Wednesday, July 19, 2017

Gold Resource Corp Is Not A Primary Precious Metals Producer Anymore

Today Gold Resource Corp (NYSE: GORO) released its 2Q 2017 production results. The company produced the following amounts of metals:

  • Gold: 5,696 ounces
  • Silver: 397,670 ounces
  • Copper: 294 tonnes
  • Lead: 1,207 tonnes
  • Zinc: 4,176 tonnes
Now, assuming the following, average metal prices recorded in 2Q 2017:

  • Gold: $1,258 per ounce
  • Silver: $17.21 per ounce
  • Copper: $5,662 per tonne
  • Lead: $2,161 per tonne
  • Zinc: $2,596 per tonne

the metals produced in 2Q 2017 were worth:


source: Simple Digressions

Or, look at another chart:

source: Simple Digressions

As the chart shows, the value of base metals produced in 2Q 2017 was higher than the value of precious metals.

So, GORO is not a primary precious metals producer anymore, which means that from now on the company's peers are base metals producers.

Wednesday, July 12, 2017

Silver - The Demand In Action

Although for the last two days gold and silver regained some ground but, generally, precious metals investors feel a lot of pain this year. For example, on July 10 the silver was trading at this year's lowest level  so far.


However, it looks like lower prices of silver attracted a bunch of investors who started aggressive accumulation of this metal. The chart of SLV looks very promising:


source: Simple Digressions

As the chart shows, July is an exception. Generally, Western investors buy silver when its prices are going up. And vice versa. However, in July SLV added as many as 9.4 million ounces of silver at lower prices than those reported in June (a loss of 4.2% - look at the blue row  where monthly changes in silver prices are plotted).

I think it is a very positive development for silver bulls.

Interestingly, a new pattern is developing - in May the Chinese withdrew the highest amount of silver from the Shanghai Gold Exchange (which should be read as "in May there was the highest demand for silver bullion in China):


source: Simple Digressions

Note that in May SLV reported a highest inflow of silver into its vaults.

Tuesday, July 4, 2017

Centamin plc - A Dividend Company?

Precious metals mining companies are not income companies. In other words, the investors hunting for dividend-generating picks should forget about the precious metals sector.

However, there are exceptions. For example, last year Centamin plc (CELTF), a mining company operating in Egypt (the Sukari mine), paid a very generous dividend of 15.5 US cents per share. Keeping in mind that Centamin shares are trading at US$1.96 a share, the dividend yield stands at 7.9%.

Now, investors get accustomed to good things very quickly. I am sure that some of them hope that this year Centamin is going to pay a high dividend once again. However, I doubt it. Look at the table below:



source: Simple Digressions

The table shows the way the company calculates its dividend. Firstly, cash flow, defined as revenue less all-in sustaining cash cost of production, is calculated.

Then the EMRA profit share (briefly, it is that part of the company's profit that is attributed to the government of Egypt) and exploration expenses (related to other Centamin's properties) are deducted, resulting in the so-called free cash flow. 

Now, the point is that this year Centamin wants to pay off not less than 30% of free cash flow in the form of a dividend (last year it was around 70%) so, as the table shows, the dividend yield should stand at a mere 2.0%.

At least that is what the company stated in its 2016 Annual Report:


source: Centamin plc

If, due to some reasons, Centamin's management decides to pay a higher dividend, that is fine. For example, if the payout ratio is 70% (as last year) the yield should stand at 4.6%, which is a very nice figure. 

However, the question is: will they change their dividend policy? 

Monday, July 3, 2017

Are We Close To The Bottom In Gold?

Look at these two charts:

source: stooq.com

It happens all the time - there is another divergence (red arrows) between gold prices (the upper panel of the chart) and the silver / gold ratio (the lower panel of the chart).

Generally, when gold prices are diving and the silver / gold ratio is going up, the precious metals market is close to its local bottom.


Sunday, July 2, 2017

Volume By Price Indicator - Quite A Helpful Tool To Trade Stocks

My readers know that I am not a fan of Technical Analysis in its classic form. However, sometimes I have a look at a few interesting indicators that are not in common use.

Let me take the so-called  "Volume By Price" indicator. According to Stockcharts, this indicator is defined as:

"Volume-by-Price is an indicator that shows the amount of volume for a particular price range, which is based on closing prices. The Volume-by-Price bars are horizontal and shown on the left side of the chart to correspond with these price ranges. Chartists can view these bars as a single color or with two colors to separate up volume and down volume. By combining volume and closing prices, this indicator can be used to identify high-volume price ranges to mark support or resistance"

In my opinion, the Volume by price indicator is sometimes very helpful to find major resistance / support levels. Look at these two charts:


source: www.stockcharts.com

The chart shows the price action of B2 Gold, one of the best gold miners (although most recently in some kind of trouble). Notice that its shares are fighting against a strong resistance at around C$3.9 a share. Interestingly, this resistance level has been disclosed by a long, horizontal bar on the left. In other words, this bar means that vast amounts of shares changed hands at C$3.8 a share.  

Now, another example. This time it is Kirkland Lake Gold, similarly to B2 Gold one of the world's best gold miners:


source: www.stockcharts.com

Here we can easily spot what happens when the shares break their strong resistance level (depicted by a long, horizontal bar on the left). Notice that after some struggle Kirkland shares ultimately broke above their strong resistance at C$10.0 - C$10.5 a share. Since that event the company's shares are appreciating at high speed (the red arrow).

Tuesday, June 27, 2017

Paladin Energy - The Road to Zero

Paladin Energy is (or was?) one of the world's largest uranium producers. Now the company is generally non-existent - most recently Paladin shares have been withdrawn from exchanges.

Below I present a few charts showing the Paladin's road to zero.

Uranium prices:


source: stockcharts.com

Uranium prices topped in 2007, ahead of a big financial crisis. Then, in 2011, the Fukushima disaster set the downward trend in uranium prices. For many years...

Poor prices = poor investment and impairment charges

When uranium prices  go down, a uranium producer generates lower cash flow from operations:


source: Simple Digressions


Poor prices have a negative impact on the value of assets. Hence, impairment charges:

source: Simple Digressions

Then, when there is no cash, a company has to borrow money to keep operations going:


Negative cash flow from operations + debt service + impairment charges are a poisonous mixture. As a result, a company's equity goes to zero...or even lower:




source: Simple Digressions

End of story

Oh, is it? Not really - now Paladin tries to restructure its debt and...sell its best asset (the Langer Heinrich mine)

Monday, June 26, 2017

Simple Gold Trading System

In an ultra short - term the relation between gold prices and US 10-year treasury notes prices generates interesting trading signals. Look at the charts below:


source: Simple Digressions

How does the system work? Trading signals are generated when the ratio gold / 10 year is close to one of the red lines on the lower panel of the chart.

The red and violet arrows point to BUY / SELL signals.

Now it looks like gold is very close to generating a BUY signal.