a huge amount of tonnage, and a third project in between the two with respect to size and grade. In addition, they have what's becoming an intriguingly attractive oil and gas related project in their frac sand overburden overlying the proposed open pit for their largest project (Frac sand is used to enhance recoveries in the oil and gas industry).We first wrote about Victory Nickel back in August:Victory NickelAnother baby being thrown out in this market selloff is Victory Nickel (NI in Canada, or VNCKF in the U.S.). Victory Nickel is a fairly new nickel junior, having been spun off from Nuinsco Resources earlier this year. With a market cap of under $100 million , they have 3 promising projects, the main one being the Minago project in Manitoba, which, based on a recent scoping study, has an NPV@8% (Net Present Value using an 8% discount rate), assuming $7.43 nickel, of $334 million. They also have frac sand overburden at Minago with an NPV@8% of that resource of $32 million. Minago has excellent infrastructure, with a nearby paved highway, port, rail, and low power rates.Victory also has the Mel project, with 83 million lbs of Measured and Indicated contained nickel, and the Lac Rocher project in Quebec with 25 million lbs of Measured and Indicated contained nickel (including a phase one section with 50,000 tonnes of 4.06% nickel, which can go to production with minimal capex).Victory plans to get all 3 projects in production by 2009 or early 2010, using the early cash flow from the Minago frac sand and Lac Rocher's phase one to minimize the dilutive financing required to get the huge Minago project (one of the largest nickel projects in Canada) into production.While we don’t like the outlook for nickel nearly as much as we do zinc and silver, if Victory can get to production with these projects as planned and nickel doesn't completely collapse below $6/lb (currently around $12/lb), the stock should move much higher in the next couple of years. With the recent weakness in the sector, market, and nickel price, the stock has dropped back to all-time lows (currently $0.53, less than half the high of 2 months ago, which was less than the stock's first day close of $1.21 in February), which we believe is a great buying opportunity for risk-tolerant long term investors looking for near-term production of sulphide nickel.You can see more details on Victory nickel in this recent presentation.(Here's the more recent presentation, from December)Last month, Victory announced a dramatic increase in the potential for its frac sand project, with over 5 times the projected annual net revenue. More of the frac sand has been identified as potentially saleable, and with the increasing demand for oil and gas, the demand for frac sand at oil and gas projects in Canada and the U.S. has risen dramatically. Just yesterday, Victory announced the commissioning of Outotec to design the frac sand production plant, showing they're serious about moving this project to production quickly. Since the original scoping study on the frac sand project showed an NPV@8% of $32 million, and the projected annual net revenue is now over 5 times higher, Victory, with a market cap of around $100 million, is arguably undervalued based solely on the frac sand overburden project, which requires very low capex investment.On the nickel front, Victory announced impressive drill results from Lac Rocher in October, as well as excellent metallurgical results for Lac Rocher in December, and then last month the receipt of a key approval for Lac Rocher's very high-grade Phase 1 extraction, all of which moves them closer to the goal of beginning Phase 1 extraction by the end of 2008. On Wednes[...]
2008-05-15T07:47:11.564-07:00It's been a tough period for mining juniors. Many investors have "thrown in the towel" on juniors as they've moved lower month after month, trying the patience of even the most patient long-term investors.
2008-05-13T06:18:42.985-07:00Zinc on the London Metal Exchange (LME) is up over 6% this morning as news gets disseminated about the zinc mines being shut down by yesterday's earthquake in China's Sichuan province. This could be a big supply disruption that could last quite a while, as this was a serious quake with a number of zinc mines near the epicenter.
2008-05-07T12:24:33.684-07:00With the fears of global recession and the subprime-induced credit crunch, junior mining stocks have been clobbered in recent months. Investors have been liquidating whatever they can to get through this rough period, with even large producers taking big hits. As this article points out, "The juniors are in the midst of a fear-driven sentiment storm that is fierce and unforgiving... But eventually... those speculators positioned in the elite juniors should win legendary gains." Many investors have thrown in the towel on the sector, dropping some top-notch juniors to incredibly undervalued levels.We believe the big money will be made by those investors who take advantage of rough periods like this to accumulate the junior mining stocks with the best long-term outlooks. As this article points out, "A temporary slowdown [was] predictable: Each decade has some sort of pause. What will follow this one will be, we believe, an even greater boom - that will last for many, many years... For miners, the best is yet to come."Metalline Mining's Oxide Zinc Project Progress In our last update, we mentioned Metalline Mining's (MMG) "best of both worlds" status with a world-class low-cost zinc project as well as an aggressive silver exploration program. Since then, Metalline has updated their oxide zinc feasibility study progress, including the announcement of plans to drive the production decline to the center of the resource and test mining to back up the information in the paper feasibility study. In the current environment where many projects that hadn't done test mining (and a good number that hadn't even done a feasibility study) have encountered unexpected difficulties going to production, we believe this test mining will significantly reduce the risk of the project and make it much more attractive for financing and/or potential acquisition. Driving the production decline before the completion of the feasibility study will give the project a head start on the move to production, saving significant mine construction time later. It also will provide much better information on both the oxide zinc and the north side silver/copper/zinc/lead mineralization.The zinc feasibility study progress update also introduced an economic model involving selling their concentrate to existing refineries rather than building their own, which would eliminate the vast majority of the project's capex costs and accelerate the move to production. If the evaluation of this option proves fruitful, the economics would be extremely attractive in an environment of tighter credit. The operating costs would be higher with this approach, but still likely much lower than other zinc miners.On Monday, Metalline announced the hiring of a large international engineering team (which had worked on the Skorpion zinc project) to complete work on the concentrator plant studies by September in order to accelerate completion of the feasibility study, expected to be completed by the end of the year. In an environment where many mining projects endure repeated delays because of a shortage of qualified personnel, this news shows that management is aggressively moving toward timely completion of the oxide zinc feasibility study.Zinc bottom In November, in an update explaining Why Zinc has Underperformed This Year, we mentioned that "We believe zinc is near a bottom and won't go much lower." Zinc was testing the $1/pound level then, and it's still testing that level now, nearly 6 months later. The fact that LME zinc inventories have increased over 50% in those 6 months (still historically very low and down well over 80% from the 2003 peak), yet the price of zinc hasn't dropped lower, indicates the worst may already be priced in. As we explained, "The surge in new supply is only temporary, and doesn't provide the consistent growth in supply needed to meet the growin[...]
2007-11-26T11:16:40.443-08:00We've previously written about Metalline Mining's (MMG) world class, low cost zinc project at Sierra Mojada and the fact that the similar Skorpion oxide zinc project was valued at more than Metalline's current market cap when it was bought out by Anglo American upon completion of their feasibility study in 1999. Now, even though the price of zinc has dropped in half over the last year, it's still about triple what it was when GTI (Green Team International) put Skorpion into production, and we believe it is near a bottom and should be strong for years to come: http://greatinvestments.blogspot.com/2007/11/why-zinc-has-underperformed-this-year.html .When GTI completes the feasibility study for Metalline's zinc project next year, we believe the project should be valued much higher than Metalline's current market cap, even if zinc drops much more from here, as it's one of the few projects that can make significant profits at far lower zinc prices, and it could be the largest one in the world going to production in the next few years. Given GTI's success with the similar Skorpion mine, there's relatively very little execution risk.Metalline's project has many advantages over the Skorpion project, which was the first of its kind, built in tough conditions with no infrastructure in the remote Namibian desert. By contrast, we've seen first hand the incredible amount of infrastructure already in place at Sierra Mojada, as we reported in our site visit report in May: http://greatinvestments.blogspot.com/2007/05/real-deal.html .Unfortunately, since our visit, the price of zinc has dropped 44%. Junior zinc miners have been devastated, with many projects now unlikely to make it to production because of their small size and/or high costs. MMG has dropped 23% in that time, which is a significant drop, but much stronger performance than most zinc juniors. Because of their project progress (one of the few sizable zinc projects well into their feasibility study) and likely profitability at much lower zinc prices, MMG has been able to far outperform other zinc juniors as well as zinc itself, and we believe this relative strength bodes well for when zinc rebounds.While Metalline has been known as a zinc junior, few investors realize that they were a silver junior before the positive Skorpion feasibility study made them shift their attention to their world class oxide zinc deposit. Considering their 45 former producing silver mines never even had a mill to concentrate the ore, and only direct shipped the very high grade silver, we believe Metalline has an enormous amount of silver at Sierra Mojada, probably more than enough to justify the current market cap without consideration of the zinc.On Wednesday, Metalline announced that they intersected 95 meters of 166 grams/tonne silver in a new zone that hadn't previously been drilled (http://biz.yahoo.com/prnews/071121/law018.html?.v=101 ), and await assay results from a number of other drill holes. This silver exploration work is completely separate from the zinc project, and much exploration work was done in the late 1990's. They've built a huge database of silver results from that previous work, and plan to construct a resource model and put together silver block model estimates soon.The previous drill results included some very impressive intercepts, including one hole which "intersected mineralization with grades averaging 11 kilograms over a thickness of 9 meters" (http://sec.edgar-online.com/2005/06/15/0001031093-05-000002/Section3.asp -- top of page 4). We've never seen any other silver miner hit anywhere near as rich an intercept over that thickness. We believe the database of previous drill results will indicate that Metalline's already found many millions of ounces of silver, and we eagerly await the initial grade and tonnage estimates from the[...]
2007-11-20T18:05:26.992-08:00Zinc's Underperformance vs. Other LME MetalsDespite the ongoing commodities bull market, zinc has been clobbered over the past year, with the price dropping nearly 50%. Zinc's underperformance relative to other base metals over the past year is puzzling when one looks at the LME inventories. LME zinc inventories have dropped more percentage-wise than any other LME metal over the past year, yet the price of zinc is down far more than any other LME metal. Here's a summary of each of the other LME metals and their inventories:o LME lead inventories are actually up on the year, yet the price of lead has doubled this year.o LME copper inventories are up over the past year, now at nearly double July levels, yet copper is also still up significantly this year.o LME nickel inventories are about 6 times higher than a year ago, with a significant new source of nickel coming on line recently (pig nickel), yet nickel is still at around the same price as a year ago. LME nickel inventories are actually at the highest level since 2000, yet the price of nickel is up from about $3 to near $14 over the last 5 years.o LME aluminum inventories are up about 35% over the past year, yet aluminum is only down about 3% in that time.Despite the weakness over the past year, zinc remains in a longer term bull market. In the past 4-5 years, it has tripled, about the same or more than gold and oil, but it has been a much more volatile path. Reasons for Zinc's WeaknessThere are a number of reasons why the price of zinc has been weak the last year. Here are some of them:1) Too far, too fast -- From late 2005 to late 2006, the price of zinc tripled. It moved up too far too fast, so it was bound to correct from that parabolic rally. It went from the best performing metal in 2006 to the worst performing one in 2007.2) A surge in new supply from mine restarts and San Cristobal -- As a result of the huge rally in 2005-2006, a number of old mines that were shut down when zinc prices were much lower because they were uneconomic then have been reopening, as much higher zinc prices made them economically viable again. Another significant new source of zinc is the San Cristobal mine in Bolivia, which just recently started production after many years of development. The market is forward looking, so this surge in new supply has been factored into the price of zinc, even though it hasn't yet resulted in an oversupply situation, at least as measured by LME inventories.The surge in new supply is only temporary, and doesn't provide the consistent growth in supply needed to meet the growing world zinc demand and offset depleting reserves at existing mines. There are only so many old mines that were uneconomic at lower metal prices and had enough reserves left to be mined economically today. After San Cristobal, the pipeline of sizable zinc projects for the next few years is pretty empty -- Metalline Mining's Sierra Mojada project is probably the only world-class sized zinc project that will be proven feasible in the next year or so. Despite the recent additions to supply, LME inventories indicate that the zinc market is still tighter than other metals, as it had a huge supply deficit to overcome from the last few years -- LME inventories have dropped nearly 90% over the last 3 1/2 years.We'll soon see if the oversupply situation everybody and their brother have been saying is coming in the zinc market actually materializes, and how long it lasts. Per Scotia Capital's China Commodities Weekly, "China has been sucking up the world’s growing supply of zinc mine output, turning it to refined metals, and then using it for domestic consumption."3) The perception that China produces more zinc than they can consume -- With the weakness in the zinc price, there has been a plethora of bearish articles on zi[...]
2007-11-20T16:29:20.199-08:00Roxmark Mines today announced upcoming plans on some of their gold properties.
2007-11-04T22:31:02.629-08:00When we first invested in Pediment Exploration (PEZ in Canada, PEZFF in the U.S.) in the spring, it was an early stage explorer with 10 promising properties. With the developments announced over the last 2 weeks, Pediment has now transformed into a potential powerhouse future gold producer. Now Pediment seems to have a large resource, a past producing mine, a top-notch advisory board, and growing institutional support. Meanwhile, gold has broken out over $800/oz, and the HUI gold stock index has broken out to a new all-time high.
2007-10-28T21:00:19.821-07:00In August, we highlighted 3 quality junior mining stocks that we believed represented outstanding buying opportunities amid sector weakness -- the proverbial babies being thrown out with the bathwater. That week, the sector selling hit a climactic bottom, and these 3 stocks have since rebounded very nicely, rewarding those investors who took advantage of the market weakness to buy them, rather than selling out with the panicking crowd. We believe these 3 "babies" still have a long way to go as they grow up.Metalline MiningMetalline Mining (MMG) has rebounded over 50% from the August panic low, but still needs to rally over 35% just to recover to its June high. After that August low, the company issued a project status report full of very positive developments:1. Geotechnical analysis results confirmed earlier analysis indicating that "either underground or open pit mining of the rocks is feasible." If Metalline can use open pit mining for a portion of this first zinc project and efficient underground bulk mining methods for the rest, mining costs will be extremely low.2. The water exploration program confirmed that they would have enough water to support the project. We believe sufficient water availability was the one issue that could have been a showstopper for the project, so the resolution of this issue was a huge development. We discussed this issue in previous updates over the last year.3. The geological review of both the Iron Oxide and Smithsonite mantos were incorporated into the resource model by Ken Hart, who had been the lead geologist at the Skorpion Mine in Namibia. We had met Mr. Hart on our May site visit and learned quite a bit from him about the many advantages Metalline's project had over Skorpion's, which GTI (the contractor doing Metalline's feasibility study) had put into profitable production 4 years ago when zinc was at a historically low $.35/pound. This first zinc project was already of world class size based solely on the Iron Oxide manto, so the inclusion of the very high grade Smithsonite manto ("5,431,050 metric tons with a grade of 12.08% zinc" using a very conservative 5% cutoff grade) in the resource model means this zinc project could be the biggest in the world scheduled to start production in the next few years.4. With the completion of the geotechnical drilling, the Hagby diamond drill was moved back to silver/copper exploration as part of the previously announced aggressive exploration program. Local workers have been trained to drill using the company's own equipment, which was to include another diamond drill that was scheduled for delivery last month. The aggressive silver/copper drill program should now be ramped up to 4 drills owned by the company using their own local workers, avoiding the issues of very high costs and lack of availability of drilling contractors and equipment that other junior miners have been facing. With the implementation of a number of improvements to the drilling and analysis process and the highly prospective nature of their enormous property (over 2 1/2 times the size of Manhattan), Metalline should be able to efficiently add to their proven resources in coming months, years, and decades.Unlike other companies that would announce such project developments with multiple promotional news releases, Metalline Mining continued their history of understated yet pithy news releases by including all of this news under one unassuming headline, "Metalline Mining Company Announces Project Status."Given their conservative promotion and the market perception of them as just another zinc explorer, MMG remains severely undervalued, but we believe that will change soon with the completion of the zinc mine plan (expected b[...]
2007-08-10T10:06:27.176-07:00During the recent stock market weakness, many quality mining stocks, particularly the smaller ones, or "juniors," have taken huge hits in the market, as investors panic sell out of a sector that was already severely undervalued and we believe will be very strong in coming years. Liquidations in the market have caused some proverbial babies to be thrown out with the bathwater as nervous investors move to cash either voluntarily or under forced sales caused by margin calls or liquidity needs.There have been articles predicting the doom of base metals because China’s strong economic expansion is sure to slow down to reduce demand. However, even if China’s economic growth drops in half from the 10%+ rate it’s had over the past 3 decades, their economy will still be significantly larger each year than the previous year and will still demand far more base metals. China has a very long way to go to get to anywhere near half the per capita GDP of western nations. This recent article does a good job addressing the bearish view on base metals.Metalline MiningAs far as the proverbial babies being thrown out, we’ve repeatedly written about the incredible long term outlook for Metalline Mining (MMG) over the past year and a half, and it remains our favorite risk/reward investment in the stock market, with its world class, low cost zinc project approaching the end of its feasibility study and its huge amount of silver in their 45+ former silver mines, all with mind-boggling infrastructure already in place and other unique advantages: http://greatinvestments.blogspot.com/2007/05/real-deal.html.MMG’s currently valued at less than what the similar world class Skorpion zinc mine in Namibia was bought out for back in 1999 upon completion of their feasibility study, when zinc prices were a small fraction of the current price, and Skorpion didn’t have the infrastructure or the silver that MMG has. Skorpion also was attempting unprecedented high tonnage processing of oxide zinc via a technology that hadn’t been proven with zinc before.Now, that oxide zinc processing is proven at the very successful Skorpion Mine, and MMG has hired the same team, Green Team International (GTI -- note their listing of MMG’s Sierra Mojada zinc project along with the Skorpion zinc project on their web site: http://www.gti.co.za/projects.htm), that did the Skorpion feasibility study and put them into profitable production at a time of record low zinc prices. Meanwhile, LME zinc inventories are hitting record lows, there’s a dearth of world class zinc projects in the pipeline for coming years, and the major mining companies are awash with cash and buying out smaller mining companies at a rapid and accelerating pace.Despite the worldwide shortage of zinc and record low inventories, the market is expecting the surge in zinc supply from earlier this year (we previously discussed 2 temporary factors that caused that surge) to not only be sustainable, but to grow at a similar rate in future years. When that expected increased supply doesn’t come on the market as expected, we believe the price of zinc will strengthen significantly.Metalline Mining should complete the mine plan portion of the zinc feasibility study soon, and that will show the world class size of their zinc project, which should put Metalline on the map for many institutions and major mining companies that have only considered them to be a zinc explorer in the past. Whereas most mining projects end their feasibility studies after the mine plan is completed, Metalline will also be doing a refinery plan in coming months, and the refinery they build will save them a huge amount vs. other miners who give up a huge[...]
2008-12-08T14:06:07.116-08:00The California Public Employees Retirement System, the biggest U.S. pension fund, “made its first foray into commodities in March through the Goldman Sachs Commodity Index,” according to CalPERS information officer Clark McKinley. CalPERS also made its first purchase of Metalline Mining (MMG) by March 31, during the first full quarter that MMG was off the bulletin board and listed on the Amex, according to the listing of MMG’s top institutional holders: http://finance.yahoo.com/q/mh?s=MMG
2007-05-23T13:32:28.728-07:00As we pointed out in our initial article on Copper Fox Metals (CUU in Canada, CPFXF in the U.S.) in August, Teck Cominco, one of the largest mining companies in the world, is a partner with Copper Fox on the Schaft Creek project, a neighbor to NovaGold's Galore Creek project. Today’s news of Teck Cominco partnering with NovaGold on Galore Creek is great news for Copper Fox. We believe Teck Cominco partnering with NovaGold on Galore Creek means they really like the area and are likely to buy out Copper Fox upon completion of the feasibility study, or at least exercise their option to buy out 75% of Schaft Creek by paying Copper Fox 4 times all prior expenditures and arranging production financing. Teck being involved in both projects also means that Schaft Creek should have an easier time piggybacking on the Galore Creek infrastructure (power, roads, etc.) to go to production, greatly reducing costs.As this Metals Place article from earlier this year pointed out, Schaft Creek is arguably a better project than Galore Creek for a variety of reasons:Another Galore Creek neighbor is the Schaft Creek project being developed by Copper Fox [CVE:CUU]. Schaft Creek is only 36km from Galore Creek, but it is on the BC side of the mountains, thus no tunnel or Alaskan environmentalists. The deposit is every bit as big as GC and they have a top notch CEO. The life of mine strip ratio is a much cleaner 0.7:1. The gold grades are higher and it also has molybdenum. The 2004 capital costs were $600MM. While the cost is sure to increase it will still be much less than GC. Copper Fox optioned the property from Teck Cominco in 2002, but Teck retained a back in right for up to 75%. Teck would have to contribute 4 times all prior expenditures and arrange financing after CUU delivers the feasibility study. A preliminary feasibility study and an updated resource estimate were ordered last month. At $2 copper and $500 gold the NPV is $1.2B discounted at 8%. So CUU has arguably a better project and a strong partner already in place. They will undoubtedly have to dilute shareholders to complete the FS, but then they get four times their expenditures to help pay for their 25% of capital costs. The entire market cap of Copper Fox is currently about $40MM. Twenty five percent of Galore Creek would run about $600MM.Two weeks ago, Copper Fox shares rallied to a new all-time high of C$1.64 in anticipation of a resource estimate update. After the resource upgrade came out, a sell-the-news reaction in combination with a sector correction and the unlocking of shares from a private placement four months ago caused the stock to lose over 40% in a week. As Lawrence Roulston remarked about this selloff, "The fall-off in the share price after the announcement of the resource suggests that some investors don’t fully understand the figures... There is still considerable upside potential as the company advances toward a pre-feasibility study over the course of this year. An updated scoping study expected in the coming weeks should provide greater insight into the economic outlook for the project."We believe today's news of Teck Cominco becoming the dominant player in the area means the risks for the Schaft Creek project have just been dramatically reduced, which, combined with the recent share weakness, has created a great investment opportunity for Copper Fox.[...]
2008-12-08T14:06:07.324-08:00In December, we responded to readers’ questions about why the consistent drop in LME Zinc inventories had paused. Other than a one-day spike in June 2005, LME Zinc inventories had dropped nearly 90% in a very consistent pattern since April 2004, from 785,000 tonnes to a low of 84,825 tonnes, but that pattern appeared to have changed late last year.From December through late March, a shallow uptrend developed, and media skeptics came out of the woodwork suggesting that the trend change in zinc LME inventories indicated a permanent shift in the supply/demand situation, as China became a “net exporter” of zinc. The truth was that a couple of short-term factors, delayed shipments from the world’s biggest zinc mine and a change in Chinese export tax law, had helped to create a short-term surge in refined zinc supply, causing a temporary pause in the downtrend.Despite the media claims, China remained a huge net importer of zinc, as they imported more and more zinc in the form of zinc concentrate, which they then processed in their smelters to create refined zinc. Because they had dramatically increased their refining capacity via rampant smelter construction, China had decreased their refined zinc imports relative to their zinc concentrate imports, using their low-cost advantages to process the zinc raw materials from other countries to the extent that they were exporting more refined zinc than they imported. However, the huge consumption of zinc in China’s growing economy, far exceeding the capacity of their own mines, compelled them to remain huge net importers of zinc overall, importing enormous amounts of zinc concentrate from overseas mines. Conveniently, the media zinc skeptics never mentioned the fact that China was relying on other countries for much of the zinc concentrate they used to produce refined zinc, instead focusing only on the “net exporter” status for the refined zinc finished product.We said in December that “We expect the zinc crisis to become very evident after the effects of the Red Dog shipment spike have dissipated by the end of Q1.” After the peak in LME Zinc inventories in late Q1, they have steadily declined to hit a new low, at 83,725 tonnes, below the December low of 84,825 tonnes, so we can see that the pause in the downtrend was only temporary. Since the current level represents only about 2 ½ days of inventory, there’s not a lot of room to move lower. There’s a “frictional level” of LME inventories required to maintain an orderly market. It will be interesting to see how the zinc price responds to lower levels of inventories, as at some point the price will have to move high enough to curtail the demand so that the LME inventories don’t get completely depleted.In addition to the previously mentioned factors for the earlier surge in zinc supply, another factor may decrease future world zinc supply. China has taken actions to decrease their zinc production capacity, requiring new zinc mines to have at least an annual capacity of more than 30,000 tons and an operation life of 15 years, capping the country’s refined zinc production capacity, and reportedly removing the 5% tax rebate on exports of refined zinc. With the enforcement of these new regulations, China will likely need to rely even more on foreign sources of zinc concentrate, and other countries will need to step up their production of refined zinc to make up for China’s supply reduction.Moving forward, we really like the fundamentals for the zinc market, as we explained in December: “After the short term surge in supply from these 2 temporary even[...]
2008-12-08T16:37:30.278-08:00We’ve written about Metalline Mining (MMG) as an incredible long-term investment opportunity since the beginning of last year, doing extensive research and analysis of the company, the sector, the metals markets, and many other companies to verify that Metalline truly was an exceptional value. However, even that extensive due diligence didn’t prepare us for what we saw when we visited their Sierra Mojada mine site in Mexico last week.There were 3 main takeaways we got from this trip:1) There’s an incredible amount of infrastructure in place at Sierra Mojada. It’s very rare that a world-class deposit will have a rail line, electric power, water, paved road, and 2 local mining towns with many low-cost workers with mining experience eager to work there.Anglo American’s Skorpion mine, the world-class (8th biggest zinc mine in the world), low-cost (lowest cost in the industry) zinc mine in Namibia, Africa, after which this zinc project has been modeled, had none of that infrastructure. Ken Hart, who had been the Project Geologist for Skorpion, and whose hiring for the feasibility study’s geological report was announced in the recent President’s Letter, was amazed at everything this project has that Skorpion didn’t (including much cleaner metallurgy). He told us that there was nothing there when he started working at Skorpion -- it was 160 km to paved road, 260 km to power, they had to pump water across 60 km and 800 meters up, and the project had to, by contract, use mostly Namibians, many of whom were just out of the bush without much education. Like many other preproduction projects, it was basically just a few holes in the ground in the middle of nowhere. They also had to drill the project entirely from the surface, as there was no underground access. Ken also commented to us that everything at the Sierra Mojada project was incredibly well organized, and he was really enjoying himself. Even with all those drawbacks vs. Metalline, Skorpion was able to go to profitable production at $.35 zinc. Zinc is currently over 5 times that price, at $1.77/pound.In addition to all the infrastructure at Sierra Mojada above ground, there’s also a tremendous amount of underground workings already there. There are over 45 mine shafts that had been worked by various miners over the last century, though only using old technology and only selecting very high grade ore that could be direct shipped without milling to concentrate it. You can walk 6 kilometers underground across the district, on several different levels. You can even walk over 600 meters directly through the proven resource high-grade ore body, as we did.2) The enormity of the property and the resource was something we really couldn’t appreciate until we had walked through just a small portion of it. We were in awe that even after our long underground hike through all that amazing mineralization, we hadn’t even gone half way through it, as the proven resource stretches 1.5 kilometers (about 20-100 meters high and about 50-100 meters wide). This zinc proven resource area was only a small portion of the district, as we were only under 3 of the 45+ mines, and the district covered about 6 kilometers by 1 kilometer.As the President’s letter stated, “Polymetallic mineralization (silver, copper, zinc, lead) north of the Sierra Mojada fault occurs over an area of 6 km east-west and 1 km north- south. This mineralization occurs on the dumps of over 45 shafts that all produced high grade direct shipping silver ore and in the host rocks surrounding the high grade underground stopes i[...]
2007-04-25T20:28:24.599-07:00A year ago today, we introduced Roxmark Mines as a long term junior gold and molybdenum investment. We were expecting a stock listing in Toronto (TSXV) within months to allow the stock to escape the thin trading doldrums of the little known CNQ exchange. Today, after a lengthier than expected application process, they were finally able to announce that the stock has been approved for listing on the TSX Venture exchange, starting on Friday, April 27, under the symbol “RMK”.
2008-12-08T16:37:30.410-08:00European Minerals (EPM in Canada, EPMCF in the U.S.) is a gold mining company in Kazakhstan scheduled to go into production in October. Here’s a detailed article from December 7 discussing the potential for European Minerals, which could have cash flow of over 50 cents per share in their first year of production: http://www.resourceinvestor.com/pebble.asp?relid=26951. Today, the stock has broken out of its trading range on strong volume of well over 2 million shares, helped by the huge Kazakhmys stating that they are “"actively looking'' for acquisitions in Kazakhstan and possibly in neighboring countries.
2008-12-08T16:37:30.569-08:00This morning, Metalline Mining (MMG) announced a private offering financing was completed last week to raise $5.67 million. They will use the proceeds “to initiate an aggressive exploration program on the polymetallic (copper, silver, zinc, lead) mineral system at the Sierra Mojada project.” Despite U.S. rules preventing them from publicly promoting the financing and requiring private offering investors to hold restricted stock for 12 months (vs. 4 months in Canada), MMG was able to price the offering at only a $.07 discount to the market price the day of closing, and an $.08 premium to the market price the day before, and without paying any commissions. The dilution from this financing is relatively small (about 7%), but the potential return to shareholders could be huge if they can prove out significant new resources in this new exploration program.This financing is great news for shareholders, as MMG can now prove out more of their resources more quickly, particularly the huge amount of silver they have (45+ former-producing mines that only direct shipped very high grade ore), and get valuation in the market for more than just their first zinc deposit. One of our biggest concerns was that the company would get bought out before proving up their silver and other resources, thus not getting credit for that value. If they can get their "aggressive exploration program" going fast enough to prove up new resources before completion of the feasibility study on their first zinc deposit next year, they should succeed in getting additional valuation for those resources.So far this year, MMG stock has been hit by significant selling pressure as the price of zinc has dropped about 25% on a temporary surge in supply, zinc mining stocks have taken a big hit in a sector correction exacerbated by the recent global stock market correction, and millions of shares have freed up from their 1-year lockup after last year’s private placement financing for the feasibility study. We believe this selloff has created a tremendous buying opportunity just as the two previous selloffs created great buying opportunities:In this weekly chart, one can see that the two previous selloffs brought stochastics (Full STO) down to very oversold levels well under the 20 line and also dropped the Accum/Dist line down to a low level while the Chaikin Money Flow (CMF) oscillator indicated strong outflows of money. The recent bottom also was characterized by very oversold stochastics and a low level on the Accum/Dist line, but the CMF oscillator showed very little outflow of money despite the millions of shares freed up from last year’s private placement. This positive divergence on the CMF oscillator, with successively higher lows, looks very bullish to us.We also like that the recent bottom hit exactly on the uptrend line from the two previous lows. If the stock can now move from the lower Bollinger Band (Bollinger Bands are the "BB" lines on the chart above and below most of the stock trading) to the upper Bollinger Band as it’s done after each of the last 2 selloffs, it should break out of the triangle formation by breaking the downtrend line connecting the previous highs. A move to the upper 3’s in coming months should accomplish that and would point to much higher prices.Now that one of the more difficult time periods for shareholders is behind us, we believe the technicals are lined up with the fundamentals indicating much higher prices for MMG over the long term.[...]
2007-02-23T08:08:28.815-08:00Roxmark Mines (RMKMF in the U.S. or RMKL on the CNQ exchange) has been hit by high-volume selling recently. News of a significant shareholder (92 years old and in poor health) selling up to 8.5 million shares for estate tax purposes on the advice of an estate planner explains this recent selling.
2008-12-08T16:37:30.663-08:00As we mentioned in December, "the world's biggest zinc mine, Teck Cominco's Red Dog in Alaska, had some delays in shipments in Q3, increasing their Q4 shipments significantly." We expected that "the effect of the Red Dog shipment spike will last into Q1."
2007-01-30T12:17:48.906-08:00As we mentioned in November, some readers had questions about a water source for Metalline Mining (MMG) after an October press release indicated that, as part of the feasibility study, they needed to find sufficient water to supply the mine and concentrator operation. This was the biggest issue for those investors who thought it may be the only obstacle that could prevent the project from being economically feasible.