Richard (Rick) Mills
Ahead of the Herd
As a general rule, the most successful man in life is the man who has the best information
“The fundamental factors that have driven the gold bull market… remain very much in place." Morgan Stanley.
“Fears of another banking crisis amid a Greek exit from the euro zone are growing. This also raises the likelihood of further central bank action to calm markets and alleviate a possible slump. Money printing, along with the European Central Bank’s large liquidity injections for the banking system, has been good for gold. And real interest rates are negative in much of the developed world, which will also fuel fears of an eventual jump in inflation.” Moneyweek.com
“Gold meanwhile, shall once again slap the overwhelming number of perma-bears in the face again on its way to a new, all-time high.” Peter Grandich
Better than Gold
Gold’s price has risen because of the abuse and mismanagement of our monetary and currency systems - throughout history, gold has always shone the brightest when trust breaks down, confidence falls and fear climbs.
Central banks money printing is out of control - gold’s price will continue, has to continue, too rise in value against all depreciating paper currencies.
Gold is up about seven times from its lows more than a decade ago. What’s the upside from here?
If gold hits $5000.00 an ounce it's a triple from here. What if gold reaches $10,000 an ounce? Well, you’ve got a nice return and it’s this authors belief that gold and silver bullion and coins should be part of every investors portfolio.
History shows us, time and again, the greatest leverage to gold’s rising price is owning gold exploration/development junior mining stocks.
Will mainstream investors eventually catch on to the fact they need to own both gold and gold shares?
Investors are catching on to the fact they need to own precious metals and are buying shares in ETF’s and physical gold and silver. The buying of shares in companies involved in the search for and development of gold projects will not be too far behind.
“I am amazed by how nervous more and more Investors or shall I say Gold traders are becoming. Every Bull Market must always climb a wall of worry and this market will be no different. Since so many of you seem to be wavering between whether you should become short term traders or stay as long term investors, perhaps a refresher course in making money and a little bit of hand holding may be the order of the day.
While a few succeeded by trading commodity futures; stock options, day trading or short selling. Jesse Livermore, the most famous of the short sellers who caught the top in 1929, nevertheless died broke. After a great deal of study and research it finally sunk in that most of them that achieved their ultimate goals were those individuals who identified a major Bull Market or an individual stock and RODE it for all it was worth. They bought and held during both the pleasurable upswings as well as through the sharp, terrifying down drafts, during which times they all took advantage of the down drafts to accumulate more stock. Then, when the Bull Market appeared to be in its final, frothy stage, they gradually sold their holdings to the late comers (who Joe Granville named the Bag Holders), who’s blind greed had them clamoring to get in at the top.” Aubie Baltin
Gold juniors are going to be the most rewarding, the most lucrative way to garner the huge rewards from the coming freight train rush to gold. Those golden tracks are being laid today using the world’s currencies as ballast - when your cash is trash your gold is shining.
There will be fierce merger and acquisition (M&A) competition for the juniors with stable safe gold ounces in the ground by producers having to replace their reserves in an extremely competitive environment. There aren’t very many decent sized deposits, ones over two million ounces, left in politically stable countries.
Junior resource companies, not majors, own the worlds future mines and juniors are the ones most adept at finding these future mines. They already own, and find more of, what the world’s larger mining companies need to replace reserves and grow their asset base.
If I was looking for superior investment vehicles to take advantage of what I think I know regarding precious metals I’d be assembling a portfolio of junior producers, near term producers and companies that are in the post discovery resource definition stage with the occasional green field exploration play thrown into the mix.
Company stage – risk v. reward
Only you can decide the level of risk you can tolerate and how much patience you have to sit while developments, the story, plays out.
The most upside (and by far the greatest risk) comes from buying a junior when they are exploring and make an initial discovery. Great drill assay results can send a juniors share price skyrocketing. The reverse can also be true. Junior explorers, the green field plays, are the riskiest plays by far. Strike out on assay results and it could be goodbye to a share price rise for a very long time - till the company finds another project they can work on. If you’re buying into this kind of play make sure the company has another fallback project in its portfolio.
My favorite stage junior is a junior in the post discovery resource definition stage (also known as brown field stage companies). These companies have all ready found something, the share price has settled back after the initial discovery and the company is going in to see what they have and hopefully produce a 43-101 compliant resource estimate and build upon it. The risk has been greatly reduced, the waiting time for a discovery non-existent and the reward very nice considering the much lower amount of risk.
For nearer term producers - for those further down the development path towards a mine - you have:
- Preliminary Economic Assessment (PEA) or scoping studies are done to examine potential mining scenarios and economic parameters - A PEA or scoping study is an important milestone for a mineral project, it’s the first step in a company’s economic and technical examination of a proposed mine
- Preliminary feasibility studies or pre-feasibility studies are more detailed than PEA’s and are used to determine whether or not to proceed with a detailed feasibility study. They are also used as a reality check to determine areas within the project that require more attention
- Feasibility studies will determine definitively whether or not to proceed with the project. A feasibility study or bankable feasibility provides budget figures for the project and will be the basis for raising capital to build the mine
Remember all these different stage studies are only yes/no decisions on whether to move to the next stage. NONE of them mean you are going mining, there’s no mine till every stage is completed, permits approved and the necessary financing has been arranged.
Because these companies are well advanced along the development path a lot of the guesswork about grade, size, costs and metallurgy have been taken out of the equation for us. They have done sufficient work to give investors a certain level of confidence that their project will successfully move towards being a mine.
The later stage companies (those doing feasibility, permitting and money raising) can have an excellent entry point for investors - they often enter a quiet period when they are doing the advanced studies and raising money to go into production. They often base (a flat share price) for quite a while through this period - possibly a good time for accumulation of their shares if you believe in the story. After the money is raised for production investors can see they are going mining - cash flow is just over the horizon - and the share price will often break out of its trading range.
With producers you have to look at the balance sheet, consider their plans for the future and judge for yourself the ability to meet those plans.
Remember cash flow is king, but can they grow that cash flow? These large well established producers have the least risk and the least upside. But gains could be steady and maybe they pay a dividend.
"As every contrarian speculator knows, no market ever moves straight up or straight down indefinitely...Pullbacks are entirely normal and healthy in major bull markets and should be expected and embraced as wonderful opportunities to “buy the dips”, as our tech friends used to prudently say before their bubble burst. Short-term pullbacks are necessary to relieve temporary overbought conditions and graciously grant new entry points for fresh capital, as well as lay the foundational groundwork for drawing in ever increasing numbers of investors.
A powerful bull market requires a slow, steady march northwards in spectacular rallies and then sharp pullbacks to ultimately seduce the greatest amount of capital possible to bid on the market and drive up prices. If gold is indeed to run to the $5000 range as I suspect before all the dust settles on this new gold bull in coming years, it needs to run up as cautiously and methodically as possible at first. Each pullback offers the golden bull a crucial feasting opportunity to gulp down more fresh capital which feeds it the energy necessary to gallop aggressively to new highs in the next major upleg rally." Adam Hamilton
Remember, our junior resource companies, the same ones who today are so oversold and undervalued, are the present owners of the world’s future gold supply.
"Richard Cantillon (died 1734) the Irish economist and financier who wrote one of the earliest treatises on modern economics and whose treatment of the theory of money was of pioneering importance give a pithy description why both these metals posses all the qualities needed in money. Gold and silver, wrote Cantillon, are alone are of small volume, of equal goodness, easy of transport, divisible without loss, easily guarded, beautiful and brilliant and durable almost to eternity. Anne-Robert-Jacques Turgot (1727-81) the French economist was more adamant and asserted that gold and silver became universal money by the nature and force of things, independent of all convention and law; consequently to proscribe either of them by law from being used as money is a violation of the nature of things.
It is because of this almost immutable law of value, recognized by most thinking people, that gold was not only the Ancient Metal of Kings but the future standard currency in a post-fiat money system." overlordsofchaos.com
Junior resource companies, the owners of the worlds next precious metal mines, are soon going to have their turn under the investment spotlight and should be on every investors radar screen.
Are they on yours?
If not, maybe they should be.
Richard (Rick) Mills
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Legal Notice / Disclaimer
This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment.
Richard Mills has based this document on information obtained from sources he believes to be reliable but which has not been independently verified; Richard Mills makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Richard Mills only and are subject to change without notice. Richard Mills assumes no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission.
Furthermore, I, Richard Mills, assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information provided within this Report.