The TSX and the TSX-Venture has lost huge amount of grounds in the past 12 months. Just how bad it is? Take a look.In terms of points, the Venture board closed at 1771.63 yesterday.
Two short weeks ago when we were still feeling the summer vacation days winding down, it was 2130.19 on August 8, 2008. What is happening here? How does a venture board filled 80% with junior explorer and some hybrid small producers of gold, copper, silver, and other precious and base metal get to this point?
Well, let's take a look at the headlines from around the world and we'll soon see. Many brokers and analysts agree, while the commodity market will have to improve shortly, the juniors that are running low on cash or are unable to strike joint venture deals to farm out properties and get some capital injections. TNR's Argentinean subsidiary was running at a profit before they took focus on big expensive projects like Salto and Tapau. MAI Minera Andes made $8.9 Million Dollars last quarter from production of their San Jose mine and they're getting hit hard today (so far it's down from $0.98 to $0.85 at the time of writing)... keep in mind they just added a 11 billion pound copper reserve (43-101 compliant) yesterday! This is below their 52-week low of $0.86...
Does this even make sense anymore? Is McEwan wrong and we should be stuffing cash under our beds?
I hope the answer is a resounding NO. I know it's difficult to watch your portfolio drop lower and lower into the red, but persistent investors who understand it's not what's wrong with the mining industry but rather the credit and financial sector dragging everything down.
For more assurances - last I checked copper is in high demand. Circuit boards, alloys, base metal productions and industrial uses, copper is far different than gold which is traditionally considered a hedge against inflation and erosion of the dollar.
LONDON (Thomson Financial) - Copper prices could rise next year, with the market set to remain 'very tight' as growth in mine supply fails to keep up with ongoing demand growth from China, said Adam Rowley, executive director of mining and commodities research at Macquarie Bank.
'We expect the market to remain finely balanced in 2008, with China again providing strong growth, offsetting weakness in the developed world,' he said.'Supply is growing, but not quickly enough to swamp the copper market. Any major supply disruption next year could result in another period of serious copper shortage.'
Look in your favorite electronics and tech toys like Nintendo Wii and iPhone, each uses significant amount of chips and copper. Gold is a great conductor and used in exotic connectors like high end gadgets that audiophiles use on Shure and Grado $500/pair earphones.
That's real world thinking, I urge my readers and colleagues to not get caught up in the mass media dilution of intellectual thinking.
The Fannie Mae and Freddie Mac saga continues today, with FNM and FRED up slightly and trading like a rollercoaster. On what, more tax dollars to make up for failed executive compensation control and due dilligence?
LEH Lehman Brothers are having a field day on the NYSE today, on suspicion from investors and analysts of potential liquidity problems.
Uh oh, where have we heard this before?
Oh that's right, another bailed out finance corporation called Bear Sterns. They issued PR saying no problem with liquidity and the very same Sunday weekend - was bailed out by Feds at $6/share. If you'll notice, BSC doesn't trade anymore on NYSE - do you think FNM will be the same soon? I hope those investors get in quick, and get out real fast with the 20% gain today.
At times one has to think clearly without external media focus. Keep in mind leading and highly regarded investment guru such as Cramer was found touting BSC at $45 merely days before the eventual tanking of the stock.
"BSC is fine!" he said days before the drop. Youtube video linked.
Last I checked, having a stock dropping $32 to $2 over a weekend isn't exactly fine... but what do we retail investors know?!!
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My conclusion amidst all this chaos and confusion is - know that paper money (fiat) can never fully replace commodities and tangible goods.
The terms fiat currency and fiat money relate to types of currency or money whose usefulness results, not from any intrinsic value or guarantee that it can be converted into gold or another currency, but only from a government's order (fiat) that it must be accepted as a means of payment.[1]With the continual erosion of US dollar inevitable (where do you think billions of dollars are coming from? TAX DOLLARS of course!) - I recommend some bullion coins and well positioned junior mining stocks, for when the market wakes up, you'll be asking yourself why you didn't buy more of KGC, AUY, GG, TNR, and MAI.
US Dollar to Face Repercussions of GSE Bailout
The US GSE turmoil has global implications, because of the large agency holdings by foreign central banks. Our view is that most foreign central banks will likely avoid investing more in US agencies in the months ahead, but will increase their buying of US Treasuries instead. This uncomfortable substitution is only possible because the US still commands the most liquid and deep financial markets in the world and, in times of global turmoil, the dollar is still the currency to hold, especially for EM (emerging market) central banks. Also, the fact that the world is still experiencing aggregate excess savings should help fill US financing needs. However, over the long run, we believe that the US – both the public and private sectors – will need to fundamentally reform and restructure in order to continue to attract foreign capital. According to latest US Treasury data (see Preliminary Annual Reports on US Holdings of Foreign Assets and Foreign Holdings of US Assets, August 29, 2008), foreigners demonstrated a huge appetite for USD assets in 2007. Total foreign holdings of long-term USD securities increased from US$7.8 trillion in 2006 to US$9.8 trillion in 2007, with US$1.3 trillion of this annual increase from increased foreign holdings of US long-term debt securities, including US Treasuries, agencies, agency ABS and corporate bonds. Foreigners are dominant in some of these markets.
Stephen Roach, Head Economist, Morgan Stanley
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3 comments:
What is your opinion on the following juniors (UXG and RBY)? I have been following them and know Rob McEwen has invested interest in them as well.
RBY is Rubicon correct? I remember seeing a fax coming in (yeah, SEC regulations?) and was surprised about their marketing efforts.
The company looks good in terms of the properties, RedLake ON obvious a favorite for GG, Agnico-Eagle and other majors.
As a non-producers though I have hesitation in a $1+ stock when there are so many deals out there for that discovery hole. MAI is a better pick still IMO - South America is still the way to go for gold in terms of cost, and Chile is still the major producer of copper (and Northern Argentina is just brim full of potential)
McEwan has 30% or so of MAI as well, if I remember right?
UXG is US Gold and with Rob as the CEO certainly gets alot of press by itself. 43-101 resource looks impressive and about right at $1 and 95 million shares o/s - like I said though this market tends to prefer producing juniors at that milestone - even if its' not in positive cashflow. MAI made $9/million last quarter Q2, both the companies we discussed needs debt finaning / JV out their major holdings to move forward.
If anything I'd go for lower priced junior with similar stage properties (43-101 resource) and wait for the takeout from majors. Seregenti (SIR.v) comes to mind at half the price $0.40 last I checked - (TNR.v) is another one with their relations to majors (BHP, Barrick, etc). Likelihood even in these markets of a bigger relative % when/if takeouts occur is much better, and that's a more probable outcome to bank on in these markets IMO. Just look at Aurelian and KGC Kinross, $6 wasn't anything near what people paid months before!
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