SouthGobi Resources (SGQRF / SGQ.TO) is a junior coal miner focused on Mongolia. It has historically been part of Turquoise Hill Resources' project portfolio but Rio Tinto's backing of that parent company has new implications for SouthGobi. Aluminum Corp. of China (aka Chalco) failed to acquire Turquoise Hill's stake in SouthGobi due to Mongolian political concerns over resource security, so Rio Tinto may decide to accelerate whatever development plan it has for SouthGobi. More bad luck came SouthGobi's way when their legal counsel also ran afoul of Mongolian politics. Mongolia's political spasms are typical of a resource-rich emerging market. I blogged about Turquoise Hill Resources recently and noted that doing business in places Mongolia has a fair share of risk.
The CEO and VP Investor Relations have complementary backgrounds, but IMHO they should switch jobs because their respective backgrounds make them better suited for such a move. Think about it; a sales dude should do external relations and a mining engineer should make decisions on mining operations. Rio Tinto wants them there, so ultimately they will execute their part of a much larger plan. The ultimate strategy for the Ovoot Tolgoi project is to ship coal to China. Infrastructure for rail shipment and coal washing won't be problems. They have MII resources but I would like to know their estimated cash cost of production.
Rio Tinto is now stuck with this project and I am not clear on how hard they will press for full development in light of SouthGobi's recent problems. That's why I'm not an investor.
Full disclosure: No position in SouthGobi Resources at this time.
Friday, December 28, 2012
Thursday, December 27, 2012
The Haiku of Finance for 12/27/12
Hail future farmers
World diet will demand more
Millions to be made
World diet will demand more
Millions to be made
Ivanhoe Australia (IVHOF) Continues Multi-Metal Exploration
Ivanhoe Australia (IVHOF / IVA.TO) is digging for copper, gold, and other metals in, well, you guessed it, Australia. It's still majority-owned by Turquoise Hill Resources, and you can read my analysis of that company. I like the Ivanhoe Australia management team's breadth of experience in mining, and the CEO is a hot chick (not that it matters, but it's nice to see hot chicks anywhere).
Their Osborne Operation is producing; their Mount Elliott project has MII resources (but with low grades); their Merlin project has the potential to be an important source of rhenium (and has some existing infrastructure); and their Mount Dore project is still in exploration. I would like to see more clarity on 2P reserves.
Their financial statements for September 30, 2012 show $17M cash on hand and net losses of $7.7M/month that quarter. I didn't average that burn rate with their nine-month rate because it is significantly lower than what they burned for the entire nine-month period, representing a qualitative shift in their operations. It remains to be seen whether this reflects an effort to conserve cash for future exploration and infrastructure development. Besides, they have little to worry about because they recently had a very successful capital raise.
I'm not investing in this company because I'm not clear on which of their projects will ultimately be successful enough to drive the company's valuation. I'll wait for more definitive results.
Full disclosure: No position in Ivanhoe Australia at this time.
Their Osborne Operation is producing; their Mount Elliott project has MII resources (but with low grades); their Merlin project has the potential to be an important source of rhenium (and has some existing infrastructure); and their Mount Dore project is still in exploration. I would like to see more clarity on 2P reserves.
Their financial statements for September 30, 2012 show $17M cash on hand and net losses of $7.7M/month that quarter. I didn't average that burn rate with their nine-month rate because it is significantly lower than what they burned for the entire nine-month period, representing a qualitative shift in their operations. It remains to be seen whether this reflects an effort to conserve cash for future exploration and infrastructure development. Besides, they have little to worry about because they recently had a very successful capital raise.
I'm not investing in this company because I'm not clear on which of their projects will ultimately be successful enough to drive the company's valuation. I'll wait for more definitive results.
Full disclosure: No position in Ivanhoe Australia at this time.
Ivanhoe Mines Is Now Turquoise Hill Resources
Name changes happen all the time in the junior resource sector. Turquoise Hill Resources (TRQ / TRQ.TO) was known as Ivanhoe Mines until August 2 of this year. This capped off a series of corporate changes set in motion when Rio Tinto backed a $1.8B credit facility to support their Mongolian projects.
The entire management team is now a slate of Rio Tinto top shelf talent. I can easily forgive the lack of specificity of their mining backgrounds because they are obviously setting a much larger plan into motion.
The technical report for the development of their Oyu Tolgoi copper-gold project in Mongolia is thorough. If Rio Tinto is confident enough in its potential to operate the project as a strategic partner then there's probably something big there. Their production plan assumes a long-term average price of $850/oz for gold, which is about $200 higher than gold's real average price for the past 40 years. The projected mine life of 27 years (potentially 59 years) is huge, but their estimated grades of Au are shockingly low. It's even more shocking in light of the plan's estimate that mining can recover 79% of the Au, below the typical industry expectation of 85%. This is a bet on the size of a deposit rather than grade.
One look at TRQ's option chain tells me that someone is very optimistic about the company's long run valuation, with hundreds of open positions in January 2014 calls at strike prices of $10 and up. That is a very welcome development in light of the Rio Tinto backing.
I'm not sure about going long TRQ given the riskiness of doing business in Mongolia. The Mongolian government owns 34% of the Oyu Tolgoi project. Counting on credits from gold production to subsidize the cash cost of producing copper is also a risk, as those two metal prices don't necessarily move in tandem. They also have other exploration projects that may or may not pan out. Still, the momentum behind the Mongolian project is undeniably large and may very well sustain the entire company's valuation. I may decide at some point to sell cash-covered puts under TRQ now that the Oyu Tolgoi project is ready to contribute earnings.
Full disclosure: No position in Turquoise Hill Resources at this time, although that may change in the near term.
The entire management team is now a slate of Rio Tinto top shelf talent. I can easily forgive the lack of specificity of their mining backgrounds because they are obviously setting a much larger plan into motion.
The technical report for the development of their Oyu Tolgoi copper-gold project in Mongolia is thorough. If Rio Tinto is confident enough in its potential to operate the project as a strategic partner then there's probably something big there. Their production plan assumes a long-term average price of $850/oz for gold, which is about $200 higher than gold's real average price for the past 40 years. The projected mine life of 27 years (potentially 59 years) is huge, but their estimated grades of Au are shockingly low. It's even more shocking in light of the plan's estimate that mining can recover 79% of the Au, below the typical industry expectation of 85%. This is a bet on the size of a deposit rather than grade.
One look at TRQ's option chain tells me that someone is very optimistic about the company's long run valuation, with hundreds of open positions in January 2014 calls at strike prices of $10 and up. That is a very welcome development in light of the Rio Tinto backing.
I'm not sure about going long TRQ given the riskiness of doing business in Mongolia. The Mongolian government owns 34% of the Oyu Tolgoi project. Counting on credits from gold production to subsidize the cash cost of producing copper is also a risk, as those two metal prices don't necessarily move in tandem. They also have other exploration projects that may or may not pan out. Still, the momentum behind the Mongolian project is undeniably large and may very well sustain the entire company's valuation. I may decide at some point to sell cash-covered puts under TRQ now that the Oyu Tolgoi project is ready to contribute earnings.
Full disclosure: No position in Turquoise Hill Resources at this time, although that may change in the near term.
Strata Minerals And Australian Phosphate
Strata Minerals (SMP.V) wants to mine phosphate in Australia. I have concerns about the management team's experience. The CEO and other key team members are primarily from the finance and beverage sectors; some of them have mining sector "experience" but that appears to be confined to corporate development work and not actual mine operations. The company either needs to specifically articulate the relevant mining operations experience of these people or get some new people who have that experience. Mining company managers absolutely must know how to pull rocks out of the ground.
Their Cardabia, Australia project probably has a transportation cost advantage over phosphate from Morocco, but this is less compelling than a production cost advantage. I'm even less confident about their Savory Basin project, which has no modern exploration history. SEDAR has their NI 43-101 report dated July 4, 2012; it identifies no resources but recommends a Phase 1 exploration budget of AUD$500-650k and Phase 2 exploration of AUD$2-3M.
A quick check of their SEDAR financial statements reveals whether they can fund such exploration programs. Their quarterly statement dated September 30, 2012 shows C$138k cash on hand with a burn rate of about C$154/month (averaging the two different quarters presented. They opened a private placement solicitation in October that can cover the proposed Phase 1 budget, and they successfully closed the offer 15 days later for the full amount. Strata's exploration program is clearly on track but their financial position leaves little room for unexpected delays.
It is too early to tell whether Strata Minerals will succeed in finding economically viable phosphate deposits. They deserve another look in a year or so when their exploration program has quantifiable results.
Full disclosure: No position in Strata Minerals at this time.
Their Cardabia, Australia project probably has a transportation cost advantage over phosphate from Morocco, but this is less compelling than a production cost advantage. I'm even less confident about their Savory Basin project, which has no modern exploration history. SEDAR has their NI 43-101 report dated July 4, 2012; it identifies no resources but recommends a Phase 1 exploration budget of AUD$500-650k and Phase 2 exploration of AUD$2-3M.
A quick check of their SEDAR financial statements reveals whether they can fund such exploration programs. Their quarterly statement dated September 30, 2012 shows C$138k cash on hand with a burn rate of about C$154/month (averaging the two different quarters presented. They opened a private placement solicitation in October that can cover the proposed Phase 1 budget, and they successfully closed the offer 15 days later for the full amount. Strata's exploration program is clearly on track but their financial position leaves little room for unexpected delays.
It is too early to tell whether Strata Minerals will succeed in finding economically viable phosphate deposits. They deserve another look in a year or so when their exploration program has quantifiable results.
Full disclosure: No position in Strata Minerals at this time.
Wednesday, December 26, 2012
Stonegate Agricom (SNRCF) And Its Phosphate
Stonegate Agricom (SNRCF) is developing phosphate projects. I need to figure out just what's going on here. Morocco dominates the worldwide market for phosphate and can dictate prices across the entire production chain, so any production change from that country will impact the valuation of any phosphate producer in the world. One thing limiting the ability of Morocco to hold prices down through overproduction is the rising demand for fertilizer worldwide. Emerging market consumers want more meat in their diet and farmers need more fertilized cropland to meet that demand. Phosphate concentrate is probably the better part of this business sector to operate because fertilizer producers want more of it.
The CEO has a background in mining engineering but hasn't worked in that field in several years. Technology and processes do change. The good news is that the general managers at each major project are qualified engineers with experience in phosphate and coal projects. A coal background is useful because coal deposits have uniform geologies that resemble phosphate deposits.
The company's Paris Hills, Idaho project has road access to a Union Pacific rail line a few kilometers from the property. Their Montaro project in Peru also appears to have ready access to a rail line. Having logistics in place is always good news. Both properties have NI 43-101 reports on their MII resources, but of course I need to evaluate 2P reserves to make an investment decision. Phosphate producers should monitor a project's calcite, minor element ratio, and chlorides but those don't appear to be significant problems for Stonegate Agricom.
Two economic factors determine the viability of any resource extraction project in the world: the spot price of the commodity in question, and the cash cost of extracting the resource. The price of phosphate right now is about US$185/ton. Expanding the date range on that Index Mundi chart to 30 years reveals that the worldwide long term average price of phosphate ranged from $31-45/ton until 2007, when it spiked to over $400 and then crashed to $90 in 2009. I do not know what happened in that time frame to cause such a spike. This is important to note, because if the new normal price floor for phosphate is now over $90/ton then previously unprofitable deposits outside Morocco will be economically viable. The risk for any producer is the possibility that Morocco could flood the world phosphate market with production that drives the cost under $90/ton.
The Paris Hills 43-101 report estimates a cash cost of $73/ton, with an upfront capital cost of $149M. That cash cost definitely makes the project viable at present market prices and it will probably remain viable over the entire life of the mine (unless of course Morocco pulls the rug out from under the world price). Funding the capex is a different story. Stonegate Agricom's most recent quarterly financial statement on SEDAR is dated September 30, 2012. They had C$7.3M cash on hand on that date; averaging their three-month and nine-month net losses gives them a monthly burn rate of about C$700k. They can survive until late July 2013. Raising capital may not be a problem for them if they continue to secure loan facilities from Sprott Resource Corp. as they did on August 21, 2012.
A lot of junior explorers and producers want to hit it big in phosphate and potassium/potash plays. These companies are a lot riskier than the big producers like PotashCorp that dominate this sector. Meanwhile, Stonegate Agricom will probably keep chugging along in pursuit of capex funding for Paris Hills.
Full disclosure: No position in SNRCF or other companies mentioned at this time.
The CEO has a background in mining engineering but hasn't worked in that field in several years. Technology and processes do change. The good news is that the general managers at each major project are qualified engineers with experience in phosphate and coal projects. A coal background is useful because coal deposits have uniform geologies that resemble phosphate deposits.
The company's Paris Hills, Idaho project has road access to a Union Pacific rail line a few kilometers from the property. Their Montaro project in Peru also appears to have ready access to a rail line. Having logistics in place is always good news. Both properties have NI 43-101 reports on their MII resources, but of course I need to evaluate 2P reserves to make an investment decision. Phosphate producers should monitor a project's calcite, minor element ratio, and chlorides but those don't appear to be significant problems for Stonegate Agricom.
Two economic factors determine the viability of any resource extraction project in the world: the spot price of the commodity in question, and the cash cost of extracting the resource. The price of phosphate right now is about US$185/ton. Expanding the date range on that Index Mundi chart to 30 years reveals that the worldwide long term average price of phosphate ranged from $31-45/ton until 2007, when it spiked to over $400 and then crashed to $90 in 2009. I do not know what happened in that time frame to cause such a spike. This is important to note, because if the new normal price floor for phosphate is now over $90/ton then previously unprofitable deposits outside Morocco will be economically viable. The risk for any producer is the possibility that Morocco could flood the world phosphate market with production that drives the cost under $90/ton.
The Paris Hills 43-101 report estimates a cash cost of $73/ton, with an upfront capital cost of $149M. That cash cost definitely makes the project viable at present market prices and it will probably remain viable over the entire life of the mine (unless of course Morocco pulls the rug out from under the world price). Funding the capex is a different story. Stonegate Agricom's most recent quarterly financial statement on SEDAR is dated September 30, 2012. They had C$7.3M cash on hand on that date; averaging their three-month and nine-month net losses gives them a monthly burn rate of about C$700k. They can survive until late July 2013. Raising capital may not be a problem for them if they continue to secure loan facilities from Sprott Resource Corp. as they did on August 21, 2012.
A lot of junior explorers and producers want to hit it big in phosphate and potassium/potash plays. These companies are a lot riskier than the big producers like PotashCorp that dominate this sector. Meanwhile, Stonegate Agricom will probably keep chugging along in pursuit of capex funding for Paris Hills.
Full disclosure: No position in SNRCF or other companies mentioned at this time.
Gold Resource Corporation (GORO) Producing Extremely Cheap Mexican Gold
Gold Resource Corporation (GORO) has the distinction of being a junior mining company that pays a dividend. I'd like to figure out how they became healthy enough to do that. Management is led by two senior gold executives. I'm extremely pleased to see that serious professionals are running this show.
They have an NI 43-101 report for their flagship El Aguila project, although as a U.S.-listed corporation they really don't need one. I find it interesting that the report only addresses MII resources (no 2P), yet this company is operating a producing mine at El Aguila. They also have four other properties in development but are returning cash to shareholders as a dividend rather than holding it to fund future development. I couldn't see the logic behind such a decision until I looked at their operating costs. I am very intrigued by the 43-101 report's estimate that the project's operating costs are US$136/oz of Au equivalent. That is extremely cheap gold! No wonder the management was so confident about beginning operations before 2P was confirmed. They can afford to return money as dividends because they save so much cash in production.
I normally consider a junior mining company's ability to stay alive, but since this one has an established operating history it's more appropriate to use the fundamental screening criteria for a mature company. They were profitable in 2011 but not in the two years prior. It's good that they have no long term debt and positive free cash flow. It's bad that their five-year ROE has been negative. That number is a legacy of the losses incurred in the years prior to production. Producing gold at $136/oz makes their main mine profitable at any of gold's historic annual price averages in the past three decades.
Gold Resource Corporation may very well have turned a corner in 2011. The two co-founders did so well with their previous venture, U.S. Gold Corp., that famed Canadian investor Rob McEwen put his own name on it. I am really going to keep watching GORO to see if there's a repeat performance.
Full disclosure: No position in GORO at this time.
They have an NI 43-101 report for their flagship El Aguila project, although as a U.S.-listed corporation they really don't need one. I find it interesting that the report only addresses MII resources (no 2P), yet this company is operating a producing mine at El Aguila. They also have four other properties in development but are returning cash to shareholders as a dividend rather than holding it to fund future development. I couldn't see the logic behind such a decision until I looked at their operating costs. I am very intrigued by the 43-101 report's estimate that the project's operating costs are US$136/oz of Au equivalent. That is extremely cheap gold! No wonder the management was so confident about beginning operations before 2P was confirmed. They can afford to return money as dividends because they save so much cash in production.
I normally consider a junior mining company's ability to stay alive, but since this one has an established operating history it's more appropriate to use the fundamental screening criteria for a mature company. They were profitable in 2011 but not in the two years prior. It's good that they have no long term debt and positive free cash flow. It's bad that their five-year ROE has been negative. That number is a legacy of the losses incurred in the years prior to production. Producing gold at $136/oz makes their main mine profitable at any of gold's historic annual price averages in the past three decades.
Gold Resource Corporation may very well have turned a corner in 2011. The two co-founders did so well with their previous venture, U.S. Gold Corp., that famed Canadian investor Rob McEwen put his own name on it. I am really going to keep watching GORO to see if there's a repeat performance.
Full disclosure: No position in GORO at this time.
Coeur d'Alene Mines (CDE) Disappoints Me
You'd think that a major silver producer like Coeur d'Alene Mines (CDE) would be able to write its own ticket with silver prices in the stratosphere. Think again. The company has manageable long-term debt so long as they can maintain their present net income. That is in doubt; they suffered major losses in 2009 and 2010, and the quarter ending September 29 showed another loss.
Their free cash flow is positive but their five-year ROE and EPS growth rate are atrocious. What went wrong? Maybe it's bad karma from their legal dispute with Rye Patch Gold over a claim in Nevada. Their net metals sales and OCF have grown significantly since 2008, so this should have translated into net income given their declining capital expenditures. The trouble at the Kensington mine undoubtedly hurt them.
The fundamentals just aren't compelling enough for me to dig deeper into the company's problems or wait for a turnaround. There are other silver producers in the resource sector that deserve my attention.
Full disclosure: No position in CDE at this time.
Their free cash flow is positive but their five-year ROE and EPS growth rate are atrocious. What went wrong? Maybe it's bad karma from their legal dispute with Rye Patch Gold over a claim in Nevada. Their net metals sales and OCF have grown significantly since 2008, so this should have translated into net income given their declining capital expenditures. The trouble at the Kensington mine undoubtedly hurt them.
The fundamentals just aren't compelling enough for me to dig deeper into the company's problems or wait for a turnaround. There are other silver producers in the resource sector that deserve my attention.
Full disclosure: No position in CDE at this time.
Cap-Ex Ventures Ltd. (CPXVF) Seeks Iron In Quebec
Cap-Ex Ventures Ltd. (CPXVF / CEV.V) is focused on discovering iron in Quebec. Their CEO has no education or background in mining. Their previous CEO had some experience in mining but he was moved up to the board when Cap-Ex made a management services agreement with Forbes & Manhattan in December 2011. I wonder about management changes that go from some relevant experience to zero relevant experience. There's only one mining engineer with project experience on the team at present.
Their main projects are concentrated around Schefferville, Quebec. None of their projects appear to have any NI 43-101 compliant confirmation of 2P reserves. That's my main driver and I don't see it. There is a railroad through their Block 103 and a major multinational steel firm has a plant nearby that could probably handle milling, so infrastructure is less of a concern with these projects.
They haven't posted any financial statements to their website as of today, so I had to search SEDAR for their annual statement dated August 31, 2012. They had C$2.9M in cash on had at that time and had a net loss of C$4M. Since then they raised a private placement in three tranches (C$3.5M, C$1.36M, and C$740k). This C$5.6M in cash should keep them around for another year, but it's hard to make more than a guess without seeing how their burn rate changes in subsequent quarterly financial statements.
Cap-Ex's share structure frankly scares me to death. They've already issued almost 76 million share and they'll need a lot more capital to make it through further exploration before they even get to a production decision. Shareholders can expect more dilution after future fundraising rounds.
Cap-Ex Ventures isn't for me because I need to see definite 2P reserves and solid management in a junior resource company. It's interesting to note that the share price has crashed from about a buck to around US$0.27 today ever since Forbes & Manhattan entered the picture a year ago. Nice work, folks (I'm being sarcastic).
Full disclosure: No position in Cap-Ex Ventures Ltd. at this time.
Their main projects are concentrated around Schefferville, Quebec. None of their projects appear to have any NI 43-101 compliant confirmation of 2P reserves. That's my main driver and I don't see it. There is a railroad through their Block 103 and a major multinational steel firm has a plant nearby that could probably handle milling, so infrastructure is less of a concern with these projects.
They haven't posted any financial statements to their website as of today, so I had to search SEDAR for their annual statement dated August 31, 2012. They had C$2.9M in cash on had at that time and had a net loss of C$4M. Since then they raised a private placement in three tranches (C$3.5M, C$1.36M, and C$740k). This C$5.6M in cash should keep them around for another year, but it's hard to make more than a guess without seeing how their burn rate changes in subsequent quarterly financial statements.
Cap-Ex's share structure frankly scares me to death. They've already issued almost 76 million share and they'll need a lot more capital to make it through further exploration before they even get to a production decision. Shareholders can expect more dilution after future fundraising rounds.
Cap-Ex Ventures isn't for me because I need to see definite 2P reserves and solid management in a junior resource company. It's interesting to note that the share price has crashed from about a buck to around US$0.27 today ever since Forbes & Manhattan entered the picture a year ago. Nice work, folks (I'm being sarcastic).
Full disclosure: No position in Cap-Ex Ventures Ltd. at this time.
Financial Sarcasm Roundup for 12/26/12
It's one day after Christmas and I'm not any less sarcastic than I was yesterday.
The fiscal cliff is approaching and the relevant parties just can't stop launching trial balloons to impress the folks back home. Both parties want to lower corporate tax rates in the name of competitiveness. There's no way such a complicated reform will get done this year but that won't stop the preening and posturing. Lowering the corporate tax rate while eliminating deductions probably won't raise revenue but it will make CFOs' jobs easier, so maybe some grateful corporate treasuries will step up their giving to super-PACs.
Japan is going nuts. Their ruling political coalition has voted specifically to destroy the yen with monetary stimulus. That's like putting some anemic patient on a cocaine diet in the hope that it will accelerate their metabolism. Forget about structural reforms. I'm so glad I don't own Japanese stocks or yen.
Some New Jersey union pension fund is suing to block the NYSE-ICE merger. Come on already. They should be grateful anyone wants to buy an American exchange at what is likely the high point of the U.S. equity market. That means ICE is probably at its high-water mark too, and competition from dark pools and internal crossing networks make this merger all the more fortuitous for both exchanges' shareholders.
Here comes the mother of all re-fis. The Administration is considering a refinancing handout to even more borrowers, along with nationalizing the rest of the secondary mortgage market. I knew all along that Washington was going for it but it's still thrilling to see my suspicions confirmed in print. I invite my readers to search my blog articles throughout 2011 and 2012. You'll find several articles where I propose that large-scale mortgage modification programs would be a transmission mechanism for a wage-price spiral if the federal government flooded them with cash. If this latest policy boondoggle is enacted, the necessary mechanism to launch hyperinflation will be in place.
The primary Treasury dealers are dumber than ever. They're hoarding bonds and reducing sales to the Fed. This is the wrong thing for a dealer to do with the U.S. bond market at an all-time high. The smart thing to do is unload winning positions onto the last sucker in the room - the Fed, of course - and shift the bank's business lines into things like non-dollar debt from emerging markets.
Shoppers didn't come through for retailers this year. I've been waiting for a downturn in retail activity and this one's been a long time in coming. Better late than never. The average American probably has enough unused stuff in their closets and storage sheds to equip several emerging market households, and yet buying more stuff is in our cultural DNA. The silver lining to any hyperinflationary period is that ordinary folks will be cured of their impulse to consume with abandon.
Finally, the SEC gets my Alfidi Capital award of the day (okay, there's no such thing but it sounds generous) for innovation. The agency charged with regulating our capital markets is finally acquiring a system that allows it to watch the capital markets. Funny, I've been using ordinary financial websites and online brokerages for almost two decades. In true government contracting fashion, they bought a complete system rather than subscribe to terminals and feeds from Bloomberg and Dow Jones. I recall reading during the financial crisis of 2008 that the Treasury Secretary had the ability to monitor credit markets in real time from his desk. I don't have to name the Wall Street players who have a vested interest in the keeping the SEC blinded, in exchange for future private employment for the agency's top investigators. In that context, I expect the SEC's new market monitoring system to work exactly as intended, especially since initial access to the system will be limited to a handful of people. Read between those lines.
The fiscal cliff is approaching and the relevant parties just can't stop launching trial balloons to impress the folks back home. Both parties want to lower corporate tax rates in the name of competitiveness. There's no way such a complicated reform will get done this year but that won't stop the preening and posturing. Lowering the corporate tax rate while eliminating deductions probably won't raise revenue but it will make CFOs' jobs easier, so maybe some grateful corporate treasuries will step up their giving to super-PACs.
Japan is going nuts. Their ruling political coalition has voted specifically to destroy the yen with monetary stimulus. That's like putting some anemic patient on a cocaine diet in the hope that it will accelerate their metabolism. Forget about structural reforms. I'm so glad I don't own Japanese stocks or yen.
Some New Jersey union pension fund is suing to block the NYSE-ICE merger. Come on already. They should be grateful anyone wants to buy an American exchange at what is likely the high point of the U.S. equity market. That means ICE is probably at its high-water mark too, and competition from dark pools and internal crossing networks make this merger all the more fortuitous for both exchanges' shareholders.
Here comes the mother of all re-fis. The Administration is considering a refinancing handout to even more borrowers, along with nationalizing the rest of the secondary mortgage market. I knew all along that Washington was going for it but it's still thrilling to see my suspicions confirmed in print. I invite my readers to search my blog articles throughout 2011 and 2012. You'll find several articles where I propose that large-scale mortgage modification programs would be a transmission mechanism for a wage-price spiral if the federal government flooded them with cash. If this latest policy boondoggle is enacted, the necessary mechanism to launch hyperinflation will be in place.
The primary Treasury dealers are dumber than ever. They're hoarding bonds and reducing sales to the Fed. This is the wrong thing for a dealer to do with the U.S. bond market at an all-time high. The smart thing to do is unload winning positions onto the last sucker in the room - the Fed, of course - and shift the bank's business lines into things like non-dollar debt from emerging markets.
Shoppers didn't come through for retailers this year. I've been waiting for a downturn in retail activity and this one's been a long time in coming. Better late than never. The average American probably has enough unused stuff in their closets and storage sheds to equip several emerging market households, and yet buying more stuff is in our cultural DNA. The silver lining to any hyperinflationary period is that ordinary folks will be cured of their impulse to consume with abandon.
Finally, the SEC gets my Alfidi Capital award of the day (okay, there's no such thing but it sounds generous) for innovation. The agency charged with regulating our capital markets is finally acquiring a system that allows it to watch the capital markets. Funny, I've been using ordinary financial websites and online brokerages for almost two decades. In true government contracting fashion, they bought a complete system rather than subscribe to terminals and feeds from Bloomberg and Dow Jones. I recall reading during the financial crisis of 2008 that the Treasury Secretary had the ability to monitor credit markets in real time from his desk. I don't have to name the Wall Street players who have a vested interest in the keeping the SEC blinded, in exchange for future private employment for the agency's top investigators. In that context, I expect the SEC's new market monitoring system to work exactly as intended, especially since initial access to the system will be limited to a handful of people. Read between those lines.
Updating The Alpha-D for 12/26/12
The stock market was on a reduced hours schedule on Monday and I didn't make any portfolio adjustments until today. I figured even my brokerage's computers need a break for a few microseconds. Here's what I did with my money today.
My short covered calls on GDX expired unexercised, so I renewed them. I'm willing to risk seeing that long position sell off if it breaches the strike price. Gold of any kind will prove to be a poor hedge by itself against the inflation we'll see at some point in the U.S. A position in gold stocks is probably okay as a cash-generating hard asset position, but I am considering other hard assets to add to my holdings.
I also sold short some cash-covered puts under GDX. Given that security's recent decline in price, I wouldn't mind picking up some more near its 52-week low.
I made no changes at all to my positions in FXA, FXC, and FXF. I will continue to hold the currencies of countries with well-managed fiscal policies and non-inflationary central bank monetary policies. I am particularly encouraged by recent public statements of the central banks of Australia and Canada. Those countries will probably stay on their low-inflation courses while the euro and U.S. dollar fall apart.
I am not at all interested in dollar-denominated fixed income holdings. Inflation will destroy cash, CDs, and bonds but that's what the Bernanke Fed is trying very hard to do. I will commit cash to equities in energy, resources, and related hard asset sectors when I see some bargain prices. That's all for this month.
My short covered calls on GDX expired unexercised, so I renewed them. I'm willing to risk seeing that long position sell off if it breaches the strike price. Gold of any kind will prove to be a poor hedge by itself against the inflation we'll see at some point in the U.S. A position in gold stocks is probably okay as a cash-generating hard asset position, but I am considering other hard assets to add to my holdings.
I also sold short some cash-covered puts under GDX. Given that security's recent decline in price, I wouldn't mind picking up some more near its 52-week low.
I made no changes at all to my positions in FXA, FXC, and FXF. I will continue to hold the currencies of countries with well-managed fiscal policies and non-inflationary central bank monetary policies. I am particularly encouraged by recent public statements of the central banks of Australia and Canada. Those countries will probably stay on their low-inflation courses while the euro and U.S. dollar fall apart.
I am not at all interested in dollar-denominated fixed income holdings. Inflation will destroy cash, CDs, and bonds but that's what the Bernanke Fed is trying very hard to do. I will commit cash to equities in energy, resources, and related hard asset sectors when I see some bargain prices. That's all for this month.
Tuesday, December 25, 2012
The Haiku of Finance for 12/25/12
Christmas time is here
Time to add up all your bills
Mine are all paid off
Time to add up all your bills
Mine are all paid off
Olympus Pacific Minerals Is Now Besra Gold
Sometime in the last five months, Olympus Pacific Minerals changed its name to Besra Gold (OYM.TO). I have no idea why they did this and I don't even care. I only care about a company's fundamentals.
The management bios they have on their corporate site are the least descriptive of any mining company I can recall in recent memory. Nowhere in the CEO's blurb is any description of exactly which positions he's held in the resource sector. His bio sketch does inform us that he's an avid oarsman. Wait, there's more. The group exploration manager's bio says that"he knows what he's talking about" when it comes to geology. Another guy's bio says he loves grilled cheese sandwiches. Another guy says he holds a "Batchers degree." I can't take this seriously. My own corporate FAQ and professional biography are probably the least serious of their kind in the finance sector, but that's because I can afford not to care what anyone thinks of me. A junior mining company is in a different position, especially if it has to raise capital.
They have properties all over Southeast Asia. Only their Phuoc Son property in Vietnam has both proven and probable reserves at this time. That site has some really compelling grades but I can't find the 43-101 report anywhere on the corporate site that provides confirmation. They have one quarterly financial statement as of September 30, 2012. Besra lost US$3.7M in that quarter and has US$4.4M in cash on hand. These folks are hanging by a thread.
Hey, Besra people. If you're serious about mining then please polish your executives' bios. Also, show us all the actual 43-101 reports you used to create that summary table. Oh, BTW, try to make a profit.
Full disclosure: No position in Besra Gold (or whatever it's called) at this time or any time.
The management bios they have on their corporate site are the least descriptive of any mining company I can recall in recent memory. Nowhere in the CEO's blurb is any description of exactly which positions he's held in the resource sector. His bio sketch does inform us that he's an avid oarsman. Wait, there's more. The group exploration manager's bio says that"he knows what he's talking about" when it comes to geology. Another guy's bio says he loves grilled cheese sandwiches. Another guy says he holds a "Batchers degree." I can't take this seriously. My own corporate FAQ and professional biography are probably the least serious of their kind in the finance sector, but that's because I can afford not to care what anyone thinks of me. A junior mining company is in a different position, especially if it has to raise capital.
They have properties all over Southeast Asia. Only their Phuoc Son property in Vietnam has both proven and probable reserves at this time. That site has some really compelling grades but I can't find the 43-101 report anywhere on the corporate site that provides confirmation. They have one quarterly financial statement as of September 30, 2012. Besra lost US$3.7M in that quarter and has US$4.4M in cash on hand. These folks are hanging by a thread.
Hey, Besra people. If you're serious about mining then please polish your executives' bios. Also, show us all the actual 43-101 reports you used to create that summary table. Oh, BTW, try to make a profit.
Full disclosure: No position in Besra Gold (or whatever it's called) at this time or any time.
Colossus Minerals (COLUF) In Brazil
Colossus Minerals (COLUF / CSI.TO) wants to mine gold and PGMs in Para, Brazil. The best things that have come out of Brazil IMHO are Pele, churrascaria cooking, and string bikinis. Maybe this mining company can throw something else into that mix.
The management team has a CEO from a finance background. Being the treasurer at a miner is not the same thing as running a mine. Having a mining engineer as COO almost makes up for that but not quite, since his experience is mainly in running mature projects rather than greenfield development. BTW, that COO is Chairman of Tembo Gold, another junior I blogged about today. They at least have a couple of other team members who've worked in Brazil.
Their Serra Palada property has an exploration history. Their preliminary drilling shows unbelievably high ore grades, which begs the question of why the historical open pit that operated there was ever closed (I'll let that go unanswered since I don't know the backstory). Aerial photos of the site show an internal road network and accessible water (those are good things BTW).
Their quarterly financial statements for September 30, 2012 show over C$101M in cash on hand, a phenomenal amount. They'll need it with a burn rate of about C$4M/month, but they can hang in there for another two years.
Colossus has a lot of confidence in itself based on the infrastructure they've emplaced so far. I await the publication of the initial 43-101 report to see whether the astonishingly high grades they obtained in sample drilling will translate into MII resources.
Full disclosure: No position in Colossus Minerals at this time.
The management team has a CEO from a finance background. Being the treasurer at a miner is not the same thing as running a mine. Having a mining engineer as COO almost makes up for that but not quite, since his experience is mainly in running mature projects rather than greenfield development. BTW, that COO is Chairman of Tembo Gold, another junior I blogged about today. They at least have a couple of other team members who've worked in Brazil.
Their Serra Palada property has an exploration history. Their preliminary drilling shows unbelievably high ore grades, which begs the question of why the historical open pit that operated there was ever closed (I'll let that go unanswered since I don't know the backstory). Aerial photos of the site show an internal road network and accessible water (those are good things BTW).
Their quarterly financial statements for September 30, 2012 show over C$101M in cash on hand, a phenomenal amount. They'll need it with a burn rate of about C$4M/month, but they can hang in there for another two years.
Colossus has a lot of confidence in itself based on the infrastructure they've emplaced so far. I await the publication of the initial 43-101 report to see whether the astonishingly high grades they obtained in sample drilling will translate into MII resources.
Full disclosure: No position in Colossus Minerals at this time.
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