Month: July 2013

Article by Investazor.com

The Federal Reserve received today encouraging signals from the U.S. economy. The Consumer Price Index indicated a rise (0.5%) in the price of goods, mainly sustained by the higher cost of gasoline, fact confirmed by the Core Consumer Prices Index that was reported in line with expectations at 0.2% (the last index excludes the energy and food’s costs). It is important to see the inflation being kept under control but on the other side, low values of the index of prices are not much help for the economy. The industrial production has taken a balanced value, particularly sustained by more confident homebuilders. Since January 2006 the house building industry started to lose its pulse and now it seems that it may regain its rhythm.

The positive outlook was maintained by the speech of one of the FOMC members today. Even if the growing rate is not as high as expected, it is stable and represents the ground for the monetary policies that are implemented. If the economy is continuing at this pace, the tapering of QE3 is expected to start later this year with an end in the first quarter of 2014. Further improvements are expected especially in the job and housing market. It is important to remember the fact that United States is seriously affect by the global negative sentiment (recently, the IMF revised down its global growth projections) and the fact that economies like China are slowing down.

The post Why Ending QE3? appeared first on investazor.com.

Source: Brian Sylvester of The Gold Report (7/15/13)

http://www.theaureport.com/pub/na/15439

Now is the time to be brave, to buy when everyone else is selling, advises Stephan Bogner, analyst with Rockstone Research and CEO of bullion dealer Elementum International. Content to go against the grain, Bogner believes investors should be 100% invested in precious metals, both in physical metals and equities. He is interested not only in companies that are profitable now but also in ones that will someday be in the black again. In this interview with The Gold Report, he describes his ideal portfolio, which includes companies operating in far-flung places.

The Gold Report: You are more bullish on gold and silver now than when the bull market started in precious metals nearly 13 years ago. Yet Swiss bank UBS says the commodities super cycle is over.

Stephan Bogner: I was pretty bullish on gold and silver in 2002 when I completed my university diploma thesis on the exotic topic “Gold in a Macroeconomic Context.” I’m even more bullish today because the macroeconomics did not change; it got worse.

The fundamentals for gold and silver have never been as bullish as they are today. Money is much more likely to flow into the sector, as there’s no other place to hide from the increasing uncertainty and excesses of our financial and economic system. The recent crisis in Cyprus has shown that money in a bank account is not safe anymore and yet this does not even take inflation into account.

TGR: Have gold bulls like yourself underestimated the ability of the world’s largest banks and most powerful governments to control the gold price?

SB: Gold and silver are the only barometers of the health of our monetary system. Those who want to maintain the current system may try to manipulate the barometers so that the masses misinterpret the situation as long as possible. But prices will not remain low for long; the fundamentals of supply and demand will cause them to appreciate. Professor Dr. Hans Bocker, my diploma thesis supervisor and a renowned economics expert in Europe, emphasizes that nothing and no one are stronger than the market.

TGR: How should investors break down their portfolios for this new world order?

SB: Liquidate all available assets and move at least 70% out of the banking system by purchasing physical gold and silver bullion and storing it in an independent vault within a free zone of a safe country.

I do not recommend that anyone buy paper gold and silver in the form of certificates, options or futures. These are the most dangerous markets and the most manipulated. This includes exchange-traded funds (ETFs). You can’t be certain that they are really buying physical gold and silver with all the money you put into ETFs or that you will get the physical bullion when you want to sell. Professor Bocker, who is also the chairman of Elementum, emphasizes that it’s crucial to physically hold bullion in order to survive the upcoming financial crisis.

Mining equities fit very well into a portfolio consisting of physical bullion. You can pour some 70% of your funds into bullion as a crucial life insurance or security deposit and invest 30% of your total assets in mining equities, vehicles that typically generate exorbitant profits during a bull market in gold and silver.

TGR: What about cash? That leaves you with almost no liquidity in your portfolio.

SB: I consider investments in mining equities as cash equivalents. You can sell part of your holdings anytime and use that cash immediately.

TGR: Doesn’t the size of the precious metals equities market make it difficult to get in and out and reduce the market’s liquidity?

SB: You should diversify and focus on stocks that are liquid so you can get out quickly without much “noise.” Have a healthy diversification between junior and senior mining stocks and trade frequently within your core portfolio.

TGR: What are the basics of your thesis for precious metals equities?

SB: At Rockstone Research I not only analyze the general markets, I analyze junior and senior mining stocks. Mining provides unique possibilities for great profits. If you know a bit about geology, chemistry, metallurgy, technology and the general mining business, you can identify mining stocks on the verge of rising, regardless of the underlying metal prices.

The share price for a small exploration company with great drill results will rise even if gold is in a bear market. Keep in mind that increasingly fewer stocks will appreciate through the next collective upswing; many projects and management teams have not proven to be viable. These companies will go out of business and make the market a better, more consolidated place than it was during the last decade.

From an investor perspective, you can view the current temporary bear market as a good thing because only the best companies will survive. Finding these companies before other investors find them can be the chance of a lifetime. Now is the time to start buying mining equities when they are heavily discounted and priced down. Take all your courage, go out there and buy when everyone else is selling as if there was no tomorrow.

TGR: What do you think is an effective approach to buying these equities? Should investors buy on drops and pullbacks?

SB: Yes, buying on dips and pullbacks is a good way to get into an investment. If you are in the red with an investment, you can either try to be patient and wait for a general recovery or you can sell and buy different mining stocks now because the market has changed severely in the last seven months. It has created ridiculously low valuations of certain mining stocks that I would not have bought seven months ago. I am no fan of strict “buy and hold” approaches as whole markets, expectations and single opportunities change over time. Selling some positions even with a loss to buy others that appear to be much more of a bargain can be very lucrative.

TGR: What stories are you following?

SB: In a depressed mining market such as today’s with low metals prices and most producers operating unprofitably, investors already, and will increasingly, favor not only the few profitable mining companies that are left but also mining equities with the following six characteristics: 1) have experienced management, 2) are cashed-up, 3) have an advanced-stage exploration and/or mine development project, 4) have low capital expenditures (capex) to achieve high internal rates of return, 5) have high-grade deposits, 6) are operating in a stable mining jurisdiction.

Miners that meet all these premises in an outstanding way are First Majestic Silver Corp. (FR:TSX; AG:NYSE; FMV:FSE), Avino Silver & Gold Mines Ltd. (ASM:TSX.V; ASM:NYSE.MKT; GV6:FSE), Great Panther Silver Ltd. (GPR:TSX; GPL:NYSE.MKT), Fortuna Silver Mines Inc. (FSM:NYSE; FVI:TSX; FVI:BVL; F4S:FSE), Silver Wheaton Corp. (SLW:TSX; SLW:NYSE), SilverCrest Mines Inc. (SVL:TSX.V; SVLC:NYSE.MKT) and Silver Standard Resources Inc. (SSO:TSX; SSRI:NASDAQ). They all are mining companies that are flexible enough in size, operations design and corporate politics to steer through the extreme market phases we are currently experiencing. These companies are currently producing silver more or less profitably in resource-rich and underexplored regions of Latin America, enjoying some of the lowest production costs in the sector.

A Mexican silver producer that meets all of the above criteria, and is a prime example of how to do it right in today’s difficult mining environment, is Santacruz Silver Mining Ltd. (SCZ:TSX.V; 1SZ:FSE), which has succeeded in bringing into production a mine during the period of low metal prices in Q2/13. Average mill throughput currently “only” stands at around 120 tonnes per day (120 tpd), ramping up to 200 tpd in Q4/13 and 500 tpd in 2014 to achieve an output of around 2 million ounces (2 Moz) silver equivalent per year. When Rosario starts running at full capacity in 2014, silver prices may have recovered to higher levels. This could provide huge leverage on the share price because the company is currently producing relatively few ounces during this period of low silver prices, an estimated 2013 output of around 400,000–500,000 ounces (400–500 Koz) silver equivalent. Normally, a comparable 2 Moz per year silver mine requires $60–80 million ($60–80M) capex, but Santacruz only spent $10M to construct Rosario, and Santacruz is ready to do it again with its San Felipe project, for which a capex of only around $20M is anticipated.

San Felipe will be at feasibility stage by late 2013; three rigs are drilling as we speak. The initial drilling exceeds all expectations, exhibiting higher grades than historic drill results and superb core recoveries of around 95%, compared to historic records that show poor core recoveries of around 70%. Santacruz is getting the picture now, exploring and developing another world-class deposit that is easy to mine and highly profitable even during these depressed times.

Imagine how such a business will do during high silver prices and then try to imagine how the share price will develop from its current low levels. For the upcoming weeks and months, we anticipate an increased newsflow on San Felipe: the reporting of assays from around 10,000 meters (10,000m) of drilling. We expect San Felipe to start production in 2014, and it being much larger in scale than Rosario because Santacruz plans a 700 tpd mill throughput for its second mine.

The third mine on Santacruz’s agenda is Gavilanes, which is even higher grade than the average 200–250 grams/ton (200–250 g/t) silver at Rosario and San Felipe. Gavilanes has a historic Inferred resource of 1.2 million tons ore averaging 420 g/t silver, representing some 15+ Moz silver. However, this historic resource calculation is based only on 500m of the known 1,000m strike length of the single GSA vein that was drilled for only 3,200m in 1990. Santacruz has already successfully identified six other veins on Gavilanes with the Descubridora vein being the most promising one right now.

I speculate that Tahoe Resources Inc. (THO:TSX; TAHO:NYSE) will also become an exciting story; its world-class Escobal deposit in Guatemala is averaging around 490 g/t silver equivalent, resulting in fantastic all-in production costs estimated to be below $15/oz. That is quite remarkable considering that Hecla Mining Co. (HL:NYSE) is now pretty much underwater at $26/oz and Pan American Silver Corp. (PAA:TSX; PAAS:NASDAQ) at $22/oz. Santacruz is set to achieve all-in production costs of an estimated $11/oz by 2014 with its Rosario mine, and its two other silver deposits are ready to follow an even larger path into highly profitable and low-risk silver mining. Cash is king, even more notably in tough times, so I now look for newborn cash-flow machines that are poised to grow big during the next few years as I bet on much higher gold and silver prices.

While Santacruz, a profitable producer with huge growth potential, has a current market cap of only $85M, there are also very attractive undeveloped projects like those of MAG Silver Corp. (MAG:TSX; MVG:NYSE). The company has a market cap of only $350M but is sitting on a large, 100+ Moz high-grade silver deposit that may to turn out to become Mexico’s largest silver mine. MAG Silver is also in great shape to put into production other properties during the upcoming years. You want to look out for companies that right now are successfully developing world-class deposits; when production kicks off in a few years, metal prices are expected to be much higher than today.

TGR: What other companies are you following?

SB: Other stocks that I like in this respect are Roxgold Inc. (ROG:TSX.V) and Orezone Gold Corporation (ORE:TSX), with their high-grade and large gold deposits both located in Burkina Faso, as well as ASX-listed Ampella Mining Ltd. (AMX;ASX), which has the 3+ Moz Batie West Gold deposit, Burkina Faso’s largest undeveloped gold resource at a 1 g/t cut-off.

I also follow Central African low-cost gold producer Endeavour Mining Corp. (EDV:TSX; EVR:ASX) in Ghana and ASX-listed Tiger Resources Ltd. (TGS:TSX; TGS:ASX), which has an excellent exploration and production portfolio of properties strategically located on the world-renowned Katanga Copper Belt in the Democratic Republic of the Congo (DRC). Tiger is a well-run company with experienced and well-connected management successful in the highly lucrative but somewhat risky-appearing regions of the world where others fail on a regular basis. Tiger’s Kipoi stockpiles of high-grade copper have a market value of $500M+ with production costs in the area of only $0.30/pound targeted for 2014; the company’s other properties enjoy extremely good exploration potential.

Alacer Gold Corp. (ASR:TSX: AQG:ASX), with its gold operation in Turkey, is also an interesting story to follow. Management is working successfully on cutting costs on all fronts.

I am certain that these companies will not only survive the current slaughtering of mining equities but will also evolve into better and much more profitable companies than they would have been without this crash, thus maximizing shareholder value even more if metal prices recover substantially.

I also like Levon Resources Ltd. (LVN:TSX.V; L09:FSE; LVNVF:OTC), with its 400+ Moz Cordero silver deposit in Mexico; Silver Bull Resources Inc. (SVB:TSX; SVBL:NYSE.MKT) and Golden Arrow Resources Corp. (GRG:TSX.V; GAC:FSE; GARWF:OTCPK), with their 100+ Moz silver equivalent deposits;NOVAGOLD (NG:TSX; NG:NYSE.MKT), with its 40+ Moz Donlin gold deposit in Alaska; Prophecy Platinum Corp. (NKL:TSX.V; PNIKF:OTCPK; P94P:FSE), with its multimillion ounce platinum group metals deposit in the Yukon; and Western Potash Corp. (WPX:TSX.V), with Milestone being developed into a modern, cost-effective mine in Saskatchewan.

I also follow closely with great interest the development of Sunridge Gold Corp. (SGC:TSX.V), Sulliden Gold Corp. (SUE:TSX; SDDDF:OTCQX; SUE:BVL), Aurcana Corporation (AUN:TSX.V; AUNFF:OTCQX) andIMPACT Silver Corp. (IPT:TSX.V), and prospective juniors like Vendome Resources Corp. (VDR:TSX.V),Meadow Bay Gold Corp. (MAY:TSX.V; MAYGF:OTCQX), La Ronge Gold Corp. (LAR:TSX.V) andComstock Metals Ltd. (CSL:TSX.V).

Comstock recently made a promising discovery in the prolific White Gold district in the Yukon. The area has very similar geology and mineralization with Kinross Gold Corp.’s (K:TSX; KGC:NYSE) Golden Saddle deposit, which is just 10 kilometers (10km) to the northwest, as well with Kaminak Gold Corp.’s (KAM:TSX.V) Coffee project 40km to the south. Comstock’s initial drill results of grades of 1+ g/t gold over 80m+ exceeded all expectations.

Comstock just announced the assays of two stepout drillings: Hole 12 returned 2.1 g/t gold over 36m starting right at surface at 9m depth including an 11m interval averaging 3.2 g/t at 22m depth below surface. Hole 11 returned 43m averaging 1.4 g/t gold including an 13m intercept averaging 3.4 g/t. Both drill holes will increase the NI 43-101 resource base significantly as the footprint of the VG Zone has now been extended by some 350x350m, whereas the zone remains open in all directions. The results of five other drill holes will be released shortly.

I highly respect Comstock’s CEO, Rasool Mohammad, who is also the driving force behind La Ronge. La Ronge is exploring its Preview SW property in the prolific La Ronge Gold Belt of Saskatchewan. With an NI 43-101 Indicated and Inferred gold resource of nearly 400 Koz with an average grade of 2+ g/t and a 0.5 g/t cut-off, La Ronge is in a great position to expand the resource base of this deposit in the upcoming months. I am confident that Rasool will produce loads of positive drill reports that I anticipate will affect both stocks greatly in the near future.

TGR: Are there other companies you would like to talk about?

SB: Rubicon Minerals Corp. (RBY:NYSE.MKT; RMX:TSX) has successfully developed the highly interesting 3+ Moz Phoenix gold deposit toward the preliminary economic assessment level. The deposit is located in Red Lake, Ontario. Production can commence as soon as 2014 or whenever the gold price has recovered.

Another advanced gold project in its final permitting stage is Lydian International Ltd.’s (LYD:TSX) flagship Amulsar gold deposit in Armenia. It looks remarkable: simple and easy to mine, having a low capex of only $250M, yet valued at $1+ billion in the latest feasibility study.

Colossus Minerals Inc. (CSI:TSX; COLUF:OTCQX) owns an advanced-stage gold project in Brazil that may go into production at the right time within the next few years when metal prices have recovered, making such a large gold deposit increase in value even more.

Luna Gold Corp. (LGC:TSX) also has a well-advanced deposit in Brazil with great NI 43-101 upside potential targeting gold production starting at 125 Koz in 2014.

I follow Brazil Resources Inc. (BRI:TSX.V; BRIZF:OTCQX) closely because I like the management team around Chairman Amir Adnani and his well-established contacts around the world.

TGR: Do you follow rare earths?

SB: Yes. I am positive that Australia-based Alkane Resources Ltd. (ANLKY:OTCQX; ALK:ASX) will bring into production its Dubbo rare earths project in New South Wales in early 2016. Management is right on track demonstrating how to successfully develop a large deposit into a profitable mine quickly, namely with memorandums of understanding, agreements and strategic alliances. Dubbo represents a world-class deposit enriched with zirconium, hafnium, niobium, tantalum, yttrium, as well as light and heavy rare earths elements (REEs). Chinese production dominates these materials, providing over 90% of yearly supply and it is increasingly limiting its exports. Alkane already seems to have found the right partners to advance this project. The financing of around $1 billion is planned to be arranged by Sumitomo Mitsui Bank of Japan, Credit Suisse Australia and Sydney-based Petra Capital, and is expected to coincide with the final project approvals, allowing mine construction to commence in Q2/14.

Alkane’s Definite Feasibility Study of April 2013 shows Dubbo being a “technically and financially robust project.” A base case of a 20-year mine life gave a net present value of $1.23 billion, yet mine life is likely to be in excess of 70 years, which makes this deposit an important strategic asset for REE world supply. What makes Alkane a great investment today is that shareholders do not have to wait two or three years until REE production at Dubbo starts; shareholder value is likely to be increased substantially within the next few months as construction on the company’s Tomingley gold mine is underway and commissioning is anticipated in late 2013. With a resource of 800+ Koz, a head-grade of 2 g/t, a yearly gold production of around 50 Koz for a minimum of eight years and operating costs at only $1,000/oz, this project is set to generate important cash flow in the near future to advance the Dubbo project successfully without the need for excessive dilution.

Strategically, I also like Rare Element Resources Ltd. (RES:TSX; REE:NYSE.MKT), which has a 100% interest in the Bear Lodge property in Wyoming, U.S. This is one of the largest disseminated REE deposits in North America; it is high grade with favorable metallurgy and excellent infrastructure within one of the world’s best mining jurisdictions. When the time is right, it will most certainly be put into production.

Woulfe Mining Corp. (WOF:TSX.V) owns a large tungsten-molybdenum deposit in South Korea; I like these metals thanks to their great price appreciation potential in this decade.

I also like companies such as Rio Alto Mining Ltd. (RIO:TSX.V; RIO:BVL), whose stock experienced heavy selloffs during the last months, trading at around $2/share down from $6/share, and Monument Mining Ltd. (MMY:TSX.V), whose stock has been holding remarkably stable at the $0.30/share level assuming that strong hands try to not let the price go below this level. Both operators own world-class gold mines and infrastructure plus offer great growth potential for the upcoming years.

Rio Alto is reporting higher than expected head grades, which is a rare trend in today’s mining business—most seniors like BHP Billiton Ltd. (BHP:NYSE; BHPLF:OTCPK), Barrick Gold Corp. (ABX:TSX; ABX:NYSE) and Newmont Mining Corp. (NEM:NYSE) are struggling as their grades decrease more than expected and they are unable to keep up production levels while costs rise. Their only chance of maintaining market value is to acquire other resources, properties and companies. Rio Alto does not have such problems and stands well even in today’s depressed markets, thanks to the superb management around CEO Alex Black. The company has developed the La Arena deposit in Peru into a world-class gold mine with production costs well below $1,000/oz and an output of around 200 Koz/year. Rio Alto at $2/share seems like a great bargain and not only for the short term.

Monument plans to bring into production a second, polymetallic mine shortly, Mengapur, which I anticipate to emerge as a much larger than expected mine that may be ramped up with a strategic partner. I hope the partner is no one less than the government of Malaysia; management has established respectable relationships with high-ranking officials over the last years. A successful model would be Australia-based Tiger Resources’ 60/40%-partnership with the DRC government.

Golden Arrow is another company with great management relationships with governmental officials. Joe Grosso is doing it again big with this latest Argentinian success story that may become in the foreseeable future a very large and easily mineable resource of 100+ Moz silver equivalent with outstanding NI 43-101 upgrade potential. That’s the sort of junior mining stock with a $10–50M market cap that you want to be involved with from an early stage.

TGR: Do you want to talk about any other companies?

SB: Another great management story may be Gold Standard Ventures Corp. (GSV:TSX.V; GSV:NYSE), whose chief geologist, Dave Mathewson, explained to me in an interview in 2011 the background and geological settings of the Railroad property. Railroad is located just south of the productive Rain mine operated by Newmont in Nevada. Dave Mathewson discovered the Rain deposit when working for Newmont. This is the kind of unique management story that can be decisive when looking out for the right people who made the right choices at the right time. I am optimistic that Railroad eventually will turn out to be a larger gold deposit than Rain, which itself contains 6+ Moz. No one knows the rich but tough Carlin Trend better than Dave Mathewson.

Another deposit I value highly—in addition to being a potential takeover candidate—is Gold Reach Resources Ltd. (GRV:TSX.V). The company’s copper-gold-molybdenum deposit is adjacent to the renowned Huckleberry copper-molybdenum mine in British Columbia. Copper Mountain Mining Corp. (CUM:TSX) restarted a large copper mine near Princeton, 250km northeast of Vancouver, in 2011, producing some 80 million pounds per year. Mitsubishi Materials Corp. (MMC:FSE) has a 25% stake and mining giants like Xstrata Plc (XTA:LSE) are potentially looking for companies like these to take over, especially during times of ridiculously low market valuations that we have at the moment.

Some 3km south of the Copper Mountain mine and mill lies a large and quite prospective property that belongs to junior explorer Anglo-Canadian Mining Corp. (URA:TSX.V). I have been following this company for years, eagerly waiting to find out that it is actually sitting on a mineable porphyry copper gold deposit (or skarn) right on trend and right next to the prolific Copper Mountain porphyry plug.

Another such small junior mining stock that we followed was Urastar Gold Corp., which was active in Mexico where it held a highly prospective property adjacent to mining, infrastructure and large seniors. Urastar was acquired a few months ago by Agnico-Eagle Mines Ltd. (AEM:TSX; AEM:NYSE).

The following is mining news wording I believe we are about to see increase notably with so many highly undervalued but highly prospective junior mining stocks being acquired basically for peanuts. This is sad but true in terms of shareholder value, yet still worth an investment nonetheless if you discover the ones to target at the right time:

“Under the terms of the Agreement, each Urastar shareholder will receive in exchange for each Urastar Share held, C$0.25 in cash. The cash consideration offered represents a premium of approximately 42.9% based on the closing price of the Urastar Shares on the TSX Venture Exchange (“TSXV”) of C$0.175 on March 25, 2013 and a premium of approximately 46.8% over the 20-day volume weighted average price of the Urastar Shares on the TSXV for the period ending March 25, 2013. The transaction value on a basic shares outstanding basis, and assuming exercise of in-the-money share purchase warrants, is approximately C$10.70 million.”

TGR: Thank you for speaking with us today.

Stephan Bogner is a mining analyst at Rockstone Research, where he has independently analyzed capital markets and resource stocks for more than 11 years. He is also CEO of Elementum International AG of Switzerland. Bogner earned his degree in economics in 2004 at the International School of Management in Dortmund, Germany. He spent five years in Dubai brokering and reselling physical commodities and now resides in Zurich, Switzerland.

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DISCLOSURE:

1) Brian Sylvester conducted this interview for The Gold Report and provides services to The Gold Report as an independent contractor. He or his family own shares of the following companies mentioned in this interview: None.

2) The following companies mentioned in the interview are sponsors of The Gold Report: Santacruz Silver Mining Ltd., Colossus Minerals Inc., Golden Arrow Resources Corp., Gold Standard Ventures Corp., Sunridge Gold Corp., Rubicon Minerals Corp., MAG Silver Corp., Tahoe Resources Inc., Roxgold Inc., Silver Bull Resources Inc. NOVAGOLD, Prophecy Platinum Corp., Sulliden Gold Corp., IMPACT Silver Corp., Lydian International Ltd., Brazil Resources Inc., Alkane Resources Ltd., Silver Standard Resources Inc., Fortuna Silver Mines Inc., SilverCrest Mines Inc., Comstock Metals Ltd. and Great Panther Silver Ltd. Streetwise Reports does not accept stock in exchange for its services or as sponsorship payment.

3) Stephan Bogner: I or my family own shares of the following companies mentioned in this interview: All except Credit Suisse, Mitsubishi Materials Corp., Sumitomo Mitsui Bank of Japan, Xstrata Plc, BHP Billiton Ltd., Barrick Gold Corp., Newmont Mining Corp., Hecla Mining Corp. and Urastar Gold Corp. I personally am or my family is paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: None. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.

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By The Sizemore Letter

Last month, I wrote that Australia’s plain-packaging law was one of the worst setbacks for Big Tobacco in decades because it attacked the companies’ single most valuable asset: their brands.

Big Tobacco has strong enough moats to survive high taxes, punishing lawsuits, and an aging and declining customer base intact.  But plain packaging threatens the industry at its very core, and this is something underappreciated by investors in the sector.

Cigarette Marketing 101

Long-time chain smokers light up for one very obvious reason—they are addicted to the nicotine.  But for casual smokers—those who may light up while drinking, for example—the experience matter too.  I call it the “Rebel Without a Cause effect”; the devil-may-care image that goes along with smoking is part of what makes it pleasurable.

There is a certain appeal to Altria’s ($MO) familiar Marlboro logo.  But there is most certainly no romance in a plain white box with a picture of a diseased lung on the flipside.

If you think I’m making this up, consider the recent grumbles coming out of Australia.  Following the implementation of the plain packaging law at the beginning of this year, Aussie smokers  have complained that their cigarettes taste different.

The Australian health minister, quoted by the New York Times, insisted that there had been no change to the cigarettes themselves but that “people being confronted with the ugly packaging made the psychological leap to disgusting taste.”

I’m not a cigarette smoker, though I do enjoy the occasional cigar.  And I would insist that a cigar does indeed taste better when the smoker is wearing a suit and sitting in a comfortable leather chair surrounded by wall-to-wall shelves of old books.  The very same cigar smoked in a plastic lawn chair while wearing Crocs just isn’t the same (and shame on any grown man for wearing Crocs outside of the pool, but I digress).

Rational?  No.  But nonetheless true.

It remains to be seen whether plain packaging laws spread outside of Australia; they are being considered in Canada, India, the UK and in the European Union as a whole.  Big Tobacco wll argue that the ban violates their trademarks and seizes their intellectual property, and they may find a few sympathetic judges.  But given the history of the anti-tobacco movement, it’s a lot more likely that Big Tobacco will fight a rearguard action for years before ultimately losing.

So, if the future is bleak, does this mean that you should avoid tobacco stocks like Altria, Reynolds American ($RAI) or Lorillard ($LO)?

Not necessarily.  As I’ve written before, industries in decline can be fantastically profitable investments under the right set of conditions.  But the most important condition is price, and on this count Big Tobacco looks far from attractive.  Altria, Reynolds American and Lorillard trade for 17, 19, and 15 times earnings, respectively.  Their dividends, while high by broad market standards, are all lower than 5%, and all are trading near their 52-week highs.

Dividend income is a major consideration in my investment process, but I am avoiding Big Tobacco at this time.  I can get higher yields with comparable dividend growth rates in select REITs and MLPs, and I can get a much higher dividend growth rate in Big Tech names like Microsoft ($MSFT), Intel ($INTC) and Cisco Systems ($CSCO).

Do I expect Big Tobacco stocks to take a nosedive in the immediate future?

No, I don’t.  I expect the sector to more or less track the market in the short term.  But Big Tobacco investors should be aware that the single biggest factor in the sector’s outperformance of recent years—price—is no longer in their favor.

Sizemore Capital is long MSFT, INTC, and CSCO.

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EURUSD Евро/доллар пытается развить рост

Несмотря на отсутствие каких-либо фундаментальных факторов, поддерживающих рост единой валюты, она в паре с долларом США уверенно держится выше 30-й фигуры, более того — уже приближается к 31-й. На дневном таймфрейме Parabolic SAR расположен ниже графика цены, сохраняя позитивный взгляд на технические перспективы пары, но на 4-часовом, несмотря на текущее укрепление, Parabolic выше графика цены, что порождает некоторые сомнения в способности быков развить восходящий тренд. Тем не менее пробой максимумов в районе 32-й фигуры развеет все сомнения, а евро/доллар вырастет как минимум к 1.3264. Потеря 1.3000 будет означать возобновление нисходящего тренда.

Фунт/доллар вчера снижался, но поддержка в районе 1.5040 справилась со своей задачей, и от нее пара теперь пытается развить рост в направлении 1.5200. В целом похоже на то, что пара сформировала основание и может в скором времени протестировать сопротивление у 53-й фигуры, где на дневном графике проходят 100-дневная и 50-дневная скользящие средние. Пробой уровня повлечет за собой дальнейшее развитие восходящего тренда. На 4-часовом таймфрейме фунт пытается пробиться выше 100-дневной скользящей, но Parabolic SAR находится выше графика цены, что ставит под сомнение текущий рост. Потеря 1.5040—1.5000 вернет на рынки негативный настрой, а текущий минимум 1.4813 снова окажется под прессингом медведей.

Рост евро/франка удерживает от падения пару доллар/франк, которая вчера совершила попытку роста, но, наткнувшись на сопротивление на уровне 0.9533, вынуждена была отступить к поддержке 0.9477, вблизи которой торгуется на данный момент. На 4-часовом таймфрейме доллар/франк держится ниже 95-й фигуры и 100-дневной скользящей средней, но Parabolic SAR, находясь ниже графика цены, пока не подтверждает наличие нисходящей динамики в паре. В свою очередь, на дневном таймфрейме Parabolic выше графика цены, но доллар торгуется выше 100-дневной скользящей средней, которая проходит на уровне 0.9443. Падение ниже подтвердит развитие нисходящего тренда, а рост выше 0.9555 будет означать возобновление восходящего.

Пара доллар/иена вчера выросла до 100.49. Здесь она подверглась распродаже, и доллар был вынужден отступить к поддержке в районе 99.70, где пытается сформировать промежуточное основание. Если ему это удастся, то курс пары вырастет к 100.49—100.68. Пробой последнего уровня вызовет усиление восходящего импульса. В пользу такого развития событий говорит находящийся ниже графика цены Parabolic SAR. Но на дневном таймфрейме он все еще расположен выше графика, а значит, сохраняются шансы на тестирование поддержки 98.67. Падение ниже подтвердит развитие нисходящей коррекции.

provided by IAFT

London Gold Market Report
from Adrian Ash
BullionVault
Tuesday, 16 July 08:25 EST

PRECIOUS METAL prices rose Tuesday morning in London, after the finance minister of Cyprus said selling some of the debt-laden Mediterranean island’s gold reserves was “only an option” for raising cash.

 “The possibility of selling gold is known, but only as an option,” Harris Georgiades told journalists in Nicosia.

 “It will be considered, when the time comes, with options, or rather, all other options.”

 Last week the Cypriot president Nicos Anastasiades said that “I want to believe there will never be such a need” for selling some gold reserves.

 “The issue is not being discussed by the government, it is a responsibility of the central bank,” he was quoted by Reuters.

Mid-April’s proposal that Cyprus should sell some of its small gold reserves saw the metal drop more than 15% over the next two trading days.

 Despite holding only 13.9 tonnes of gold bullion, the idea was seen by some analysts and traders as “the thin end of the wedge” for other debt-laden countries in the Eurozone.

All told, Eurozone central-bank gold reserves total 10,783 tonnes.

That’s more than one ounce in every three held in official-sector bullion vaults according to data compiled by the World Gold Council.

 “The April price moves [after talk of Cyprus’ gold sale] severely damaged the notion that gold provides any degree of risk protection or really acts as a safe haven,” says a new gold price forecast from analysts at Citigroup.

 “We see little prospect of investors returning to gold in the short or medium term,” they add, forecasting a fresh 3-year low of $1100 per ounce by end-2013.

 Technical analysis of the gold price charts by Barclays sees gold falling to that level in just the next two months.

 Meantime Tuesday, silver followed the gold price higher, regaining the $20 per ounce level, while European stock markets ticked up.

 Commodity prices also rose, as did major government bond prices.

 “[Gold] investors remain sidelined,” reckons Xiang Nan, analyst at CITIC Securities Futures Co. in Shanghai, quoted by Bloomberg, “before Bernanke’s testimony [to Congress on Wednesday] for clues on the Fed’s stance on monetary stimulus.”

 “Gold price gains are expected to stall around $1300 as physical buyers stay away.”

Ahead of the US Fed chairman’s twice-yearly appearance before the House Financial Services Committee on Wednesday, the US Dollar slipped against the Euro single currency.

That capped gains in the Euro price of gold at €986 per ounce, in line with last week’s close.

April’s initial gold sales plan, proposed by Cyprus’ other Eurozone partners, the European Central Bank and the International Monetary Fund, was intended to raise €400 million of a total €10 billion rescue package.

 The same quantity of gold bullion if sold at Tuesday’s AM London Gold Fix would have raised only €314 million.

Adrian Ash

BullionVault

Gold price chart, no delay | Buy gold online

Adrian Ash is head of research at BullionVault, the secure, low-cost gold and silver market for private investors online, where you can buy gold and silver in Zurich, Switzerland for just 0.5% commission.

(c) BullionVault 2013

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

By HY Markets Forex Blog

The West Texas Intermediate crude futures were seen in red on Tuesday, while the markets were expecting the US crude stockpiles to be released by the American Petroleum Institute (API) later today and another report by the Energy Information Administration (EIA). Investors were also expecting oil inventories to decrease for the third week.

The fall in the WTI crude futures was due to the weak US retail sales data which knocked down the US dollar, sending the crude prices down..

The WTI futures are still high regardless, with help from the high demand in the Northern Hemisphere as the market fears the political turmoil in Egypt is affecting the overall trend.

WTI crude oil futures dropped by 0.20% to $106.11 at the time of writing, while the Brent futures lowered 0.29% to $108.78 at the same time.

The markets continue to raise concerns regarding the futures for the US monetary policy, as a recent released data showed that the US economy is improving and may lead to the Federal Reserve slowing down the asset-buying program, which may push the US dollar higher.

Over the past two weeks, the US oil inventories have decreased by over 20 million barrels, according to the Energy Information Administration (EIA). Investors are expecting the US oil stockpiles to drop.

According to data released from the Chinese National Bureau of Statistics, China processed an estimated 40% or crude in the first half of the year, with a total of 236.79 million metric tons of crude oil.

The post WTI crude futures drop as oil stockpiles shrink appeared first on | HY Markets Official blog.

Article provided by HY Markets Forex Blog

By HY Markets Forex Blog

The European market were seen in red  on Tuesday ahead of Germany’s investor confidence report , as investors predicts the report to show an improvement of up to 40 points from the previous record of 38.5 point . An increase in the current situation index is expected to show, up from 8.6 to 9 points.

The European Stoxx 50 dropped 0.72% lower to 2,667.44 as of 8:05am GMT, while the French CAC 40 fell 0.66% to 3,852.90 at the same time. The German’s DAX declined 0.61% to 8,184.87, with the UK’s FTSE 100 losing 0.17% to 6,575.30.

The Spain government its set to auction Treasury bills maturing in 189 and 364 days, with an aim to raise four billion euros.

According to reports from the National Institute for statistics, the government in Italy’s trade balance for the month of May is posting 3.9 billion euros, increased from previous month record of 2.03 billion.

The Euro zone’s ZEW economic sentiment is expected to increase from previous record of 30.6 to 31.8 in July.

The consumer Price Index (CPI) for the euro zone as a whole for the month of June is expected to show a 0.1% rise on a month-to-month basis.

The post Europe stock falls ahead of German ZEW appeared first on | HY Markets Official blog.

Article provided by HY Markets Forex Blog

By www.CentralBankNews.info Here’s today’s Central Bank News’ link list, click through if you missed the previous link list. The list comprises news about central banks that is not covered by Central Bank News. The list is updated during the day with the latest developments so readers don’t miss any important news.

By MoneyMorning.com.au

If Ringo Starr walked into your office, you’d think you’d recognise him, wouldn’t you?

After all, he had one of the most distinctive voices in the Beatles, the All-Starr Band, and not to mention as narrator of Thomas the Tank Engine.

And so it was, one sunny day in 1999 in Cranleigh, England, one of my musical idols walked in…and I totally failed to recognise him.

I’d like to blame this lapse on three things: his sizeable beard, some heavy-duty sunglasses, and most importantly, the fact that Ringo Starr walking into the joint was the last thing in the world I had expected! I mean… seriously, how often does that kind of thing happen?

Anyway we got chatting away quite amicably. Firstly about Liverpool as his ‘scouse’ accent was clear as day, and I had lived there for a few years in the recent past.

Back in my Liverpool days my house had been on Greenbank Lane, which I asked Ringo if he knew. I explained helpfully that ‘…it was near Penny Lane, if you’re familiar with that’?

I wondered why he thought that was so funny, but ploughed on none the wiser. Then I asked what he did. ‘Oh you’re a musician, that’s cool’ I replied, following with ‘…are you in a band’?

He was eyeing the door by this point, so I finished off by telling Ringo that I played the guitar a bit. Then sealing my embarrassment forever, told him that ‘…I’m up for a jam if you’re free some time.’

As he left in hysterics, the whole office burst into laughter too, and finally the penny dropped for me. And as you can imagine…the fact I totally failed to recognise a major celebrity has gone down forever in family folklore.

Anyway, where am I going with this tale, you ask?

Well, today’s question is…am I about to do something similar?

Only this time am I staring into the eyes of the best opportunity in mining stocks that I’ll ever see, but just not seeing it…?

Here’s why.

Mining stocks have been falling for thirty months now, and the falls we’ve seen have been so severe, that like Ringo Starr walking into your office, a resources rally is just about the last thing you expect to see.

Since early 2011, the metals and mining index is down 50%, and the small resources index is down by more like 80%. Morale out there is the lowest I can recall.

But here’s the thing: nothing can fall forever.

In fact, the contrarian investors’ handbook tells you that this is the time to buy: when the sector is on its knees, prices are at structural lows, and no one wants to know about it. Put another way, you should buy when no-one else is buying.

After all, the lower the sector goes, the closer it is to the bottom. But spotting the bottom is the trick. And for now, institutional investors and punters alike are still throwing in the towel and heading for the door, particularly as China continues to slow.

In fact the market heard from China yesterday, with the growth rate for the second quarter. There had been some earlier panic thinking it could come in between 6.5% to 7.0%, as one Chinese official fluffed his lines in a speech to that effect.

The official figure proved this was a storm in a teacup, as it came in at 7.5%.

And when you step back at look at how China has slowed down in the last three years, the fall from 11.9% to 7.5% is hard to miss.

Chinese Growth – Heading Back Down Again

Source: forexfactory

My old mate and colleague, Greg Canavan, Editor of Sound Money, Sound Investments, has been calling for China’s wheels to fall off for some time. The reason being that he expects the immense credit splurge to catch up with China soon.

The big spike in China’s interest rates recently is exactly the kind of warning sign he has expected. His argument is gathering momentum, and his latest report is well worth a read.

The truth is, after starting the year quite bullish on China, I have to concede the data has since gone the other way, especially over the last few months.

With falling PMI’s (Purchasing Managers Indices), the recent interbank credit scare, and some dodgy import data last week, the pieces were all in place for yesterday’s uninspiring economic growth figure. More China anxiety is part of the reason why resources could be in for another rough patch before things swing the other way.

I know this old bull is sounding bearish, but after thirty months of falls, if we see another rough patch, then it could be the last. And in the midst of all the bearishness, a few voices are starting to break rank and forecast better times for commodities.

Take for instance a recent report from JPMorgan, ‘Ten reasons to start getting bullish on commodities’.

‘In a number of commodities, prices have fallen far enough for long enough to force involuntary cuts in production and to spur fresh demand… Risk is now skewed toward demand growth surprise and production disappointment. Our analysis concludes that it is in the best interests of most commodity index investors to buy immediately.‘

In the report, JPMorgan were more bullish on energy, which makes sense when there is a new tide of trouble in the Middle East. I wrote about this bullish picture for oil in Money Morning last week. JPMorgan weren’t so hot on precious metals.

But JPMorgan aren’t the only ones. Merrill Lynch liked the look of beaten up mining stocks after this two-year bear market. Its analysts say, ‘contrarians start your engines’. And local funds like EMR Capital are getting ready for the next resources rally as well, expecting the new Chinese government to step in later this year.

However, it will take far more of these brave voices to turn the resource market around. But if they’re right, history has shown again and again that this has been the way to make life-changing gains.

Of course it takes a great deal of courage, patience, and risk capital (punting money), but if you get it right…being the earliest person in a trade that ultimately goes the right way is often a life changing experience.

Dr Alex Cowie+
Editor, Diggers & Drillers

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From the Port Phillip Publishing Library

Special Report: The Sixth Revolution

Daily Reckoning: Why You Should Back Your Own Personal Gold Standard

Money Morning: Money Weekend’s Technology FutureWatch 13 July 2013

Pursuit of Happiness: Make Sure You’re Not a Property Investing ‘Loser’

By MoneyMorning.com.au

A key person we’ve spoken to recently is involved in an industry at the cutting edge of human capability. If successful, this particular industry will turn the world on its head. It could open up amazing new opportunities for job creation and wealth creation over the next five to ten years and beyond.

It’s part of the trend we’ve written about in Revolutionary Tech Investor – the Commercialisation of Space.

More specifically we spoke with Mark Sonter from Deep Space Industries (DSI) about Asteroid Mining.

The Director of Mining and Processing for DSI, Mark has been involved in the study and development of Asteroid mining for over 25 years. (And here you were thinking the concept of Asteroid mining was new!)

In the mid-1990′s Mark got involved with some of the brightest minds in space research. One of those was Professor John S Lewis. He’s one of the world’s experts on the composition and chemistry of asteroids.

During this time Mark developed a thesis on the Technical and Economic Feasibility of Mining ‘Near Earth Asteroids’. Upon the development of his thesis Mark received a call from Rick Tumlinson, (one of Space News magazine’s 100 most influential people in the space industry) wanting to fund his research.

After ongoing research into the possibility of mining asteroids, in mid-2011 a group including Mark and Rick decided to incorporate a company.

Barrack Obama had just outlined a new vision for NASA which assisted their vision. This included sending astronauts to nearby asteroids and encouraging the commercialisation of space.

However, one of the group members came to the conclusion that perhaps the answer wasn’t sending astronauts to an asteroid but bringing a small asteroid to the astronauts.

Maybe it would be easier, and safer, to bring an asteroid into high-earth orbit and investigate it there. (High-earth orbit is an orbit above where typical communications satellites sit at 36,000kms.)

They spent about six months ‘brain-bashing’ how they might do it. It became clear to them you can take an ordinary com-sat (communications satellite) design, put in a bigger fuel tank, take out the antenna and put in something to ‘grab’ or ‘net’ the asteroid.

And if you can pick one small enough (as Mark said about the size of a small house, truck or car) and grab it, you’ve got enough capability to bring it back to high earth orbit.

Mark explained the technical aspect isn’t that daunting once people get past the ‘giggle-factor’. Importantly the abilities we have now mean this could be possible today if the funding was there.

With the group gaining momentum and the idea quickly coming to early reality they attended a workshop at California Institute of Technology (Caltech) in October 2011. It was here they came across a team from Planetary Resources (PR). (PR is another company looking at mining asteroids.)

Whereas the group Mark was involved in had a small team of about five at the time, PR had a full squad of about 30 with greater resources, and more financial backing.

Interestingly, with greater resources PR had come to the same conclusion. As Mark put it, ‘it was a convergence.’

Mark’s group submitted an abstract at an American Institute of Aeronautics and Astronautics conference and at the International Space Development conference in May 2012. Their aim was to present and seek to show they had clearly and independently arrived at the same conclusions of the CalTech study.

It was at this time Rick Tumlinson approached again with David Gump and Rick Kirby. This time to discuss how to get a space industry company up and going. This was the birth of Deep Space Industries (DSI). It officially launched as an asteroid mining company in January 2013.

The next steps involve sending a small probe into space to do a fly-by and reconnaissance of an asteroid. After that, the plan is to send a probe to rendezvous with an asteroid, take samples and return to earth.

Obviously the big picture goal is to identify asteroids, land on them, mine and process the materials. Then to use that material for in-space industry and to ferry the resources back to earth.

However, as Mark highlighted asteroid mining has the potential to really get traction when the ‘in-space’ market develops. By that we mean as commercial activities increase (space tourism, space stations, and scientific expeditions) there will be a greater need for in-space materials and propellants.

Any commercial entity building things like space stations (such as Bigelow Aerospace) will have a need for construction materials, propellants and metals. That’s the kind of activity that needs companies like DSI to provide them with supplies.

Until that happens though its likely asteroid mining will be a very niche market. That’s not to say it won’t happen. It’s just that the economics of processing and mining these resources is difficult to do when you have to bring them back to earth all the time.

What excites us is the in-space industry is evolving at a great pace.

That means the timeframes for this to become a reality will be much sooner than people realise. The technical aspect of it isn’t all that hard. It’s about making sure the right business plan, the right team and the right ideas come together to make it happen.

Thanks to companies like DSI we’re confident asteroid mining will happen. And at the right time it will open up a new world of opportunity for investors too.

Sam Volkering+
Technology Analyst, Revolutionary Tech Investor

Ed note: The commercialisation of space is just one of the things Sam Volkering and Kris Sayce are exploring in Revolutionary Tech Investor. It’s part of the trend Sam and Kris have identified as the ‘Sixth Revolution’ in human history, and there are a remarkable number of companies looking to exploit it. You can check out more details in this special feature presentation here…

From the Archives…

Quantam Computers – Why It’s Time to Believe the Unbelievable
12-07-2013 – Sam Volkering

Red Alert: Why This Stock Market Rally is a Trap
11-07-2013 – Murray Dawes

Why Oil Could be the One Commodity to Defy the Doom…
10-07-2013 – Dr Alex Cowie

Gold Breaks A Record
9-07-2013 – Dr Alex Cowie

Time to Plan for the Year-End Stock Rally?
8-07-2013 – Kris Sayce