Friday, November 17, 2017

Geodrill - Good Figures Once Again

Another drilling company, Geodrill (OTCMKTS:GDLLF), released very good 3Q 2017 figures. To remind my readers, Geodrill is a mineral drilling company operating in Western Africa only (Ghana, Burkina Faso etc.).

In 3Q 2017 the company, similarly to Orbit Garant, reported the highest drilling prices in its history:

 source: Simple Digressions

As the middle panel of the chart below shows, direct costs of drilling also went up significantly (due to higher salaries) did not matter. Much better pricing covered higher costs and a gross margin (defined as revenue less direct costs) was one of the highest in history as well:   

source: Simple Digressions

Summarizing - another drilling company gives an evidence that the mineral sector (particularly its precious metals segment) does quite well now.

Tuesday, November 14, 2017

It Looks Like The Oil Is Topping Now

According to the latest Commitments of Traders report, Money Managers trading Crude Oil (light sweet) futures increased their net long position in these futures to 340.2 thousand contracts or 13.1% (calculated as the net long position divided by the total open interest):

In that way the LONG oil trade entered the over bullish area.

Note that each time there was excessive optimism among Money Managers (the area marked in light green) oil prices were topping.

It looks like the recent jump in oil prices was driven by the shorts cutting their bets in panic (for example during the week that ended on October 31):

Finally, last week the longs took control over the market (increasing their position by 24.0 thousand contracts) supported by the shorts still cutting their exposure (a cut of 18.3 thousand contracts).

In my opinion, a prudent trader / speculator should avoid the LONG trade in oil now...

Sunday, November 12, 2017

Orbit Garant - The Results Delivered By This Drilling Company Should Satisfy The Gold Bulls

It looks like the bear market in the mineral drilling sector is over. A few days ago Orbit Garant (OBGRF), a small mineral drilling company operating mainly in Canada (this country accounts for 75% of total revenue reported in 3Q 2017), released its 3Q 2017 report.

Look at this chart - in my opinion, it is one of the most important charts I published this year:

source: Simple Digressions

Note that the drilling prices reported in 3Q 2017 were the highest in history. Well, the company is, as always, very cautious about its future (and it should be) but the facts support a bullish thesis on the precious / base metals market - rising prices signal that the industry is definitely recovering.

Despite higher prices, Orbit is able to drill more and more metres:

source: Simple Digressions

Well, higher prices and more work to do result in an impressive jump in cash flow from operations (excluding working capital issues and taxes):

source: Simple Digressions

What is more, as of the end of September 2017 Orbit had the short-term debt of C$16.4M (which was a risk factor) but on November 2, 2017 it signed a new  agreement with its lender (which de-risks the company). Let me cite the company (3Q 2017 FS, page 12):

"On November 2, 2017, the Company and the Lender entered into an amended and restated credit agreement that replaces the Credit Facility with a new three-year credit facility, consisting of a $30 million revolving credit facility, a US$3 million letter of credit facility and a US$3 million revolving credit facility"

Now the question is whether Orbit share prices are able to break out above the latest trading range (the red rectangle):


Saturday, November 11, 2017

Alio Gold - I Was Wrong

On November 9, 2017 Alio Gold (ALO) released its 3Q 2017 report. As expected, the company delivered the worst results this year but...they were not that bad as I predicted:

source: Simple Digressions

As you surely remember, I projected the 3Q 2017 gross margin of  US$1.6M but the company reported a higher figure (US$7.7M).

What happened? Well, I had underestimated Alio - instead of the mining cost of US$3.2 per ton of ore processed, the company recorded the actual cost of US$2.6 per ton of ore.
In other words, I took the average cost of production reported during the latest four quarters but Alio was able to cut it even below the 2Q 2017 figure. So, hats off to the management and shame on me (I was too skeptical).

Unfortunately, the company has cut its 4Q 2017 production guidance from 20 - 22 thousand ounces of gold to 14.5 - 18.5 thousand ounces. The cut resulted in another selling wave:


Very likely, the price drop has also something to do with Torex and its problems in the Guerrero State, Mexico.

To remind my readers, Alio is going to build its Ana Paula gold mine in the same, quite dangerous, state so problems at Torex the El Limon - Guajes mine may have a negative impact on Alio.

Tuesday, November 7, 2017

Jaguar Mining - Good 3Q 2017 Results

Today Jaguar Mining (JAGGF; JAG.TO) released its 3Q 2017 report. And, at last, these results were really good. Look at these two charts:

source: Simple Digressions

Firstly, cash flow from operations has been in a steady increase since 1Q 2017 (the red arrow on the left). Secondly, in 3Q 2017 the company was, for the first time since the end of 2016, able to deliver free cash flow  (the panel on the right).

Interestingly, the main contributing factor standing behind these nice results was the Caete mining complex. Here are the charts showing the costs reported by the Caete complex (Pilar + Roca Grande):

source: Simple Digressions

I particularly like the all-in sustaining cash cost reported by Caete. Now this mining complex produces its gold at the cost of $1,080 per ounce, which is absolutely an outstanding result. Compare this operation to, say, 1Q 2017, when this cost was $1,526 per ounce and Caete was cash flow negative. Good managerial work...

And what about Turmalina, a former flagship property? Well, there is regress at this operation is still quite a decent mine. Look at the all-in sustaining cash costs reported by Turmalina:

source: Simple Digressions

Although the costs are still rising, the current AISC of $1,002 per ounce of gold is not too elevated.

Anyway, most importantly, both operations are now free cash flow positive.

Friday, November 3, 2017

Tesla Motors - Did It Go Too Far?

Quite often financial crises start from a set of events. I have no idea what event is going to ignite another crisis (if there is any crisis) but Tesla Motors fits a crisis scenario very well. Look at these two charts:

The first chart shows Tesla's net debt (defined as debt less cash) and free cash flow (defined as cash flow from operations less investment spending):

source: Simple Digressions

Note: free cash flow reported during 3Q 2017 YTD is the sum of free cash flows reported in 1Q, 2Q and 3Q 2017

As the chart shows, the higher net debt the higher negative free cash flow, which is a nice recipe for severe financial problems.

The second chart shows cash flow from operations before working capital adjustments. In other words, it shows cash flow delivered by Tesla's core business:

source: Simple Digressions

Note that this year up to date the company has generated lower cash flow than in 2016. Of course, the fourth quarter may be totally different but during first three quarters of 2016 Tesla delivered cash flow of $471.6M, which was a slightly higher figure than that reported this year ($420M). So there is some regress anyway.

To be honest, I like Elon Musk. He is a visionary but as far as financial issues are concerned such a company as Tesla has to be led by a hardball financial officer. A quick look at Tesla's balance sheet makes me wondering whether there is any financial officer at all. 

Summarizing - it looks like the whole world (banks, investors, Tesla's customers etc.) is financing the visions created by Elon Musk. However, the main questions is: Did Tesla go too far?

Last but not least - I am not going to start commenting on other issues than the precious metals market. Not at all. However, any financial crisis should have a positive impact on gold and silver. Simply put - during financial meltdowns the precious metals are safe harbors so Tesla's problems could have an indirect positive impact on gold and silver prices at some time in the future....

Tuesday, October 31, 2017

Silver Plays Valuations

Although precious metals are quite weak now, the silver / gold ratio indicates that we are still in a bull market in precious metals:


The red arrow on the upper panel of the chart shows gold prices trending slightly down. However, the blue arrow indicates that the silver / gold ratio is going up. In other words, silver is a little bit stronger than gold now and it could be a good time to look at valuations of a few silver plays.

Below I have plotted a popular valuation measure defined as enterprise value (EV) / earnings before interest, taxes, depreciation and amortization (EBITDA):

source: Simple Digressions

Note: EV/EBITDA calculated for Great Panther and Coeur Mining is based on the results reported in 4Q 2016, 1Q 2017, 2Q 2017 and 3Q 2017; other ratios are calculated taking the results reported in 3Q 2016, 4Q 2016, 1Q 2017 and 2Q 2017

Now, look at Hochschild Mining. In my opinion, this company does not deserve to be valued at 5.4 multiple of EV/EBITDA. Due to excellent performance of the Pallancata mine, the operating results reported in 3Q 2017 were really good. And it looks like next year, when the Pablo vein of Pallancata operates at full capacity, the results should be even better.

In my opinion, Hochschild is a buying opportunity now.

Tuesday, October 24, 2017

Gold Bulls - Be Cautious Now

The prices of US 10-year treasury notes are at an inflection point now:


The chart above shows gold prices plotted against 10-year treasury notes prices. Note that each time the treasuries are close to their suport (the area marked in orange), gold prices rebound.

Now the treasuries are again at their technical support. However, this time the situation is a little bit different. According to the Commitments of Traders report, big speculators trading treasury notes futures, are cutting their bets on lower or stable market interest rates. For example, last week (I mean the week that ended on October 17), big speculators had cut their gross long positions in treasuries by 73.2 thousand contracts - it was the largest cut since late November 2016.

As a result, a drop below the support is likely now. If that is the case, such an occurrence could spark a big mess around the world with gold prices going down (according to the rule that lower prices of US treasuries (and higher interest rates) have a negative impact on gold prices).

Today treasury prices are below the support (the chart shows the state of the market as of October 23) cautious.

Tuesday, October 17, 2017

Gold Resources - Nice 3Q 2017 Production Figures

Yesterday Gold Resources (GORO) released 3Q 2017 production figures. These figures once again confirm the fact that GORO is a base metals producer and not, as many think, a precious metals producer:

The chart shows that in 3Q 2017 base metals' (copper, lead and zinc) contribution to the total production was 56%.

What is more, the high contribution of base metals should have a very positive impact on the company's results. To remind my readers, this year base metals go up much stronger than gold and silver so...GORO investors should be satisfied.

The chart below depicts the value of metals produced, assuming the average quarterly prices of gold, silver, lead, copper and zinc:

Note that in 3Q 2017 the value of production was the highest this year.

Thursday, October 12, 2017

Impressive Data On The Chinese Demand

Today the Shanghai Gold Exchange (the SGE) released the September data on the gold and silver demand. In my opinion, the Chinese demand for gold and silver is very strong. Here are the appropriate charts:


...and silver:

Gold figures are especially impressive - since the beginning of 2017 the Chinese have withdrawn 1.5 thousand tons of gold from the SGE. It means that this year the demand for gold has been substantially higher than last year.

As for silver - despite lower demand than in August, the September data is still impressive (the second largest withdrawal this year up to date)...

Now, although the data disclosed by the SGE has no short-term impact on the prices of precious metals, in the medium and long-term the precious metals are strongly supported by the Chinese investors.

Wednesday, October 11, 2017

Corvus Gold - Update

Last year I published an article on Corvus Gold (it was dispatched in the form of a newsletter). I discussed the North Bullfrog Project and tried to assess the value of the company. Most recently Corvus shares have been rapidly going up so it is time to update my valuation figures. Assuming that nothing has changed, here is the updated calculation:

  • value of North Bullfrog: C$128.5M (as in the article)
  • Cash at the end of May 2017: C$1.3M
  • Debt: null
  • Shares outstanding: 99.78 milion (end of May 2017)

Equity value = $129.8M

Share value: C$1.30

Today Corvus shares were trading at the price of C$1.30 a share so...they hit my target price.

Monday, October 9, 2017

Alio Gold - A Quick Look At Its Market Performance

It looks like investors seem to share my positive opinion on Alio Gold (ALO). Since the announcement of 3Q 2017 production figures the company's shares are going up:


What is more important, since the beginning of the current bull market in precious metals Alio has over performed the broad precious metals market represented by GDXJ (look at the upper panel of the chart and the green, up-sloping trend line).

According to the old rule:

If a company releases bad news and its stocks are going up, it may mean that all bad news are priced in.

Friday, October 6, 2017

Alio Gold: Expect Very Poor 3Q 2017 Results

Yesterday Alio Gold (ALO), one of my favorite mining companies, released 3Q 2017 production figures:

source: Alio Gold

Having this data, it is possible to make an estimate of the gross margin delivered by the company in 3Q 2017 (gross margin is defined as revenue less direct costs). My estimate cannot be accurate because I am not able to look into the company's internal figures but...let me try using the average figures.

So, over the last four quarters Alio was processing its ore at an average cost of $9.6 per ton of ore processed. Translating this figure into total material mined (ore + waste) and  assuming that the amount of ore processed is equal to the amount of ore mined*, it means that the company was mining its material at the average cost of $3.4 per ton of material (ore + waste) mined.

According to the table above, in 3Q 2017 Alio had to remove 5.2 million tons of waste. To do it the company incurred the cost of $17.8M ($3.4 x 5.2 million tons). Now, to mine the ore Alio had to spend $5.8M ($3.4 x 1.7 million tons) so the total cost of mining was $23.6M ($17.8M + $5.8M).

According to the company, the 3Q 2017 revenue was $25.2M so a gross margin should have been around $1.6M ($25.2M less $23.6M).
For comparison reasons, the chart below shows gross margins, starting from 1Q 2016:

source: Simple Digressions

Am I bothered about it? Not at all - the company was expecting a very hard quarter so I am not surprised...

* - I cannot be sure about it - generally, some part of ore or waste mined comes from previous quarters

Thursday, October 5, 2017

Warren Buffett? No, Thanks.

Is it the end of Warren Buffett's era? Look at the chart below:


The chart shows the price action of Berkshire Hathaway shares against the S&P500 index since the beginning of the current bull market in stocks (March 2009). Note that the red arrow goes down, which means that investment in Berkshire has returned less than investment in the broad stock market...

It looks like investing in Warren Buffett's flagship company makes no sense. Mr. Buffett is beaten up by the broad stock market.

Sorry for being nasty...

Tuesday, October 3, 2017

Two Positive Signals For Gold Bulls

It looks like the precious metals market wants to tell us something important. Look at these two charts:


The upper panel shows the relationship between GDX and gold. The lower panel shows gold prices.

Now, since September 27 GDX has been going up (the blue arrow) while gold has been going down (the red arrow). Interestingly, the shares of precious metals mining companies are stronger despite lower prices of gold.

Another ratio, silver to gold, is also sending positive signals with silver being stronger than gold.  While the signal sent by the second ratio (silver:gold) are relatively frequent, the signal sent by the first ratio (GDX:gold) is a rare event.

Note that both ratios are sending positive signals despite a stronger US dollar...  

Saturday, September 30, 2017

2017 Top Five Portfolio - Update

As of September 29, 2017 the Top Five Portfolio has returned 27.7% since inception (December 12, 2016):

Now me and my subscribers are entering the last phase of this real-time experiment (using George Soros' terminology) so it is a good time to tell you this:

"I am thinking about extending this service into 2018 but, probably, this time I would change the way I am communicating with you. Simply, instead of the updates delivered by email, the subscribers would get an instant access to the material published on a daily basis. It should be a much more effective way of communication. Details should be announced soon..."

Thursday, September 28, 2017

Hochschild Mining - Looks Interesting Now

Hochschild Mining is a mid-tier silver / gold producer operating in South America (Peru and Argentina). The company has been under my radar for years but most recently my interest in this miner has dissipated a little bit. Why? Because Hochschild was one of a few mining companies that hedged their production against lower precious metals prices. What is more, this policy had a negative impact on the company's results. However, in the 1H 2017 report I have found this statement (page 23):

"In 2016, the realized loss on gold and silver swaps and zero cost collar forward sales contracts in the period recognized within revenue was US$3,116,000 (loss on gold: US$3,501,000, gain on silver: US$385,000). There were no forward contracts in the 2017 period"

The most important is the last part of it (bolded) - it looks like Hochschild does not hedge its production any longer (if somebody claims the opposite - please, let me know; maybe I overlooked something... ).

One issue has gone but 1H 2017 results were very disappointing and since middle August 2017 the company shares have been in their strong downward trend: 


What happened? The first problem is called "Arcata" - now this mine is one of the highest-cost producers for Hochschild:

In 1H 2017 the direct cash cost of production went up by 25.%, compared to 2016 and head grades went significantly down:

Well, the chart shows Arcata's mining sequences (red blocks) and now it looks like the mine has entered another sequence - this time the company is mining in the low-grade zone. Hence, poor results. 
Unfortunately, Hochschild does not disclose where it is going to mine silver / gold in the future. The company's comment is quite enigmatic:

"At Arcata, first half, production was 2.9 million silver equivalent ounces (H1 2016: 3.7 million ounces) with tonnage and silver grades adjusted following a revision of the mine plan to accommodate a reduced number of stopes and narrower veins. The focus at Arcata is to improve its cost position by increasing the quality of resources through the brownfield exploration programme as well as other efficiency and productivity measures in order to ensure the long term sustainability of the mine. The forecasts for Arcata’s output for the year have been revised to 5.5 million silver equivalent ounces in 2017"

And another piece:

"In H1 2017, as expected, Arcata’s all-in sustaining cost rose substantially versus H1 2016 to $17.6 per silver equivalent ounce (H1 2016: $13.0 per ounce) reflecting the reduced tonnage and grades resulting from the revised mine plan as well as the previously-announced increased investment in the mine’s brownfield exploration program"

Well, it looks like there is a problem: narrow veins (and probably higher dilution) and higher capital spending (brownfield exploration). In other words, despite the fact that Arcata has been a long-life operation (mining started in 1964), now it is facing troubles...

Another problem: the San Jose mine (shared with Mc Ewen Mining) located in Argentina. This mine, similarly to Arcata, substantially increased the direct cost of production (from $7.6 per ounce of silver equivalent in 1H 2016 to $9.1 per ounce in 1H 2017).
To be honest, it is not easy to explain this increase - head grades and the tonnage processed look alright (grades were even higher than in 1H 2016) so...
The company explains in this way:

"At San Jose, all-in sustaining costs increased to $14.4 per silver equivalent ounce (H1 2016: $11.7 per ounce) mainly due to the elimination of the Patagonian port rebate in the fourth quarter of 2016. In addition, lower than expected currency devaluation in Argentina only partially offset ongoing unit cost inflation. Overall 2017 all-in sustaining costs are now expected to be between $13.5 to $14.0 per silver equivalent ounce"

I am not able to comment on the Patagonian port rebate but as for inflation...yes, it can be a problem. Now the inflation rate in Argentina stands at 23.1% but in 1H 2017 the Peso was just 9.6% weaker against the US dollar, compared to 1H 2016. So inflation could be an explanation...

Of course there are positives - Pallancata, another Peruvian mine, was converted into an excellent operation (direct cost of production of $5.9 per ounce of silver eq.!) and the last mine, Inmaculada, keeps going smoothly.

However, 1H 2017 results were a negative surprise. For example:
  • cash flow operations (excluding working capital issues and taxes) went down from $152M in 1H 2016 to $111M in 1H 2017
  • free cash flow dropped from $89M to $29M

Hence, investors panicked and threw in the towel. As a result, now Hochschild shares are trading at quite depressed levels (EV / EBITDA of 6.1).

In my opinion, it is time to get interested in Hochschild once again...

Tuesday, September 26, 2017

IAU Still Adding Fresh Gold

I have not seen this before - iShares Gold Trust (IAU) is accumulating gold as if something big was to happen. For example, today this trust added the second highest amount of gold this year (74 thousand ounces). Note that today we saw big drops in gold / silver prices (0.75% and 1.54%, respectively) but...IAU investors do not care and are adding gold:

What is more, GLD has reached its strong support at around 123.0 (the yellow area on the chart below):


Monday, September 18, 2017

An Interesting Chart For Speculators In Gold

The chart below should be of some interest to speculators in gold:


Stockcharts have an interesting indicator - it discloses the trading volume attributed to certain price levels.

Let me take GLD as an example. The chart above shows that since July 2017 (when the current move in gold prices started) the highest trading volume was attributed to the price range of 121.7 - 122.7.

In other words, this level should be considered as strong support for GLD prices. It means also that any correction in GLD should end above this level.

Thursday, September 14, 2017

The Chinese Demand For Silver Is Very Strong

A few minutes ago the Shanghai Gold Exchange released its August report. The chart below is especially impressive:

source: Shanghai Gold Exchange

As the chart shows, the Chinese demand for silver was the highest this year. In August the Chinese investors withdrew as many as 270.3 tons of silver.

What is more, the demand was very strong despite rising prices of silver (in August the price of silver went up from 112.8 Yuan in the beginning of the month to 114.9 Yuan at the end).

Yes, I am really impressed...

Tuesday, September 12, 2017

Note For The Subscribers To The 2017 Top Five Portfolio

Today (8.30 a.m. New York Time) I sent the fourth update to the 2017 Top Five Portfolio. If anybody did not get it, please, let me know (via e-mail or in the "Comments" section).

Sunday, September 10, 2017

US Equities - Are They Still In A Bull Market?

European investors investing in US equities are not happy. Since March 2017 their holdings are losing value measured in Euro:


While the S&P 500 (the lower panel of the chart) is still in its strong bull market, its equivalent measured in Euros is in its correction phase (the upper panel of the chart).

Note that a similar situation was an early indication of a bear market in the USA in 2007:


Well, I am not saying that we are at the beginning of a bear market in the USA (it will never happen, by the way) now but caution is advised...

Friday, September 8, 2017

What Is Wrong With Silver?

This bull market in silver is totally different from normal. It looks like investors are using higher prices of silver to liquidate their long positions in silver held in SLV:

Note that in August and September (up to date), SLV reported an outflow of 14.7 million ounces of silver, in total. It is really a high amount.

As a result, the current silver holdings at SLV are very close to the amount of silver held at the beginning of the current stage of a bull market in precious metals (two circles marked in red):

So the question is: what is wrong with silver?

Tuesday, August 29, 2017

Is Gold Breaking Above $1,300 Per Ounce?

Higher prices of gold and silver should attract investors but it is not always the case. Look at this chart:

Interestingly, this month, despite a 3.6% increase in silver prices, as many as 8.6 million ounces of silver were withdrawn from SLV vaults (and the 2017 cumulative flow is still negative - look at the lower panel of the chart).

However, JPM Morgan warehouse still reports silver inflows and since the beginning of 2017 as many as 33.7 million ounces of silver were added to the bank's vaults. It is a huge amount of silver. For example, Fresnillo plc, the largest world's primary silver producer delivers around 55 million ounces of silver in annual production.

On the other hand, in August two gold trusts, GLD and IAU, added big amounts of gold to their vaults (look at the row indicated by the red arrow on the chart below):

So, generally, August should be a good month for gold bugs. Particularly, this day (August 29) seems to be very interesting for precious metals investors - it looks like gold is breaking above its very strong resistance.

However, in my opinion, to get let reliable confirmation of this move we should wait for a few days...

Tuesday, August 22, 2017

IAU Or GLD? That Is A Question

I closely track gold flows reported by two big gold holders: IAU and GLD.

However, there is a big difference between these two investment vehicles. Look at the charts below:

Green bars depict monthly flows of gold and red lines depict cumulative gold flows.

It is easy to spot that this year investors participating in IAU were accumulating gold (the up sloping red line) while those using GLD were doing the opposite (and as of August 21 GLD reported a year-to-date outflow of gold).

Now the question is: which gold vehicle gives more reliable signals - IAU of GLD?

Monday, August 21, 2017

Who Trades Atico Mining?

I very often wonder who invests in stocks. Let me take an example of Atico Mining, a small copper producer, operating the El Roble mine in Peru.

On August 15 the company released the following info:

VANCOUVER, BRITISH COLUMBIA--(Marketwired - Aug. 15, 2017) - Atico Mining Corporation (the "Company" or "Atico") (TSX VENTURE:ATY) reports a temporary work stoppage at the El Roble mine pending final inspection of the clean water discharge system. The Company will work with provincial authorities to confirm the integrity and safety of the system as quickly as possible, beginning tomorrow August 16, 2017.
Here is the reaction of the market:
Notice that in middle June 2017 Atico shares started an impressive move up - between June 16 and August 14 these shares gained 53.4%.
However, on August 15, since the beginning of the trading day, somebody was desperately selling Atico shares, which resulted in a final drop of 6.7% (blue arrow). It looks like somebody knew about the company's problems.
Then, the next day, when the info was known to everybody, the shares tumbled 13.3% at their selling climax (red arrow).
Summarizing - in just four after this "disastrous" news a decent company lost 14.6% in value.  
Today the company released this info:
VANCOUVER, BRITISH COLUMBIA--(Marketwired - Aug. 21, 2017) - Atico Mining Corporation (the "Company" or "Atico") (TSX VENTURE:ATY)(OTC PINK:ATCMF) is pleased to report that further to the news release announced August 15, 2017, the final inspection by provincial authorities concluded successfully and the operations at El Roble mine have resumed as of August 18, 2017.
So now everything is back to normal. However, a question remains open: who is trading stocks? Who thinks that a minor technical issue, a usual thing in the mining industry, can derail a decent company in just two days?

Today Atico shares are up 10.5%. My question is still intact - who trades these shares?

Saturday, August 19, 2017

Message For The Subscribers To The 2017 Top Five Portfolio

The third update has been dispatched. If anyone did not receive the update - please, let me know (via email or in the "Comment" section)

Friday, August 18, 2017

Gold Is Doing Well But...

Gold is doing well but the latest surge is not supported by another precious metal, silver. Look at this chart:

The today's top (the upper red arrow) is not accompanied by a similar top in the silver / gold ratio (the lower red arrow). It looks like a classic negative divergence indicating a short-term top in gold prices...

Friday, August 11, 2017

Gold Bulls - Watch Out

After an impressive rally, gold prices are very close to generate a sell signal. Look at the chart below:

The lower panel of the chart shows the relationship between gold and US 10-year treasury notes (10 year) prices. It looks like whenever the ratio Gold / 10 year is getting very close to the upper, resistance line, gold is bouncing down.

Tuesday, August 8, 2017

The Drop In Jaguar Mining Share Prices Explained

Now we know who is responsible for the last huge drop in Jaguar share prices - it is Resolute Funds Limited. Here is an excerpt from an appropriate info:

"During the month of July, Resolute in aggregate disposed of 35,000,000 common shares of Jaguar Mining on behalf of the Fund. The dispositions included 4,637,000 shares with a four-month holding period sold to an accredited investor in accordance with applicable securities regulations and which had been acquired by the Fund in a private placement that closed on June 15, 2017. As a result of these dispositions, together with other shares acquired or disposed of previously, the Fund held 2,000,000 common shares of Jaguar Mining at the end of July, 2017, representing approximately 0.62% of all outstanding shares of that class"

I think it is the good news. A shareholder, that I cannot name a smart investor (who disposes the shares in such a nasty way?), is out of the company (nearly). Very fine. Farewell Resolute. And, please, do not touch this company again.

What is more, while selecting mining picks I will be closely checking whether this fund is among company's shareholders. If it is, caution is advised...

Poor Wesdome Gold...(another mining company where Resolute is a big shareholder).

Are Copper Prices Ahead Of A Correction?

It looks like a short-term divergence between copper prices and the copper dollar index is in the making. Look at these two charts:

source: Simple Digressions

To remind my readers, the copper dollar index is built in the same way as the Goldollar index:

"It is calculated by multiplying the price of copper by the U.S. dollar Index and its purpose is to cancel the effects of currency fluctuations on the price of copper. By comparing it with the spot copper dolar index an analyst can determine if there is inherent strength/weakness in the price of copper"

Now, as a rule, copper prices and the copper dollar index go in tandem. However, if there is any divergence between these two instruments, caution is advised.

The two blue arrows on the chart above show this pattern. A few days ago copper prices broke above their resistance at $2.78 per pound but the copper dollar index is still below a similar resistance level. If I am correct, copper may start its correction soon.

Monday, August 7, 2017

Richmont Mines - There Is Only One Problem

A few days ago Richmont Mines (RIC) released its 2Q 2017 report. As I expected, the results were excellent. The flagship property, the Island Gold mine, delivered outstanding results. Simply put, there is nothing to comment.

However, the company has one problem, which is called the Beaufor mine. Particularly, costs of production at which the gold is produced at this mine. Look at this chart:

and this one:

source: Simple Digressions

As the charts show, in 2016 Beaufor became a cash flow negative mine. The all-in sustaining cash cost of production (AISC) of C$1,854 per ounce of gold was much above the average gold price received in 2016 (C$1,640 per ounce).

This year the company expects to cut AISC to C$1,565 per ounce of gold but:
  • in 1Q 2017 this cost was standing at C$1,580 per ounce (with gold price received of C$1,624 per ounce - slightly above 1Q 2017 AISC, which was good)
  • in 2Q 2017 the AISC was C$1,791 (once again above the gold price received of C$1,688 per ounce of gold, which was bad)
As a result, in 1H 2017 the average AISC was C$1,682 per ounce of gold while the average gold price received was C$1,659. Simply put, the Beaufor mine was once again cash flow negative (each ounce of gold sold was burning C$23).

It looks like this mine is a big problem to the company's management - the guys are surely scratching their heads on discussions what to do with this mine...anyway, the 2017 Beaufor cost guidance is endangered, in my opinion.

Further, I think that the management should focus on cutting mining costs at Beaufor. Since 2015 these costs, measured on a-per-ton-of-ore-processed basis, have been in their strong upward trend:

source: Simple Digressions

Now, in 2Q 2017 each ton of ore processed at Beaufor was grading 5.21 grams of gold. With recovery rate of 97.7% and price of gold received of C$1,688 per ounce, each ton of ore processed was worth C$276. So the Beaufor mine was very close to its break-even point (as the chart indicates, the cash cost was standing at C$263 per ton of ore).

In other words, with lower and lower grades and higher costs of mining and processing the only thing the company can do is to cut costs. If it is impossible...the only solution is to put the mine on care and maintenance and wait for much higher prices of gold....