Thursday, November 29, 2012

Making Sense Of A Few Gold Newsletter Picks

I can't help but recall an insert with the Jefferson Companies pump mailer I wrote about yesterday.  The insert pitched the firm's "Gold Newsletter" and claimed their picks had resulted in serious gains for investors. Let me briefly run down some of their picks here, along with where these companies currently stand.

Kaminak Gold (KAM.V):  Currently trading near its 52-week low.
International Tower Hill Mines (ITH.TO):  Currently trading near its 52-week low.
Underworld Resources (UW.V):  No longer trading; Kinross acquired it in 2010 for the equivalent of C$2.62/share at a 36% premium.
Almaden Minerals (AMM.TO / AAU):  Trading about halfway between its 52-week high and low.  Still running a retained earnings deficit and annual net losses as of Q3 2012.
Rare Element Resources (RES.V / REE):  No longer trades under RES.V, which is what the insert specifically cited (I'm not certain of this, but those shares may have converted to RES.TO if the company changed its listing).  Trading as REE is very close to 52-week low.  Running net losses for three years straight.
Hana Mining (HMG.V):  Trading much closer to its 52-week low than its high; still moving its copper-silver project through the 43-101 process but no 2P reserves yet.  Their PEA estimates of a 19.3% IRR and five year payback period fall short of the Sprott criteria for investing.
Bankers Petroleum (BNK.TO):  Trading far below its 52-week high but at least its earnings are positive.
Silvercorp Metals (SVM.TO):  Trading close to its 52-week low.  It's good that retained earnings have grown this year and net income is positive.

I only see two companies on this list - Bankers Petroleum and Silvercorp Metals - that I would even remotely consider as a worthwhile investment with my own money.  The others have unproven business models.  Shareholders in Underworld Resources got lucky with the Kinross buyout but that may not make up for the other stocks' regressions to their one-year lows.  I suspect that the so-called triple digit gains the "Gold Newsletter" touts were short-term pops attributable to paid publicity, but this is impossible to confirm because the teaser mailer doesn't included timelines for any of these gains.

This is why I don't invest according to pumper mailers and their paid newsletters.  Hard assets investors need to look closely at NI 43-101 reports of 2P reserves, PEA estimates, and management track records in geology and mining engineering.

Full disclosure:  No positions in any of the companies listed above at this time.