Month: May 2014

By MoneyMorning.com.au

What happened to the Lynas share price?

Shares of Lynas Corporation [ASX:LYC] dropped by 7.69% on Thursday, closing at $0.12. This is the lowest close since 16th March 2009.

Why the Lynas Corporation?

Lynas shareholders haven’t had anything to get excited about since the 2012 rare earths bubble.

Shareholder confidence is low after a series of environmental protests at its Malaysian rare earths plant, production delays, and capital raisings.

The issue lately has been to do with the company’s balance sheet. The company is currently raising $40 million dollars to repay debt — this isn’t a good sign. After this debt has been repaid and restructured, there will still be US$440 million due for repayment by mid-2016.

Shareholders are likely starting to view Lynas as an extremely high risk play; it would be difficult to blame them.

What now for LYC?

Known global rare earth resources are abundant, enough to dig up and last for over 285 years. And China controls over 92% of this market. Because of its monopoly, China has the power to control prices — this is exactly what happened to create the 2012 rare earths bubble.

As a result of China’s significant influence, Lynas has seen its average rare earths ‘basket sales price’ fall from above US$200 per kilogram in 2012 to US$22.63 per kilogram. This is roughly the company’s cost of production.

As Lynas is producing at roughly its breakeven price, it can’t afford to pay for additional capital expenditure, administration fees or even its debt repayments. It must continue to raise equity to pay for these necessary expenses.

Lynas can continue to increase its production to as high as it wants and it will still struggle based on its current fundamentals. The more rare earths Lynas processes at current prices, the more unprofitable it will be for them.

The only way I can see Lynas making a comeback is if China bans exports on rare earths as it did in 2012. I see this option being highly unlikely. China doesn’t want to encourage new mines opening around the world which could further hinder the rare earths price in the long term.

Could this be the beginning to the end of Lynas?

 
Jason Stevenson+
Resources Analyst, Diggers and Drillers

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By MoneyMorning.com.au

By MoneyMorning.com.au

What happened to Spark Infrastructure share price?

Shares of Spark Infrastructure Group [ASX:SKI] gained more than 3% Thursday, closing at the highest level since March 2007 after the company received a favourable ruling on an outstanding tax decision.

Why did this happen to Spark Infrastructure?

A subsidiary of Spark Infrastructure, Victoria Power Networks (VPN), was in dispute with the Australian Taxation Office over the interpretation of Division 974 of the Income Tax Assessment Act 1997.

The ATO’s interpretation of the Act had denied VPN the right to claim interest charges on a number of loans. The decision means that VPN can claim the interest charges for the year in question and all other years too. This should result in a beneficial change to the company’s financial position. Spark Infrastructure hasn’t disclosed the full financial significance of this ruling.

What Now For SKI?

You’ll need a doctorate in financial engineering to understand the full extent of the spat between Victoria Power Networks and the ATO. But the gist of the story was that the initial tax ruling meant that VPN owed the ATO an extra $296 million. Due to the ATO backdown, the final number should be much less than this. Although there are still open disputes between the ATO and VPN.

All this tells you that infrastructure stocks like Spark are complicated beasts. They need to borrow a lot of money in order to build and maintain infrastructure. This invariably means creating complex business structures in order to reap the benefit of tax offsets.

The dividend yield on stocks like this can be attractive. Spark currently trades with a dividend yield of 6.2%. But due to the complex nature and the close relationship these businesses need with state governments and regulators, they really can become more trouble for the average investor than they’re worth.

Cheers,
Kris+

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By MoneyMorning.com.au

By MoneyMorning.com.au

Why is everyone so glum?

Things aren’t that bad are they?

Ah, it’s budget time. And a new government’s budget is almost always bad.

So we’re not surprised people are feeling a little blue.

And yet for investors things are looking pretty good.

Target 7,000 is well within sight…

If you’re a long time Money Morning reader you’ll know we have two targets for the S&P/ASX 200 index.

Our main target is for the index to hit 15,000 over the next three to five years.

It’s a bold call. But it’s a target set on sound theory based on the historic performance of markets during boom periods. And because of our view that interest rates aren’t about to rise anytime soon.

But we have a short-term target too. This target isn’t as outlandish. Here we’re betting on the Aussie index to get to 7,000 points by early next year. By early we mean January…or February at the latest.

That seems impossible given all the bad news stories floating around the Australian share market today. And yet, it may be possible after all.

Nine billion dollar profit in a bad economy?

While most investors focus on the terrible resources sector, many appear to have forgotten non-resources stocks completely.

Because away from the mines and drill rigs, things seem to be shaping up just fine.

Evidence for that is in Commonwealth Bank of Australia’s [ASX:CBA] latest quarterly trading report. The big bank reported a 16% net profit increase.

According to reports, this latest quarterly result should put the bank on target to lock in profits of $9 billion this year.

That would be the biggest annual profit for any Australian bank in history.

Whatever you may think of the banks and their business model, there’s no getting away from the fact that $9 billion would be a spectacular stash of profits.

But what about the mining sector? That’s dragging the market down, right? It is right now. But again, like the day before, yesterday another mining sector story caught our eye.

Just as the Chinese takeover offer for PanAust Ltd [ASX:PNA] suggested that a recovery in mining stocks is just around the corner, other news confirms that something may be in the air.

Finally, good news on debt

Yesterday Aussie mining services company Transfield Services Ltd [ASX:TSE] made the following announcement:

‘Transfield Services Limited is pleased to announce the finalisation of its debt refinancing strategy with the settlement of US$325 million of senior unsecured notes in the United States, maturing in May 2020.

‘In addition it has completed approximately A$400 million of senior secured syndicated bank facilities in various currencies, maturing in July 2017.’

That may not seem such a big deal. And your first reaction may be, ‘Wow, that’s a lot of debt.’

But considering that in this market it’s easier to draw blood from a stone than it is to get a banker to finance anything in the resources sector, this is a big deal.

It does two things for the company. First it extends the average maturity date for its loans out to four years. And second, it creates a lot more certainty in a sector ravaged by the resources and China’a economic slowdown.

Of course, this doesn’t guarantee anything. For all we know the finance companies supporting Transfield could be making a terrible decision. For all we know the resources stock bust could last another seven years.

But we like the news. Sure there’s an element of ‘confirmation bias’ in this. We’ve been talking up the potential of a resources rebound even before last December when we took control as publisher of the flagship resources investment advisory, Diggers and Drillers.

What resources crash? It’s already happened

But it’s hard to look at the resources sector right now and not feel excited by what we see.

A great company like Fortescue Metals Group Ltd [ASX:FMG] is still 56% below its 2008 peak. BHP Billiton Ltd [ASX:BHP] is 21.4% below its peak. Rio Tinto Ltd [ASX:RIO] is 59.6% below where it was in May 2008.

And that’s just the big stocks. PanAust [ASX:PNA] has fallen 63.7% since it hit an all-time high in 2008. It makes you think shareholders are in a tough position. Do they take the Chinese takeover offer while they can and thank their lucky stars? Or do they say no, and see this as the beginning of the boom that could result in PanAust shares taking off again?

That’s not the worst of it. Galaxy Resources [ASX:GXY] is down 96.9% since 2009. Lynas Corporation [ASX:LYC] is down 94.9% since it peaked in 2011. And Metgasco Ltd [ASX:MEL] has fallen 92.5% since its 2008 peak.

These aren’t isolated cases. Scan across any part of the resources sector and you’ll find similar — or worse — stories of stock price destruction.

This is why we laugh when we hear people talk about a coming downturn for Australian resource stocks. We’ve already had the downturn.

Now, that doesn’t mean prices can’t fall further, because they can. But what we’re saying is that on a risk/reward basis it’s the perfect time to start adding resource speculations back to your portfolio.

Don’t go crazy. But when this market turns you’ll want some exposure, as rebounding resource stocks can move quickly.

Cheers,
Kris+

PS: Resource stocks across the globe have taken a beating. Check out the Money Morning Premium Notes to discover whether that means it’s time to buy…and two heavily beaten-down Aussie miners that could take off if the market turns around…

To find out more about Money Morning Premium, including how you can upgrade your membership now, click here

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By MoneyMorning.com.au

By MoneyMorning.com.au

I just got back from Australia’s biggest and best business technology conference — CeBIT Australia.

It was a great show.
I walked the halls, discovered brilliant little companies, and met fascinating entrepreneurs and investors. These guys are harnessing technology to redefine how business is done.

Here I am on my way in…

Source: Editor
Click to enlarge

…and here’s a bird’s-eye view of the exhibition floor.

Source: Demotixr
Click to enlarge

CeBIT is different to higher-profile tech conferences like the Consumer Electronics Show in Las Vegas and Mobile World Congress in Barcelona.

Those events show off flashy baubles like FitBit and Google Glass…but CeBIT is about the core of innovation and technology. It’s where companies at the bleeding edge of wireless equipment and mobile software come to show off their wares. It’s the stuff that keeps the global economy ticking over.

But I didn’t go to CeBIT to play with switches and routers.

I went for a good look at Australia’s hottest technology start-ups.

There were more than 150 Aussie start-ups at CeBIT. Some of them are the small-cap superstars of tomorrow…the companies with the potential to go from zero to a billion in the space of months.

I’ll reveal the most exciting companies in a moment. But first, let me show you what it was like to be there.

This exhibition was huge. Every nook and cranny of Sydney’s Olympic Park convention centre was crammed with company stalls.

This photo shows just one of the several ‘Start-Up Alleys’ that criss-crossed the floor.

Source: Editor
Click to enlarge

It’s a small world though. I bumped into my old housemate from London, Adam, in the registration queue. I’m glad I did — Adam pointed me to one of the more interesting companies I discovered at the conference.

A full day at CeBIT goes by in the blink of an eye, so I had to stay focussed. Four of the most interesting budding start-ups I discovered are Mathspace, Workible, zipMoney and CareMonkey.

These companies are too young to list on the Australian Stock Exchange just yet…but I’m betting you’ll be hearing a lot more from them in the near future.

Mathspace

This company has the potential to make a big splash in schools around the world. It provides online maths programs that high school students complete using a tablet computer.

The programs provide step-by-step solutions that let kids show their working. That’s a key point of differentiation compared to the largely multiple-choice-based online maths programs out there today.

The company makes money by selling subscriptions to schools. It should save teachers a lot of time that they would otherwise spend marking papers. The software even lets kids request hints to get them through multi-stage programs, which should make it easier for teachers to identify where students are getting stuck.

Getting innovative new products into schools can be easier said than done. But once you’re in, it’s sticky business, and textbooks and workbooks are a multi-billion dollar global industry. Mathspace could make an especially positive impact on schools in remote areas.

Maths is an international language, so I can see this product gaining in popularity in markets around the world. And with a distribution deal already signed with global education giant Pearson plc [ASX:PSON], Mathspace has already clinched a powerful partner and potential buyer.

No wonder the founders have already tipped more than $1 million of their own money into Mathspace. It’s a brilliant idea, and looks sure to be a commercial success.

Workible

This is an online marketplace that connects jobseekers and employers. Rather than target the white-collar market segment that Seek Ltd [ASX:SEK] and Linkedin [NYSE:LNKD] currently dominate, Workible helps bring flexible and temporary staff to some of Australia’s biggest companies.

As I told you in your January issue of Australian Small-Cap Investigator, the Australian workforce is becoming increasingly flexible. Co-founder Fiona Anson saw this trend developing and asked ‘If a dating site can match love interests, why can’t a job site match availability?’

6.8 million Australians work outside the traditional 9:00am to 5:00pm, so this service has a big addressable market. The ‘holy grail’ for Workible would be cracking the US market, where that figure is currently 92 million.

Most recruiters have ignored the flexible employment segment because it’s a highly transactional business with a lower price point. But Workible has collected more than $50,000 in revenue since late last year. This business could be as successful as Seek if it hits critical mass with employers and manages to market itself effectively to jobseekers.

zipMoney

This company provides short term credit for online shopping. It’s ‘credit in the cloud’ that can replace the traditional 16-digit card.

Although many Australians are keen web shoppers, online retail still has a lot more share to win away from traditional retailers.

One of the pain points for consumers is the fear of paying for goods long before they can physically touch them. zipMoney eases that fear, providing longer interest-free terms than many credit card issuers.

Several Aussie online stores have added zipMoney to their websites as a payment option.

The online consumer finance space will see some fierce competition in the coming years. The spoils for the victors will be fabulous. And with some deep-pocketed family offices standing behind zipMoney, this young company is in a good position to be a winner.

CareMonkey

This Melbourne-based company has built a health and safety system for schools, clubs and businesses.

Facebook Inc [NASDAQ:FB] and LinkedIn might have social networking locked down, but until now there’s been no ‘social care’ network.

CareMonkey fixes that by collecting medical and emergency records and automatically keeping them up to date. This saves teachers, coaches and admin staff the hassle of carrying so much paperwork and entering reams of data. It also makes sure emergency details are in the right hands.

The platform also automates things like parental permission requests for excursions and sick day requests for kids. No more forging your parent’s signature for a day off!

The big question for me is the privacy aspect. Is the data secure and encrypted, and what happens if parents opt out of the platform? CareMonkey says it’s worked through these issues and now has more than 50 institutions as customers.

CareMonkey addresses an important need and is expandable far beyond schools and clubs. Customers have already asked if CareMonkey can be used as a messaging platform…so you can see the potential for this company goes far beyond what it’s achieved to date.

In fact, that’s the common theme across all the exciting start-ups I found at CeBIT. They all have potential so great that measuring how big these companies could grow and valuing them today is very difficult.

But that’s okay. Investing in early-stage companies is an exciting, speculative punt. It’s at the riskier end of the investment spectrum…but those who identify and seize the right opportunities early can enjoy tremendous returns. That’s why I focus on this end of the stock market.

The only way a private investor can buy into a start-up is by engaging with the company directly and taking a stake worth tens of thousands of dollars. That’s a privilege that only a few investors enjoy.

But everyone can consider small-cap companies that still offer tremendous growth prospects.

In fact, my Australian Small-Cap Investigator subscribers have made a profit of nearly 40% on one ASX-listed tech stock that I tipped less than two months ago.

This company’s fortunes are linked to an exciting theme that’s only just taking off…and the stock could have a long way to run.

Great investable companies are emerging all the time in Australia. You just have to know where to find them.

Tim Dohrmann+
Small-Cap Analyst, Australian Small-Cap Investigator

From the Archives…

The Retirement War You Know Nothing About
10-05-14 – Shae Smith

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By MoneyMorning.com.au

By Chris Vermeulen, GoldAndOilGuy.com

Here is my gold prediction (silver and gold mining stocks, should be the same) looking forward 24 months.

Since the top in gold in 2011 gold has selling off. Depending on how you analyze the market, this 3 year sell off could be seen as consolidation within a major cyclical bull market or that it’s in a bear market. But know this, either way, the outlook is bullish, and all gold has to do is find a bottom here and rally above the $1400 per ounce level. This would kick start a major feeding frenzy of gold buying.

Gold bear market in the past have on average corrected 33% and lasted a total of 550 days. So if we look at the stats of the current pullback in gold it has dropped 38% and about 700 days long. Time for a bottom and bull market? It sure seems like it.

You can see my recent report on the US Dollar and gold forecast.

Gold Prediction Technical Outlook:

Gold remains in a down trend, but looks to be starting a possible stage 1 basing pattern. Technical analysis is pointing to strength as the MACD moving higher, relative strength, and the down trendline show price and momentum being bullish.

A few weeks ago the chart completed a Golden Cross. This is not shown on the chart, but it is when the 50 SMA crosses above the 200 SMA. Investors tend to look at this as a major long term buy signal, although I do not use it for any of my analysis or timing of the market.

If historical data, statistics, and technical analysis prove to be correct we can expect gold to rise. My gold prediction is for price to reach $2300 – $2500 per ounce within 24 months.

Gold Prediction Conclusion:

The average gold bull market last roughly 450 days and posts a gain of 95%. So with the current correction which is beyond these levels already, expect price to firm up this year and complete the stage 1 base.

Note that until gold breaks out of its Stage 1 Basing pattern, I will remain bearish/neutral on the metal. There is a huge opportunities else where unfolding…

Join my email list FREE and get my next article which I will show you about a major opportunity in bonds and a rate spike – www.GoldAndOilGuy.com

Chris Vermeulen

By Louis James, Chief Metals & Mining Investment Strategist, Casey Research

Sell in May and go away?

Precious metals tend to exhibit a seasonal pattern to their price trends, with summer weakness that leads to strength in the fall. Add to this the fact that mineral exploration in the Northern Hemisphere, especially in Canada, enters a sort of hibernation during winter months and then reawakens in the spring. With winter drill programs already announced, we typically see less news flow starting about now until well into the summer.

These variables combine to exacerbate the “sell in May and go away” conventional wisdom regarding the broader stock markets, as many brokers and promoters in our sector take their holidays during these relatively quiet months. Sometimes, even with stable or rising metals prices, shares in great companies can drop over the weeks and months just ahead, simply due to the lack of Push. Here at Casey Research, we call this Shopping Season, and it seems to have arrived early this year.

It is never safe, however, for metals speculators to head for the Bahamas and ignore the market for months; there’s always the possibility of a sudden black-swan event that kicks precious metals into a higher gear earlier than expected.

Further, individual companies can and do buck the trends all the time. That’s especially so if they’re working on a discovery that could deliver game-changing results at any time, working in a country where water doesn’t freeze in January, or working underground, where seasons are irrelevant.

And I’d like to introduce you to one of those companies today.

But What If Prices Go Lower?

Imagine that you were offered a brand-new Ferrari 458 Italia at a 75% discount during an economic downturn.

Even those not into high-maintenance cars would have to think about it—it could potentially be a very profitable trade.

Now suppose you bought the car, garaged it, cared for it, waited for the car market to turn around—and then the market got even worse for a while, and you saw the same car offered for 50% less than you paid for it.

While you might regret that you didn’t time the bottom right, would you conclude that the Ferrari was worthless?

I think you can see where I’m going here. Unless desperately short on cash for some extremely urgent need, nobody would sell our hypothetical Ferrari at a great loss; they’d simply wait out the downturn, no matter how long or painful. Whatever else might change, the Ferrari remains a Ferrari.

Just as, whatever else happens in the economy, an ounce of gold remains an ounce of gold. And yet, when it comes to the best-of-the-best gold stocks in the junior mining sector, investors seem increasingly willing to make the mistake of dumping valuable companies, simply because they are on sale. The error here is confusing price and value—and recognizing such errors before the market does is the essence of successful speculation.

Sales are for buying. A solid company with a deeply undervalued asset and all the cash needed to correct that mis-valuation is exactly the sort of bargain we like to buy during Shopping Season. That’s the kind of opportunity I have for your consideration today.

Regardless, and whether or not you buy the stock I recommend below, I hope you’ll read the case and watch the story as it evolves, to see if I’m right about the company.

Pretium Resources (PVG, US$7.24, PVG.TO, C$7.92, US$785.4 million market cap)

The Pretium story is simple: a group of serially successful geologists have made an extraordinarily large and spectacularly high-grade discovery in an area called Valley of the Kings, which is part of the company’s flagship Brucejack gold project in mining-friendly Canada.

We’re not talking about grams of gold per tonne (g/t) here, or even ounces, but kilos of gold per tonne in many drill intersections. And we’re not talking about a small, rich “sweet spot,” but a monster gold system with more than 6.6 million ounces of gold in Proven & Probable mining reserves, averaging 13.6 g/t gold, within 13.6 million ounces of gold in all resource categories, averaging 20.5 g/t gold.

There are 1.7 million more ounces at the project’s West Zone. Both zones are wide open for expansion—and are adjacent to 35 million ounces of bulk-grade gold in Pretium’s Snowfield gold project (which itself is adjacent to Seabridge Gold’s 63.9-million-ounce bulk-grade KSM deposit).

To give you an idea how rare a bird this is, a recent report shows 26 gold deposits larger than one million ounces—just 26 in the entire world—that have more than 10 grams of gold per tonne of ore.

There are only 11 such deposits above 15 g/t, which the Valley of the Kings zone beats, if you consider its 8.7 million ounces of Measured & Indicated gold averaging 17.6 g/t. To count publicly reported gold deposits that are both larger and higher grade than Pretium’s Valley of the Kings, you only need one finger.

That’s right: just one.

Pretium’s Valley of the Kings is the richest gold discovery in the last 10 years, and one of the richest in recorded history.

But that’s just the beginning. A deposit this rich will pay for many faults and still make for a highly profitable mine, but there are many questions to answer before one can say so. Is there a lot of mercury, arsenic, or other toxic elements in the mix? Is there a national park or endangered species living on top of the deposit? Is the local government likely to steal the mine if one builds it?

I don’t have space in this column to deliver an entire “Casey 8 Ps” analysis of the company, but the questions above have been thoroughly addressed in the company’s June 2013 feasibility study. That study is being updated in view of the company’s late 2013 bulk sample, which produced almost 50% more gold than the company’s estimates predicted.

Pretium also discovered more gold veins when it went underground for the bulk sample, and is incorporating those and other new discoveries into its mine plan.

Nevertheless, and despite what is a somewhat aggressive—at the moment—gold price assumption of $1,350 per ounce, the study yields some terrific results, including:

• After tax net present value (NPV-5% discount) of $1.8 billion

• After tax internal rate (IRR) of return of 35.7%

• Project finance payback in 2.2 years

• Mine life of 22 years, at an annual rate of 425,700 oz. per year

• All-in sustaining cost of $508 per oz.

Critical point: even at an unrealistically low $800 gold price, the project still makes money (IRR of 13.7%).

In short, this project has all the signs of a world-class, high-margin gold mine in the making, at a rate of production large enough to make Pretium of interest as an acquisition target for any of the world’s major gold producers.

That’s particularly important today, because one of those major producers, Goldcorp (GG, G.TO), just lost out in a bidding war over Canada’s Osisko Mining (OSK.TO). Goldcorp has shown its appetite for acquiring large, world-class assets while prices are down, and it has a good $3 billion in working capital to pursue them.

It’s hard to imagine a more attractive takeover target than Pretium—and if that happens, these shares could easily jump 20% to 30% in a day.

That’s no exaggeration; just look at Osisko’s stock chart, and you’ll see that it jumped more than 20% when Goldcorp made its offer last January and is close to doubling since then.

But the beauty of the situation is that Pretium doesn’t need to get bought out in order to hand us a major win; the company is fully funded for this year’s work advancing the project, and even has a little cash flow coming from a small amount of (very high-grade) mining allowed under its exploration permit. Given the exceptionally high rate of return on investment the Brucejack project boasts, we think the company will be able to obtain bank and other financing to build the mine and become a highly profitable mid-tier gold mining company.

Investors who buy now win either way, which is why this company is one of those listed in our special report, 7 Must-Own Mining Stocks for 2014, which you get free if you try a risk-free subscription to the International Speculator today.

You can read all the details about Pretium in that report, but there’s one more thing I should tell you, in case you decide not to subscribe; there’s a reason besides gold’s correction that these shares are selling for less than half of what they were a couple years ago.

It’s quite the drama, actually; last October, one of Pretium’s consulting engineering firms (a highly respected firm in its field) quit the job abruptly. On the way out, they basically said that the Brucejack resource estimate was bogus—that the deposit wasn’t really there!

That’s pretty extreme, but even more extreme was the consultants saying that, based on their statistical analysis, the Valley of the Kings bulk sample then under way should be stopped, being a waste of time and money. Management and a second consulting firm that made the resource estimate calculations (also highly respected) said they wanted to see the proof in the pudding of the bulk sample.

And a good thing, too, because their view was fully validated by the bulk sample; instead of the 4,000 ounces the bulk sample was originally estimated to produce, the sample actually yielded 5,865 ounces of gold—and that in a toll mill in Montana, not optimized for Brucejack ore.

Of course, that took time to show, and before the company could prove its point, a ridiculous number of ambulance-chasers announced class-action lawsuits on behalf of shareholders, and the whole circus took this formerly $17.92 stock all the way down to $3.10.

Now, I have known management at Pretium for many years, and was dead certain they were not faking their deposit, so I doubled down. (Yes, I personally own shares in the company; I bought them after recommending the stock to subscribers, and I am not allowed to sell them before giving subscribers a chance to do so first.) Many International Speculator subscribers were able to buy shares close to the $3 mark and have more than doubled their money on those investments since then. Because I was right: the bulk sample results vindicated management—and added a significant amount of cash to the till. The company is back in the race today.

But it’s not too late to build a position in this great company with the discovery of the decade in hand. Due to gold’s continuing fluctuations, the shares are still selling for not much more than they were at IPO—before the company made its record-smashing Valley of the Kings discovery.

Remember; a Ferrari is a Ferrari, value is value, and when you can buy a high-margin $1.8 billion asset for $785 million (or US$7.24 or C$7.92 per share), that’s a bargain.

To find out more about Pretium and our six other 7 Must-Own Mining Stocks for 2014, I encourage you to subscribe to the International Speculator today. Remember that you have three full months to check out our newsletter, and if you’re not happy with it, cancel any time within those three months for a full refund.

Or, if you decide to just buy or watch the stock to test us out, that’s fine too; I sincerely hope you’ll make a bunch of money, and come back for more.

Source: Brian Sylvester of The Gold Report (5/14/14)

http://www.theaureport.com/pub/na/michael-currans-three-pronged-approach-to-selecting-gold-equities

With more than 2,000 junior mining companies currently trading, it’s often difficult to sort out the promising gold equities. That’s why The Gold Report talked with Beacon Securities Managing Director and Analyst Michael Curran about some of his favorite ideas to unearth equities that add value and gold exposure to your portfolio.

The Gold Report: What has surprised you most in the gold market in 2014?

Michael Curran: We’re a little surprised that the gold price hasn’t had at least short-term runs to higher levels. We’ve had continuing global financial challenges and we’ve had growing political risk in places like Ukraine. Historically, those things have sent the gold price higher.

TGR: What’s gold’s role in an improving global economy?

MC: We definitely believe that gold is a play against improving global economics. If we see strong moves toward improving global economics, then we expect gold’s role to be diminished. We still view gold as a store of value. When interest rates are low there is a case to own bullion and/or equities because they tend to be negatively correlated with strong economies.

TGR: From where will the bid emerge?

MC: Possibly aftershocks to the system that would suggest that the global economy is deteriorating. That’s when we tend to see the best performance in gold and gold equities.

TGR: Traditionally summer is soft for the gold market. How do you see gold prices unfolding this summer season?

MC: We definitely believe in the “summer doldrums” for gold, when the metal tends to lose some physical demand support. Jewelry manufacturers don’t need to buy physical gold until the latter part of the summer for all those events around the end of the year, like Indian wedding season, Christmas and Chinese New Year. Unless there is some other market catalyst, we tend to see gold pretty flat over the summer months.

TGR: It’s difficult for investors to watch their portfolios slide lower on seasonal weakness. How should they cope with market softness?

MC: Our general view is that gold equities should be traded. We’ve never really been proponents of long-term holds on gold stocks. Historically, equities haven’t been great long-term holds because of the way gold vacillates between “in favor” and “out of favor.” A lot of the larger producers have already given back 20–25% in the last couple of months so it hasn’t been a case of “sell in May and go away”; it’s been “sell in March and go away.”

A lot of the producers are in the middle of their 52-week price ranges. I wouldn’t sell those stocks now; you might as well hold them. Some of those stocks will be pretty attractive opportunities in the next couple of months if they give back another 10% or 15%.

TGR: Generally speaking, what is an ideal percentage of gold exposure in an investment portfolio?

MC: Most portfolios would benefit from some gold exposure, but we’re not zealots insisting people need to have 50%, 75% or 100% of their portfolios in gold or gold equities. I think somewhere between 5% and 10% is a good place for most people. Investors at the upper end probably want a mix of equities and bullion. At the lower end investors can probably get by with just buying equities.

TGR: What is your current investment thesis for small-cap gold equities or are there multiple theses?

MC: We prefer the small caps to larger caps at this point and we are taking a three-pronged approach. Our primary focus is high-grade projects in low political-risk jurisdictions. On the low-grade side, we focus on potential heap-leach projects as those projects tend to have low capital expenses and low operating costs. And we still see some opportunities in the early-stage drill plays where there is a little more risk but probably good returns if these companies are successful in their drill programs. For the most part, we would focus on explorers seeking high-grade gold.

TGR: What’s your top pick in the small-cap gold equity space?

MC: Our favorite is Premier Gold Mines Ltd. (PG:TSX). The company ticks all the boxes. It is in low political-risk jurisdictions—Ontario and Nevada. It has a very strong management team, people who are good at exploring and financing, and who have built and run mines. Perhaps more importantly, Premier has more than $50 million ($50M) in cash so there are no concerns about shareholder dilution or having to finance at low equity prices.

TGR: Assays from drill holes on the Helen Zone extension on Premier’s Cove property in Nevada are in and the grade looks promising.

MC: Cove is interesting in that there are two, perhaps even three distinct types of mineralization. The current resource at the Helen Zone and some of the extensions below the previously mined Cove pit are all classic Carlin-style gold deposits with carbonate-hosted gold. It’s soft and easy to mine.

What’s more interesting is that below the open pit Premier found this new zone that has massive sulphide mineralization, with base metals in addition to gold. For underground mining, that’s a much more competent rock to be mining, assuming Premier finds enough of it at decent grades.

TGR: Premier is advancing three different projects. Does that confuse investors?

MC: We’ve had similar feedback regarding the focus of the company. Five years ago, investors would pay $5 per share for Rahill-Bonanza, a high-grade discovery in the heart of the Red Lake mining district in northern Ontario that’s a joint venture with Goldcorp Inc. (G:TSX; GG:NYSE). The company is now much closer to finding something at Red Lake, but in the meantime these other assets have been advanced, especially Hardrock in the Geraldton-Beardmore area of Ontario. That asset has Measured and Indicated gold resources of 3.24 million ounces (3.4 Moz) and 3.78 Moz Inferred.

Premier could have an interesting medium-sized open pit there. Then there’s a relationship with Newmont Mining Corp. (NEM:NYSE) at Cove. An aspect of Premier we’ve always liked is its potential for either a takeover or an asset selloff. Premier is a very attractive investment at $2/share.

TGR: What are some other companies that fit your theses?

MC: On the high-grade side we like Dalradian Resources Inc. (DNA:TSX). It has the Curraghinalt gold project in Northern Ireland, which has 1 Moz Measured and Indicated and 2.5 Moz Inferred gold resources at about 10 grams per ton (10 g/t). I think it can become a medium-sized gold mine in the next few years.

TGR: Curraghinalt will undergo a feasibility study over the next 18 months, generally a weak period for a junior gold stock. Why should investors stick around?

MC: The real incentive to own the stock now is clearly the valuation. When we look at market capitalization per ounce of resource, the global average is about $24 per ounce ($24/oz). But in the subset of non-producing gold companies with high-grade deposits similar to Dalradian, the average is $115/oz. Dalradian is valued at $25/oz—it’s the cheapest high-grade deposit we see out there.

Mergers and acquisitions activity in the last four years in the non-producer space has been midtier or large caps buying the high-grade deposits owned by juniors. I think Dalradian fits that bill. The valuation is so compelling that during a period of depressed news flow, it’s something that you can buy and hold and the stock can move up as Dalradian progresses through the feasibility study.

TGR: And you would consider Northern Ireland a low-risk jurisdiction?

MC: Northern Ireland is part of the U.K. and recently it has certainly shown a willingness to advance projects. Last year Dalradian received environmental approval to drive underground development at Curraghinalt and proceed with some test mining. If the company could get permits for that kind of activity, it should be able to permit it for mining.

TGR: Are there any more that fit that bill?

MC: One that we don’t cover but definitely follow is Integra Gold Corp. (ICG:TSX.V). The company owns the Lamaque South gold project in Quebec’s Val-d’Or camp in northwestern Québec. It has high grade in the heart of mining country so it has great infrastructure. People may think it’s the old Lamaque property, but this is actually south of the old Lamaque mine. I visited Lamaque South in the spring. It’s as if Integra found the initial discovery at Lamaque, which was an underground mine. Integra has outlined a couple of mineralized zones and the resource is up to 800,000 ounces (800 Koz). The Lamaque mine produced 4.5 Moz gold before various companies tried to make it a big low-grade open pit.

A preliminary economic assessment on that initial resource said Integra could put a mine into production for $70M in a toll-milling scenario but there are actually bankrupt mills sitting idle in the area. I think the market is waiting to see how it proceeds. We talked about Dalradian being very cheap but Integra trades at $30/oz, whereas high-grade situations elsewhere trade in excess of $100/oz.

TGR: What about an exploration story?

MC: Our favorite exploration-stage company that’s building resources is Cayden Resources Inc. (CYD:TSX.V; CDKNF:OTCQX). Initially our attention was drawn to its strategic land position in the middle of the Guerrero Gold Belt in Mexico where Torex Gold Resources Inc. (TXG:TSX), Newstrike Capital Inc. (NES:TSX.V) and Goldcorp’s Los Filos gold mine are located. Over the last nine months or so the focus has moved from the Guerrero Gold Belt to Cayden’s newer project, El Barqueño, on the west side of Jalisco state. About 250 Koz was mined there in heap-leach open pits over the last decade. We have seen some strong drill results and Cayden is building resources. El Barqueño has the potential to be the next multimillion-ounce deposit in Mexico. Cayden’s shares have done well despite the general malaise in the gold space.

TGR: El Barqueño is the new focus but Cayden believes its Las Calles property sits above the mineralized extension of Goldcorp’s Los Filos mine. Do you agree with that thesis?

MC: Cayden has two adjacent projects in the Guerrero Gold Belt: Morelos Sur and Las Calles. Morelos Sur is due west of Goldcorp’s Los Filos. Cayden hasn’t found anything there yet but Morelos Sur is probably the most prospective target in the Guerrero Gold Belt, which hosts five multimillion-ounce deposits. Goldcorp and Torex each have two, and Newstrike has the other.

Cayden also has a sliver of ground between the two open pits at Los Filos. About half a dozen holes drilled in Las Calles have encountered gold at similar grades to what’s found north and south, so there’s definitely gold ounces on Las Calles. I think there’s strong potential for Goldcorp to acquire either just Las Calles or perhaps all of Cayden’s ground in the Guerrero Gold Belt.

TGR: What are some companies that fit into that the low-grade, heap-leach thesis?

MC: Kaminak Gold Corp. (KAM:TSX.V). The company has the Coffee project in the Yukon, which has a resource of 719 Koz gold Indicated and 3.4 Moz Inferred. What is less known is that there’s a fair bit of high-grade oxide mineralization at Kaminak that is potentially heap leachable. There’s probably 1 Moz at 4 g/t gold so that could be economic as a smaller operation, while still mining 100–200 Koz per year. That’s one we like.

Another one we like in the low-grade, heap-leach space is Goldrock Mines Corp. (GRM:TSX.V). The company has the low-grade Lindero gold property in Argentina. It’s probably running 0.7–0.8 g/t, with 2.19 Moz Measured and Indicated gold and 710 Koz Inferred, including reserves of 1.5 Moz . Goldrock even has decent infrastructure for being in the Andes of Argentina.

TGR: Goldrock bills itself as a near-term 100 Koz gold producer. Why haven’t more people heard of this story?

MC: There have been two issues with Goldrock. One is that it’s in Argentina. Investors haven’t been excited about Argentina for a couple of years. That attitude is changing. We’ve seen an influx of money from international oil and gas companies. We haven’t seen that in the mining space yet, but I think that will follow. A change in government is expected later this year and the new regime should be more mining friendly.

The other issue is financing. Goldrock has its feasibility study completed and permits in hand, but it lacks the capital to start building a mine. When people see some of the financing, whether it’s debt or equity, to move that project into construction, that will put the company back on a lot of people’s radar screens.

TGR: Any others?

MC: Another one I’d like to mention would be one of our favorite very early-stage explorers. Arena Minerals Inc. (AN:TSX.V) is looking for both copper and gold in Chile. The management team is familiar with that area of the world and has secured a large land package in the heart of copper mining country. The property is near six large copper mines owned by some of the world’s biggest copper miners. This is ground that has lain dormant for decades. Arena has a second property that’s north of Yamana Gold Inc.’s (YRI:TSX; AUY:NYSE;YAU:LSE) El Peñón mine, a high-grade underground mine that produces gold and silver. Arena could have some extensions of the mineralized structure on its property.

TGR: Do you believe gold will finish 2014 above $1,400/oz?

MC: I think we can finish the year somewhere in the $1,400–1,500/oz range. We’re seeing a flat summer and then there will be some catalysts later in the year to push gold higher. Our current target would be $1,400/oz plus.

TGR: What would those catalysts be?

MC: They are going to be things related to either political risk or that economies aren’t improving as much as people believed, or if there’s a hiccup with quantitative easing in the U.S.

TGR: Michael, thank you for your time.

Michael Curran is a managing director and mining analyst with Beacon Securities in Toronto. He was previously a director and a mining research analyst with RBC Capital Markets. Curran received the #1 Ranking for Mining & Metals research coverage by The Wall Street Journal (Annual Best on the Street Survey) in May 2013. He holds a Master of Science degree in mineral exploration and a Master of Business Administration, and is a CFA charterholder.

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DISCLOSURE:

1) Brian Sylvester conducted this interview for Streetwise Reports LLC, publisher of The Gold Report, The Energy Report, The Life Sciences Report and The Mining Report, and provides services to Streetwise Reports as an independent contractor. He owns, or his family owns, shares of the following companies mentioned in this interview: None.

2) The following companies mentioned in the interview are sponsors of Streetwise Reports: Premier Gold Mines Ltd., Cayden Resources Inc., and Integra Gold Corp. Goldcorp Inc. is not affiliated with Streetwise Reports. Streetwise Reports does not accept stock in exchange for its services or as sponsorship payment.

3) Michael Curran: I own, or my family owns, shares of the following companies mentioned in this interview: None. 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: Dalradian Resources Inc., Kaminak Gold Corp. and Cayden Resources Inc. 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 HY Markets Forex Blog

Stocks – Asia

Stocks in Asia were seen trading mixed on Wednesday as stocks in the US climbed to a record high overnight.

The Japanese benchmark Nikkei 225 index lost 0.14% closing the session at 14,405.76 points, while Tokyo’s Topix index edged 0.41% higher ending at 1,183.15 points.

The Japanese publisher Kadokawa advanced by 10%, while the Nikon lost 4.04% after the company said its annual profit climbed by 10%.

The South Korean Kospi index advanced 4.41%, to close the session at 2,020.84 points, while Taiwan’s benchmark Taiex index added 0.6%.

Hong Kong’s Hang Seng index gained 0.96%, trading at 22,566.95 points at the time of writing, while the mainland Chinese benchmark Shanghai Composite slid 0.14% closing at 2,047.91 points.

Property developer China Resources Land saw the most gains in the Chinese market, as the company’s shares climbed 5.29%.

Australia

In Sydney, the benchmark S&P/ASX 200 index slid 0.09%, trading 5,493.30 points, after the government released the annual budget release for the nation, which revealed further cuts to the nations funding is expected.

The government’s total deficit in 2014/2015 will be at A$25.9 billion, lower than the A$46 billion recorded in the last financial year.

“Budget repair involves cutting back on unsustainable spending and putting a stop to unconstrained increases in debt,” the publication stated. “To restore budget sustainability, the government has focused on taking savings decisions that build over time.”

“The government will also increase the pension age to 67 years by July 2023, and further still to 70 years by 2035,” it said.

US Markets

Gains were seen in the US markets overnight after data from the Commerce Department showed that retail sales in the US rose by 0.1% in April.

Stocks – Europe

European stocks were little changed on Wednesday, with the European Euro Stoxx 50 dropping 0.15% to 3,206.89 at the time of writing, while the German DAX lost 0.05% to 9,750.11. Meanwhile, the French CAC 40 edged 0.10% lower to 4,500.65, UK’s benchmark FTSE 100 fell 0.02% to 6,871.32.

Economic News

Germany’s consumer prices for April dropped by 0.2% on a monthly basis, but were seen rising by 1.3% on an annual basis, according to reports from the Federal Statistical Office.

In France, the inflation data for April was flat on a monthly basis and 0.7% on a year-on-year basis, reports showed.

A separate report from the European statistical office Eurostat showed that the industrial production for the eurozone as a whole fell in March, with a reading of 0.3% on a monthly basis and rising 0.2% in February on a seasonally- adjusted basis.

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By HY Markets Forex Blog

Crude prices were seen trading higher on Wednesday as the North American West Texas Intermediate (WTI) crude climbed for a third day indicating hints that the US may lift its ban on crude exports.

Futures for the West Texas Intermediate (WTI) crude for June delivery increased by 0.31% to $102.18 on the New York Mercantile Exchange at the time of writing, while futures for the European benchmark Brent crude for June settlement  climbed by 0.21% to $109.47 on the ICE Future Europe exchange at the same time.

On Tuesday, the US secretary of Energy Ernest Moniz said the US is going over its ban on crude exports, “A driver for this consideration is that the nature of the oil we’re producing may not be well matched to our current refinery capacity” Moniz said.

Crude Stockpiles

Reports from the API showed that supplies increased by 912,000 barrels in the week ending May 9. The report also showed that crude inventories at Cushing dropped by 590,000 barrels in the previous week. WTI futures bounced back after reports from the EIA showed that crude inventories dropped from 399.4 million barrels, the highest since 1982.

The report from  Energy Information administration (EIA) due later in the day is expected to show a rise in supplies by 300,000 barrels.

The international Energy Agency is expected to release its monthly estimates of global oil demand and supply on Thursday.

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Article By RoboForex.com

Analysis for May 14^th, 2014

EUR USD, “Euro vs US Dollar”

Euro expanded its consolidation channel downwards. We think, today price may expand its upwards as well and reach next target at level of 1.3846. Later, in our opinion, instrument may form continue falling down to reach target at level of 1.3700. Pair may form consolidation channel in the form of triangle pattern.

GBP USD, “Great Britain Pound vs US Dollar”

Pound is forming the third descending wave; market completed its first part and right now is correcting it towards level of 1.6858. After reaching it, pair may start another descending structure to break level of 1.6825 and then expand this trading range towards level of 1.6790. Later, in our opinion, instrument may return to level of 1.6825 to test it from below and then continue moving downwards to reach local target level of 1.6750.

USD CHF, “US Dollar vs Swiss Franc”

Franc expanded its consolidation channel upwards. We think, today price may expand this consolidation channel downwards as well and reach level of 0.8806. Later, in our opinion, instrument may form another consolidation channel in the form of triangle pattern and continue moving upwards to reach level of 0.8955.

USD JPY, “US Dollar vs Japanese Yen”

Yen is still moving downwards; market is forming another structure with target at level of 101.37. Later, in our opinion, instrument may return to level of 101.80 and then continue falling down towards level of 100.00.

AUD USD, “Australian Dollar vs US Dollar”

Australian Dollar is trying to stay at current maximums. We think, today price may reach level of 0.9415 and then continue moving inside descending trend towards target at level of 0.9200.

USD RUB, “US Dollar vs Russian Ruble”

Ruble is still forming the fifth descending wave, which may be extended up to level of 34.46. We think, today price may reach level of 34.70 and then continue growing up towards level of 35.40.

XAU USD, “Gold vs US Dollar”

Gold is forming the fifth ascending structure. We think, today price may continue growing up to reach target at level of 1321. Later, in our opinion, price may form new correction to return to level of 1295.

RoboForex Analytical Department

Article By RoboForex.com

Attention!
Forecasts presented in this section only reflect the author’s private opinion and should not be considered as guidance for trading. RoboForex LP bears no responsibility for trading results based on trading recommendations described in these analytical reviews.