Tuesday, December 16, 2008

Counting down to last trading days... NG.to, MAI, TNR, GG

Another week of exciting developments and trading leading up the final days of trading in an otherwise turmoil-filled 2008. 

NovaGold is surrounded with rumors of a buyout. Since dipping to its lows of $0.60, NG.to made a surprisingly rebound last Friday and yesterday with a 60-70% gain per day. Currently it's up another 20% to $2.20. Rumors of spinout of Alaskan property Rock Creek to major is storming news sites and getting investors a run for their money. 

Brien Lundin must be liking this pick, calling it a buy at $0.60 last few weeks. Can't say much for his other selections of late...

Lundin says buy NovaGold

2008-12-02 23:05 ET - In the News

Brien Lundin, in the November, 2008, edition of the Gold Newsletter, says buy NovaGold Resources Inc., recently $2.45. Mr. Lundin said buy NovaGold six times between May, 2001, and December, 2007, at prices ranging from 64 cents to $15.97. Assuming a $1,000 investment for each of the six buys, the $6,000 investment is now worth $5,198. The newsletter editor says chief executive officer Rick Van Nieuwenhuyse has not lost confidence in NovaGold's strategic plan. Mr. Lundin also says Mr. Van Nieuwenhuyse is more resolute than ever that he is on the right track. The company is ramping up to produce 100,000 ounces of metal yearly from its Rock Creek gold mine in Alaska. Rock Creek is a conventional open-pit mining operation that is run year-round. The gold producer has also "delivered excellent results in support of company plans to produce a feasibility study and start permitting in early 2009." Drill highlights include 130 metres of 3.58 g/t gold. As for Galore Creek, the goldbug says he will wait until the end of the year to see how the company plans to develop the project. The stock market guru still believes NovaGold is a company worth buying for the long term.

What's great about this?

Well for one thing, it shows how vialble this area of the world is for large scale deposit and production. And remember TNR Gold Corp? It has 50% joint venture at Shotgun project with NovaGold, not to mention a giant early stage property at the footsteps of the mammoth Pebble project that BHP Billiton owned before - Iliamna property... I think many majors would consider the project if only the credit markets were not so shaky right now. 

Honestly, for $0.05 a share for TNR these days, it's not too much to risk - and a tremendous amount to gain.

A reminder as well seeing as it's December - Minera Andes should be delivering an update on Los Azules 11.2 billion pounds of copper very soon with their scoping study. I personally can't wait to see their cost per pound of production and more! Minera Andes is trading at $0.50 - down almost 1/5 from their $2.50+ stock price earlier in 2008 - but yet they are making money and with an updated inferred resource with a large elephant copper deposit - featured by Canaccord.

Let's hope the rate cut today by US gives more optimism and will wake the public up to the inflation that is coming late 2009. Auto bailout or not, no amount of low-quality and horrid resale value Ford and Chryslers will move the economy - $15 billion won't even be enough at the rate the factories are burning through cash. it has been said that for each car Ford sells, $3000+/car in legacy costs is added on.


Of union fees, dues, benefits, and pensions.

If GoldCorp (GG.to) ran a terrible business and it lost money quarter after quarter - does the government come and say "Oh that's not good!" and give them billions to burn through because they are paying their contractors $300/hour???

Things like this makes me see why people get really upset and throw shoes at Presidents.

Monday, December 8, 2008

Reserves? Types and categories

Speaking of 43-101 resources, this is usually when a junior mining company jump from a lofty dream of finding precious metals or anything worthwhile in the ground - to something tangible... or as some goldbugs like to refer to it as - pounds in the ground.

Let's review the few categories - which generally increases in quality and accuracy, as more holes are drilled and a better idea of how the deposit is formed underground can be projected.


Inferred: Usually only crude, high level ground survey or statistical "sampling" of the area has been performed. Not enough actual testing has been performed. "Gee, it kind of looks like that outcropping way over there has some gold in it too; it looks like it starts here and continues all the way." 

Indicated: Only a "few" drill core samples and assays of those cores may be completed and sufficient to calculate tonnage and grade. Inferred projection of the "goodies in the ground" at a measurable distance away from the drill holes is permissible with limitations. It is very expensive to drill every few feet, so you have to make reasonable assumptions about what is hidden between the drill holes; it may be a bonanza, it may be nothing. 

The thickness, grade (in grams of gold per ton of host rock), distribution and extent of the deposit is "fully" known, or at least with great statistical confidence. Where the ore starts and stops in every direction should be "known." Many, many drill holes and assays are completed and analyzed. Relative concentrations of gold ore to host rock and overburden are "known."


The term "Reserve" is used only for mines that are actually producing or very near that point. Much more is known about the richness, depth and expanse of the ore body. Drilling is complete and assays have been verified. Reserves are classified as proven, probable or possible. 

Proven: The actual entire ore reserves are stated explicitly in terms of the mineable tons. The chemical and metallurgical properties of the mineralization are very well known and documented. The mining method is clearly identified and optimized. The estimate of the "mine life" before resources are exhausted is extrapolated. All of the supporting infrastructure, ancillary requirements and capital costs are identified and indexed to expected price and "net profit" per ounce. This is the most important category and should always be carefully analyzed when picking a potential stock for inclusion in your portfolio.Almost everything else is a "sales pitch." You've been warned.

Probable: Only the mineable ore grades and tonnage are stated. The vein thickness is known and the way the gold ore lies in the ground is also known fairly well. Where mineralization starts and stops is reasonably estimated. This is often estimated from following industry accepted and permissible "ethical" procedures after drill results. 

Possible: This is a big estimate of how much gold might be here; it is sometimes referred to as "potential" How many of us know people that never lived up to their "potential" for one reason or another? Same thing here. It may be no more than some geo-pseudo-scientific guess based on little more than review of earth mapping satellite imagery or surface surveys. 

The ore can migrate from one category to another over time as the deposit is better measured and understood after more drilling and extraction is completed. Any given "zone of occurrence" can have only one classification at any given time. Lodes can turn out to be either richer or leaner than initially "guesstimated." It is NEVER an exact science, errors are inevitable. A simple decimal point higher or lower in any mathematical measurement can be the difference between profit and failure.

Wednesday, December 3, 2008

DOW-Gold Ratio, Tax Loss Selling, and CIBC Jeff Rubin Speaks!

My apologies for the lack of updates last few days. Needless to say this week the optimism on Wall street came to a screeching halt on Monday with a near 10% drop on DOW and major indexes. The 14% 4-day rally last week is only going to last so long.

CIBC's Jeff Rubin says gold will soar (along with oil and other key commodities) on BNN Monday evening.

$1.5 trillion US deficit = 11-12% GDP

"War Level deficits" - Vietnam and Korean War Level mortgaging the US future. He calls it future taxpayers generations afterwards might wonder why the government chose to mortgage.

He goes to advise possible monetization of these deficits (as they have in the past) - unlike Brazil and Argentina - people lend money in US$ Funds. 

"When US tries to finance these deficits - the US$ is going down." Instead of sending $1.5 trillion to public - might give it to Federal Reserves Board to spend, resulting in inflation forces = higher commodity prices, real estate, and goods. 


The chart to the left is from an intelligent investor in Minera Andes. The chart tracks the volatility in the DOW to Gold index over time.

The index, as its name suggests, compares the DOW Index number to the value of gold at that certain point in time to achieve a ratio. As you can see in the last little while the ratio has been jumping all over - similar to the VIX^ index we discussed in previous entries. 

This environment is perfect for daytraders - difficult for value investors. Short term optics remain blurry - Warren Buffet's entry point 2 months ago could not have been worse - so far. In 3-5 years he might very well be correct as a value investor - but the short term challenges for any investors remain as the only clarity in this market. 


On a more positive front, Tax Loss Selling seems to have subsided for a bit - perhaps the sellers were using their redemptions on a shopping spree on Black Friday

For those unfamiliar with the Tax Loss Selling rule here it is in a nutshell. Hopefully that means we will see a slight turnaround in markets in early 2009.

Since we're heading into December, the timing is right to look at a possible silver lining to those investing losses. 'Tis the season for tax-loss selling – when you sell equities that are losing money to claim the tax advantage that comes with capital losses.

Experts are expecting a huge amount of tax-loss selling this year because the conditions are perfect for it. Over all, share prices have plunged (as of yesterday, only 12 of the 241 stocks on the S&P/TSX composite have gained in 2008) and the markets have already seen big selloffs, particularly in September and October.

Losses are also coming after a few good years on the markets, which means that many investors have claimed capital gains over the past three years. According to tax expert and Globe and Mail columnist Tim Cestnick, the issue of capital gains is one of two crucial factors for investors in deciding whether to take advantage of tax-loss selling. (The other: “If you just don't like the investment any more.”) If you file for losses this year but have filed capital gains in the past three years, you can get a refund for some of the taxes you paid.