Hi folks I'd like to contribute a couple of observations on the current direction of the market and mining stocks in particular. There are numerous threads in this forum discussing particular stocks. I notice that a lot of the discussions are very short term, which surprised me a little as the majority here appear to be stackers and position traders, not daytraders. Stockmarkets around the world, in their current format, are in their death throes. It is self evident in the ordinance and indice charts. As a general view, the times of making massive profits from speculation within a long term timeframe are generally over. Markets are shifting into a new paradigm which began in 2007 and which is marked by increased volatility and decreased earnings. Miners are encountering significant problems in gaining access to capital funds out of Europe and the subcontinent. This issue has escalated in the last six weeks or so. Many are right on the edge. This makes long term investment somewhat difficult for even the most seasoned investors/traders. I expect a lot of the junior miners will be in the unenviable position of dilution, takeover or bankruptcy before the end of 2012. It would not surprise me to see a lot of M&A in the PM sector, particularly from Asian interests . Norton, for example, appears to now be sold to Chinese interests. My strategy, for what its worth, is to look at the quality companies now, analyse their balance sheets, assess their takeover potential, and then sit back and wait. Buying opportunities will emerge for the quality companies. The rest will fall by the wayside, in one form or another. Catching falling knives is always a risky strategy. The market still has a long way to fall. Shorting seems the way to go for the mining sector, at least until the back end of 2012. I welcome your thoughts Thanks for reading.
junior miners will always be in the unenviable position of dilution, takeover or bankruptcy, I don't know that the european situation is c ontributing to that.
I agree Sprite - Some people put up a long term 20 year chart and show how a stock grew 1000% with a buy and hold strategy. In my opinion this fails on two fronts - 1 stock and asset boom over the last 20 years - 2 Nobody in their right mind could buy and hold for that long in this market The one thing mining producers have over juniors is that they produce raw materials that are sold in the market by people who's business depend on that raw material. Example Everyday fridges use about 12-25 bucks worth of silver Rather than stop making fridges, the manufacturers are going to switch from "just-in-time" inventory to stored inventory. This means they want a secure supply of raw materials, which they hold on their books. This is what happened to Platinum in the car manufacturing industry and similar to the fiel hedging many of the airline companies engaged in. Now this move from "just in time" inventory to stored inventory will occur for all mined commodities. So companies who are mining at a good margin will be able to keep up, whereas juniors who require investment capital will have trouble. I have had to liquefy a number of junior holdings because they dont have cash or deposits at call sufficient to meet their capital needs. The juniors I have kept are the juniors who have the capital for at least 2 years AND have enough ounces at a grade that will be attractive to a producer. I encourage you to pull up the RedFlow (RFX) chart - they produce batteries for storing electricity. Great know how - needed company but couldn't survive in this capital scarce market. I also encourage you to look at Eden Energy (EDE) - same problem, great know how, no capital. Arafura (ARU) - valuable deposit - no capital Many producers who have a low margin have destroyed themselves - look at Kalgoolie Mining (KMC) they have a gold deposit they purchased from Argent - they have gotten killed. Its all about profitability! Not 'ounces in the ground'. The time for juniors was during the first half of the bull market - now it's all about the mid producers who have a safe profitable margin but have the availability of organic growth. I present to you the ASX producers I have marked out on the basis of the criteria Kingsgate, Evolution, Newcrest (large cap), Silver Lake, Troy Resources Here are the developers that will get into production or be taken over Beadell, Crusader, Cobar, Cerro Here are the guys Ive looked at that are risky but have enough money for the next year at least - lower risk of being taken over Argent, Gold Road (Gold Road might be able to farm out some projects or sell some to get money) Here are they guys i can see that are their only hope is takeover or dilution to oblivian AusGold, Silver Mines This is my thinking and my rationale for how I am investing - the asset class is safety not risk (precious metals) its volatile but never worth nothing. It is a long term strategy but needs to be actively managed as opposed to buy and forget. My metal inventory is buy and forget, but not the stocks.
The good thing about many of the mid cap producers is that they are starting to pay dividends - this means they will pay you to hold. Share Buybacks don't really work, investors want tangible returns. I know some people who invest in div paying stocks and use the dividends to purchase their physical silver or gold. I think this is a great strategy - 5% of 5000 is 250 250 (before CGT) will buy you about 7 ounces of silver - thats is a type of compound interest that is outside the financial institutions which are paying about 5% at the moment.
I'm not holding either ALD or SBM, but today its announced ALD might be taking over/merging (didn't bother reading more than a few words) SBM, and so ALD has gone up like a rocket, but funnily SBM is down.
You know what really pissed me off when I first got into the market in 2010 Newmont delisted from the ASX Im hoping in the consolidation phase that the ASX investor will have access to a wider range of companies in the precious metals space.
I pity the major shareholders in SVL. They have rich ore, but bugger all ounces (for silver). I've been sorely tempted this week to buy 100,000 shares at about 4 cents, and then immediately throw on the sale queue for 5 cents. The thing that stops me, is (1) I don't believe in SVL; (2) I can't justify throwing my $$ around like this in companies I don't believe in. But I suspect, there must be a few folks doing day-trading on SVL. Poor little thing.
Its the other way around, that's why SBM is done and ALD is up a lot. SBM are paying significantly more than what ALD were trading at.
Psychologically speaking not everyone is the same. I'm quite comfortable to be gradually entering the market now for a 20 year hold if need be. I was also quite comfortable entering the market after Sept 11 when the world had supposedly changed forever. The only stage I wasn't comfortable was in 2007 when it all seemed too good to be true and I sold up altogther and avoided being affected by the crash. Now I'm mainly in cash and dribbling money in on the dips I see it as far less risky than when I was fully invested back when it seemed that the boom times would go on forever. Everyone one veiws risk differently. C
The issue at the moment is liquidity of capital. Many junior miners have loans approved, but they cannot get funds out of Europe or the US. This is causing a great deal of anxiety at board level. Just my observation Cheers
