Is There Any Potential Left ?
At What Price to Buy Mining Shares ?
At this point, gold investors have largely factored that into the share price of the world’s major gold miners. But another golden opportunity still remains…
A possible set back for Bullion
We got near a key resistance: 1 800 $. Twice already the price of ounce retreated there. On top of that, the RSI is overbought and MACD begins to turn round. And volumes and momentum get weaker.
A fall of the gold is all possible. It could lead us towards 1 725 $ or even 1 675 $ an ounce. -If 1 725 $ is achieved.
-as can be seen on the ratio Gold mines/ bullion-
1 Adjustment is going to continue.
2. All the greater the potential of this adjustment as greater is the oil prices set back: it is very good for the companies margins.
An advice: follow ratio gold / oil if you want to invest in the mining. A must-have in your toolbox, as for the ratio gold mines/Gold bullion.
Imagine: fewer costs for our mining very high energy consumers (due to the fall of the cost of the oil) and more to turnover (due to the increase in the lesson of the gold). An optimum trend is in place.
3. PER are still very low. Look at this graph from SeekingAlpha.com
4. Gold Bullion will keep surging higher as explained in our previous Gold Update !
And for the mining?
Those who follow us regularly know our favourite is the sentiment indicator as for gold mines: he shows a spectacular rise as never there has been since 2008. It went from over pessimism to a maximum optimism. Look:
▪ Short-term investors will take their benefits to find another alternative during the correction.
▪ Long term investors will keep their positions.
▪ And those who want to enter into position will wait for a temporary fall to make it:
Wait for a fall of GDX (indication of the auriferous mining engrossments) under 50 $, and towards 48 $ (line of neck) to put you on the mining. Look:
How to Value Junior Miners
Junior gold miners cover a broad spectrum. Some are wing-and-a-prayer miners with nothing but money, some geology studies and dreams of a mother lode. Others own physically defined deposits with proven gold reserves, but still face years of permitting – or legal fights – before production begins. In the middle is every possible permutation.
As an investor, you gravitate toward juniors that have a base of proven reserves. That, to me, is the sweet spot – the right mix of permitting issues and environmental risks to overcome, paired with a big upside once production begins.
Because these are developmental-stage miners, buying junior-mining shares is, in some ways, a lot like buying lottery tickets – some will pay off handsomely; some won’t. The idea is that you buy a basket of juniors to mitigate your risk of owning just a single company, and the profits from the winners will far outpace the losers over time and thereby generate positive and robust returns.
Their share prices make this strategy feasible. Juniors are often quite inexpensive in nominal terms – typically just a few dollars a share, or even less.
Because they’re not producing any gold, junior miners have no meaningful revenues and, thus, no meaningful earnings. That makes it impossible to value these stocks using traditional metrics such as P/E ratios and the like.
Instead, success as a junior-mining investor hinges on underpaying for the gold reserves you’re buying. When you pay more than the reserves are worth, you’re riding a potential bubble in that particular miner – and if the bubble pops, the shares will fall hard and fast. When you’re paying less than the implied value of the reserves, that’s when you know you’re buying junior miners at a good price.
There are rules of thumb to help gauge the value of a junior miner’s reserves. Proved-and-probable reserves (the “take-it-to-the-bank” reserves) are the most important because they’re the ones that are known to exist with reasonable certainty, according to the securities regulations mining companies abide by. From there, the level of assurance drops as you move into measured-and-indicated reserves, and, at the bottom, inferred reserves.
As a general rule, proved-and-probable reserves are worth somewhere between $150 and $170 an ounce. Measured-and-indicated are worth $25 to $40 per ounce. And inferred reserves are worth about $20 an ounce. All you have to do is multiply the various reserves by those numbers, tally the totals and divide by the number of shares outstanding. The number you get is the intrinsic value of that miner’s reserve base.
Compare the value you calculate to the current stock price, and you can tell if you’re overpaying or underpaying for the gold the company has in the ground.
"At your Pan !! " and Follow The Flow
Miners always have a tough job, but the last year has been brutal. It seemed as though small mining companies would skyrocket at any moment... They were consistently discovering more gold.
- Many of them had incredibly experienced and talented management teams and plenty of cash.
- Gold prices were way up and were still on a long, upward trajectory to an all-time high of $1909 per ounce in late August 2011.
- And yet investors were fleeing from the companies that were finding more and more gold in the ground every day...
The S&P TSX Metals & Mining Index dropped 33% in a year starting at the end of July 2011.
Here is how things looked through the Claymore S&P/TSX Global Mining ETF, designed to replicate the performance of the S&P/TSX Global Mining Index:
At the same time, equity financing for small miners was collapsing at a rapid pace.
In the spring and summer of 2011, roughly $2 billion was raised through 80 deals. By the end of spring and summer the following year, a mere $400 million was raised through fewer than 30 deals. That's an 80% drop.
So, what happened between now and then?
- Well, the global economy is still in shambles and uncertainty rules the markets.
- The euro still looks like it will collapse; Europeans are still doing everything they can to mask a full-blown depression in Greece and an impending depression in Spain.
- The currency used by 17 nations could still implode at the hands of bickering and/or negligence any day now...
- And in the US, the economy is still on the brink of collapse. The lack of budgetary control in the United States is the same underlying cause for last year's debt ceiling disaster and the upcoming fiscal cliff crisis.
- China is still doing everything it can to mask slowing economic growth and boost its economy through massive government-financed capital projects.
The only change we saw was at the hands of the European Central Bank and the U.S. Federal Reserve... Any semblance of restraint for "stimulus" and quantitative easing is now officially gone: They confirmed that no-strings-attached cash is going to pour into debt-laden and bloated first world economies non-stop until things get better (or cease to exist).
It caused people to wake up and breathe new life into bruised and battered Canadian miners. Investors realized there's a big difference between companies that watch revenue disappear into worthless currencies or recession, and companies that earn their revenue by pulling the world's best currency hedge straight from the ground. The S&P TSX Metals & Mining Index has increased almost 13%.
The big institutional investors are flooding back into small gold miner equity financing.
Sandstorm Gold Ltd. was one of the first to secure new funding. The company recently raised $150 million. Last week, Premier Gold Mines and Torex Gold Resources Inc. outlined plans for deals to fund their gold projects. The two small mining companies together pulled in a total of $410 million.
These small gold mining operations have managed to pull in 40% more from three deals in a single month than 30 deals in six months last year.
And physical gold is following the same path... The full-fledged investor rush into gold and gold miners is back on track while everything else is mired in uncertainty. In an age of unlimited quantitative easing – and unlimited devaluation and inflation risk — investors are moving back to where they should have been the whole time.
It's no coincidence that one of the mining companies operating in the Yukon is up 18% since the Fed announced QE3 on September 13, 2012, a little less than a month ago.