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AceofKY

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  1. Thoughts on PDAC 2013

     

    · Crowd was very good – just as many as last year. I believe that the conference organizers did a better job of handling the crowd because it seemed like lines (such as coat check, food lines, etc.) were much shorter this year.

     

    · I had expected to see some empty booths due to junior explorecos not being able to make the trip. However, I was wrong. All the booths were full. There is a good chance the PDAC is the last gasp for many of them as it was noted that over 30 companies exhibiting had less than $200k working capital left.

     

    · Exploration activity seems to be slowing with the downturn in finance for the sector. There seemed to be many more junior Geos looking for a job than I remember from previous years.

     

    · I met multiple people who were “First Nations Representatives” (consultants/mediators, etc) of one sort or another. This seems to be turning into a big industry. Not sure what to make of that.

     

    · Toronto is still cold as hell in early March and I don’t understand why PDAC doesn’t move this convention to Cancun or somewhere warm. I did learn why the conference is held at this time of year. In the old days the explorers up North could work in winter (water was frozen) or summer (via boat) but not when the ice was breaking up in early March. Hence – they had nothing better to do then go to the conference.

     

    · The big “World’s biggest mining party” on Tuesday night (sponsored by Renvest this year) was even more crowded than last year. The Dave Murphy band is awesome, but they’re going to have to do something to reduce the crowd next year (or move it out of the Royal York). Keeping the students out would be a good start, I think.

     

    · I attended several of the newsletter writer presentations. I had kept some notes but unfortunately lost them when someone picked up my binder (probably by mistake) during the party on Tuesday night. Here are the ones I remember:

     

    o Ian McAvity – believes we’re only weeks or maybe days from a bottom

     

    o Taylor Thoen – this was a new speaker this year. Apparently she is a tv personality (not a gold/investing expert) in Canada and does a lot of CEO interviews. I enjoyed her presentation and remember that her website is: www.ceoclips.com. Also she was better looking than all the other newsletter writers combined.

     

    o Chris Berry and at least one other speaker were bullish on uranium

     

    o Keith Schaefer was bullish on oil refineries along the Mississippi River corridor.

     

    o Rick Rule – was in typical form (no powerpoint needed). His thesis was that the good stuff is cheap enough even though the sector as a whole will still trend down for a while. He likes PGMs (i.e. Sprott’s new physical fund) and gave a plug to Friedland’s new promo Ivanplats (Friedland apparently gave a presentation at PDAC but I missed it unfortunately).

     

    · Here are notes from either presentations or conversations with companies:

     

    o Hecla announced its bid for Aurizon on Monday morning and Phil Baker gave his presentation that morning. Supposedly the offer is accretive on all the metrics except for EPS which won’t turn accretive till 2014. There was (supposedly) no quid-pro-quo with respect to keeping Aurizon management or Board members in the merged company. I didn’t see his presentation but apparently Alamos CEO McClusky slammed Hecla pretty hard afterward.

     

    o Midas Gold – this project looks interesting but I’m worried it will take a long time to get permitted

     

    o Silvercrest – this story keeps getting better and better. The expansion of Santa Elena is underway and an updated resource estimate & production schedule will be forthcoming. I was originally skeptical about the low grade La Joya project but I’m now confident that they have a plan to develop it successfully. Metallurgy still needs to be confirmed, I think. Production should double for Silvercrest with the Santa Elena expansion and then double again when La Joya is brought online. I already have a large position (due to ~500% capital gains over the past years) or I’d be buying more of this one.

     

    o Sandstorm Gold – Nolan Watson promised he would never do another deal similar to the Entrée/Mongolian deal due to significant shareholder complaints.

     

    o Continental Gold – I first became aware of this Columbian project at last year’s PDAC but didn’t buy in as I thought the market cap was too high. The price has come off some since then but I think it’s still in that “boring” part of the construction/development phase where the stock price continues to drift down. The project itself is very high grade and they are spending a lot of money developing it right now. This is one to keep an eye on for next year.

     

    o Rob McEwen/MUX – still promoting his S&P 500 by 2015 goal. I don’t think he’s going to achieve that in the timeframe left with no better assets then what he has. Still trying to sell the big copper project. Will need more financing for the gold projects this year. Not interested in a stream deal and was critical of mining companies who resort to this type of financing.

     

    o Rambler – their production dropped somewhat early in the year due to some equipment problems. The solution is not yet in place but shouldn’t be very expensive. The loan with Sprott will be renewed/refinanced as they can’t pay it off yet. The hot IR chick from last year is no longer with them (big disappointment for me.)

     

     

    That’s about all I’ve got time to write up.


  2. Instead of the list given in the Original Post,

    I want to shift my focus a bit -

    And focus more PRODUCERS with CASH FLOW and EARNINGS

     

    I agree Bubb. The juniors haven't fallen much more than the mid-tier and senior producers. We're looking at an easy double on producing gold miners when valuations return to normal, and many are paying comfortable dividends now. No reason to take on the extra risk of holding a cash-flow negative junior. Here are the profitable names I'm holding:

    GORO (2.8% yield)

    NEM (2.9% yield)

    NSU (3.0% yield) (and buying back stock like crazy)

    ASR.to (0% yield)

    SLW (1.4% yield)

    SVM (1.7% yield)

    HL (2.0% yield)

    SVL.v (0% yield)

     

    See my tabulations on 1st quarter earnings for gold producers:

    Miner 1Q Earnings Tabulation

    This is about a month old but prices haven't changed much since.


  3. I had a coffee today with two guys who have been following KGC more closely than I.

     

    I asked them, "Why is Kinross so cheap?"

     

    Their answer:

     

    Kinross keeps dilluting their shareholders. They are so keen to grow, that they pay too much for their acquisitions. The latest example was Red-Back Mining where they paid a ridiculous price for a company with a deposit in Mali. Is that really where you want to be building an expensive mine.

     

     

    Bubb,

    That's what I thought too when the acquisition was announced. But Tasiast keeps growing exponentially. M&I resources are already past 16.5MM ounces. When I was a Rio Narcea shareholder back in ~2006 this was a sub 1MM oz deposit. I'm still mad at the RNO directors for selling what has turned out to be a world class asset so cheaply.

    So now I'm starting to wonder if Kinross knew what they were doing with this acquisition after all. I'm going to be reassessing Kinross in the near future.


  4. WHY BOTHER with ASA and other Gold Majors ?

     

     

     

    The majors (at least some of them) are at a valuation level that we haven't seen since at least 04 when I got into the sector (except maybe for a brief moment in late 08). Sure their performance has been bad over the past decade. That's largely because a higher gold price was already baked into the valuations. Now we have the curious case where the gold & silver price have done exactly what we expected but the equity prices are sinking. Something will give eventually - either gold/silver prices will fall or equity prices will rise. I'm betting on the latter.

     

    Bubb, I'm going straight to the source so I don't get all the baggage that comes with ASA. Hecla and Newmont are two that I think are outstanding buys right now. I wouldn't want to own several of the majors in their portfolio - not worth the 10% NAV discount I think.


  5. The U.S. investigative news show "60 Minutes" had a segment Sunday on high frequency trading:

     

     

    http://www.cbs.com/primetime/60_minutes/video/?pid=hQ6KF5TPh3jqZAVh9lwCmDg6WsDcmjqp&vs=Default&play=true

     

     

     

    Not much of an investigation in my opinion. The major idea suggested: via colocation the major exchanges are giving the quants first access to the data which puts non-colocated investors at a disadvantage. The exchange's rebuttal: colocation is for sale to anyone who wants to pay our fees. Ultimately the exchanges may be undermining their future if a viable alternative arises. I wonder, however, if all the volatility is not actually an advantage for small retail investors. I have been seeing good opportunities in the last months (both to buy and sell) based on fundamental metrics whereas in the past those same metrics usually indicated that basically all large/mid-cap precious metal equities were overvalued.


  6. Yes, happiness is what most pursue.... except, like the horizon, it seems to recede the more you chase it [so much for buying a boat]. I don't think happiness simply depends on money, and most millionaires will corrobate that.... it's more like a by-product , whatever your material circumstances. A modicum of self-determination was thought necessary by the Greeks [not the present decadent kind] in order to live "the Good Life". I think there is something in that. What we in the modern world do is split the mind from the body and then insist the mind can be etherally "happy".... even if chained to a body of production/ consumption. Of course, there is a different logic/ ethic at play here, an economic one; we all work towards the good of that other abstraction; "society".

     

    I can't disagree with the mind-body dichotomy in general, but in this case I'm not quite following you. We must consume, at minimum, food and water to survive. And unless you have someone to spoon feed you while you lay on the sofa all day, then you're going to be producing something as well (again at minimum food, offspring, etc.) The organization of people in society allows us to have a division of labor and, instead of concentrating on the basic subsistence level of life, we are able to produce & consume on a higher level such as art, music, sporting, literature, etc. Without society, it is very difficult to have any free time that is not spent concentrating on the basic necessities to sustain life.

     

    There is a genre of American lit that fantasized about such life (I'm thinking specifically of Thoreau et al here). And then, even going farther back, the various monastic movements in Christianity over the centuries.

     

    The idea that you can have a life that is not engaged in production/consumption is rather naive, I think. The question is, what are you producing & consuming and to what end? The monks that I'm most familiar with (Benedictines at Saint Meinrad Archabbey in Indiana) are quite engaged in society even though they themselves are poor and their community lives out "society" in a much different way then the rest of us. There is the occasional hermit, I think, but it seems that the Benedictine community typically discourages life in complete solitude. I do not know all the reasons why, but I can imagine a few. I think also of Thomas Merton, who in his Seven Storey Mountain autobiography lamented that he was unable to do what he wanted (contemplate God in isolation, as I recall) due to the demands of his own Trappist community. His "production", although quite distressing to himself, has inspired millions of people in their spiritual lives and, I suspect, contributed ultimately to his eternal beatitude.

     

    Thus the dichotomy is not so much between mind and body as it is between "myself" and "others." When I make the choice that I will give up what "I want" in order that others may be assisted - there is nothing more self-determinative than that and ultimately, I think, happiness is likely to ensue although pleasure at the moment is certainly sacrificed.


  7. I'd add that to being truly financially independent might also have to involve being "independent of finance"; you have to ask yourself when enough is enough... otherwise you'll be forever striving for more. When you consider yourself having enough money, then you're free to pursue other goods in life.... chief among which has to be self-determination/ freedom.

     

    Self-determination/freedom does not have to be the chief good in life and should not be in my opinion. Happiness, it seems to me, is a more worthy goal. There is a thread on that somewhere here. And some have suggested one must make a free choice to give up one's own self-determination/freedom (and financial independence too) for the good of others, in order to be truly happy.

     

    The question then is if money becomes unnecessary, is the pursuit of it - for its own sake - a poor choice.

     

    The answer to that question is obvious. Money is a means to an end. The real question is, have I chosen the right end for my life? And then, are my actions advancing my life to that end?


  8. If derivatives had been properly accounted for by the bankers what caused, Lehmans, Bear Sterns and AIG to go bust and the rest to sell tonnes of toxic debt to the fed?

     

    Companies can and do go bust every day regardless of how they prepare their financial statements. You can mark-to-market derivatives all you want but what causes companies to go bust is CASH.

     

    When you run out of cash, can't borrow more, and can't liquidate assets, nothing else matters.

     

    On the other hand, if you have lots of cash you can be completely, utterly insolvent and losing billions and it's no big deal as long as you have plenty of cash to cover your obligations as they come due.

     

    The point of all this is that it doesn't matter how you value assets and liabilities because value is subjective. The value of any particular item is different for different persons and businesses. And it is often the case that the market value of an asset is significantly less than the value of that asset to the business that owns it.

     

    You seem to think that a set of financial statements exists for the purpose of showing the liquidation value of a business at any point in time. That is wrong. The financial statements allow the business owners or officers to manage their business and ensure that it is functioning properly in fulfilling its goal of providing goods and services to human persons at a profit that rewards the owners. If the financial statements don't fulfill that goal, they are worthless for the purpose of managing a business. If I was an auctioneer of liquidating businesses I guess mark-to-market would make sense, but as a business owner and investor it doesn't make any sense.

     

    On the specifics of the investment banks you mentioned, I am ignorant, but I suspect their demise had little to do with their financial statements and a lot to do with bad management and taking on too much risk.


  9. There is a big difference in mark-to-market accounting for financial assets and general business ones. I agree that mark-to-market doesn't make sense for a lot of businesses but they operate within their means and haven't become too big to fail and require bailing out at tax payers expense.

     

    I disagree. Financial assets have an underlying value to the businesses that own them that may or may not be accurately reflected in market value at any given time. And no one is in a better position to evaluate that value than the managers who run the business. Take an example of a mortgage that a bank loans to a person so that they can buy a home. That loan is presumably recognized as an asset by the bank (you'll have to forgive me for not being intimate with the details of bank accounting, but the general concepts hold true for any company.) That asset will generate earnings for them over time as the homeowner pays interest on the loan. I don't know exactly how they value such assets, but if it were me I'd value it (for internal management/investment purposes) the same way I do any other investment - via a net present value estimate of future earnings. The accounting standards, however, probably require some other method of recording the asset value - probably just the exact amount of cash that was loaned out. So right away there is a disconnect between what the asset is really worth to me as a business and what the asset is valued at on a set of GAAP financial statements and we haven't even talked about the market yet. At any given day, the market value of that asset could easily fluctuate +/-10%. If it was a large asset, there may even be "no bid" on any given day (remember late '08?). No one can run a business, financial or otherwise, with asset values changing from 0-110% on any given day. The asset values aren't really changing that much for the business - it's just the market prices that fluctuate so much. Marking to market, then, just introduces a hell of a lot of volatility into a balance sheet. For some that may not matter, but for a bank that is required by regulators to maintain a minimum capital ratio or be forced into liquidation - it certainly does matter.

     

    Now you are concerned that the homeowner has missed a payment or two on his loan and that the bank still reports the asset at full, unchanged value. I agree that there should be some partial reduction of asset value at that point (assuming the GAAP value wasn't way too low to begin with) as it is clear that the future earnings won't be as high as orginally thought or may be negative. If the bank hides that - that is fraud. It has nothing to do with mark-to-market. The market doesn't have a clue what the asset should be valued at because it will take many months to even get the homeowner evicted. And each situation is individual. Maybe the homeowner just had a medical incident, missed work, and will be back to work in another month and will be able to make their payments again - in which case the asset is still worth most of its originally expected value. Or maybe you are concerned that the market value of the underlying property has gone down and therefore you feel that the bank should write down the asset. The problem in this case is with how you are valuing assets. For a functioning business (i.e. not a business in liquidation), the assets are valuable because of their FUTURE earning power. As long as there is confidence that the homeowner can/will make their payments, I see no reason to reduce the asset value of the loan.

     

    I don't invest in banks because I don't have the time to learn their business and their assets and understand their true value. No one expects GAAP accounting to be able to provide for truly understanding the underlying value of the business. And it is quite clear to me that mark-to-market wouldn't even come close. If I thought mark-to-market was a legitimate form of valuation, I wouldn't even bother investing as you're basically accepting the efficient market hypothesis. Why would you buy shares of a junior miner if you thought their business was worth their market value? It wouldn't make any sense. You buy equity in a miner because you think the market is UNDERVALUING their equity - hopefully by a substantial margin which gives you a lot of upside.

     

    All of this is getting off of the main purpose of this thread, however. I'm still waiting to see if a case can be made to outlaw high frequency trading here. I haven't seen it yet.


  10. Just so we're clear here, I'm a long-term investor and tend to agree with you that something is wrong with certain transactions that take place. But I don't think you're doing a very good job at explaining what exactly is wrong.

     

    As clearly as I can say it currently I feel that the rise in speculative trading by the banking elite in derivatives and the development of high frequency trading does nothing to add to the stability, price discovery or liquidity of the market. Derivatives bring instability, fantasy accounting and makes the banks to large to fail and in the case of HFT it leads to increased volatility and increased fees for the actual capital investor.

     

     

    Stability, price discovery, and liquidity are not the end goals of the market (i.e. human trade.) Just because a transaction doesn't contribute to one of these doesn't mean that it's not contributing to someone's wellbeing.

     

    Derivatives can actually add a significant amount of stability if used wisely. The case of the farmer who sells forward a small portion of his crop at a period of high commodity prices is an example. The case of an airline who locks in a portion of their fuel costs at a period of low commodity prices is another example (which our own Southwest Airlines did several years back.) Someone has to take the other side of those trades in order for the benefit to occur.

     

    All accounting has some measure of fantasy in it - and your suggested mark-to-market accounting is perhaps the most fantastical of all. Let me give you an example. My own small corporation is insolvent by mark-to-market standards. If you totaled up our assets (accounts receivable, some vehicles, tools, furniture, etc.) according to what we could sell them for at auction, the market value is less than the amount of liabilities that we have (accounts payable, and some long-term debt.) According to mark-to-market, the value of my company is negative and we could legally declare bankruptcy. However, in my humble opinion, the mark-to-market accounting is wrong and my company is actually worth much more than it would appear to be on paper. There are a couple reasons for this. First, the assets we have are worth much more to us than their market value. How can that be? Well - it's quite simple. When I buy a vehicle, it loses 10-20% as soon as I drive it off the lot. I can't replace that vehicle for less than $10k but its market value is only $8k. It's even worse with tools. When I buy a cable analyzer from Fluke, it drops ~50% in market value as soon as I take it out of the box. My laptop has a market value of $500, but without it I lose ~$1000 in revenue per day. To buy a new one, I'd have to spend at least a day to load all my programs and get it functional - ~$1000 in lost revenue for that day. Another reason is earning power over time & the time value of money. My business is insolvent by mark-to-market standards. If I understand you correctly, you would have the insolvent banks (by mark-to-market standards) be shut down by regulators. I would not want my own business shut down - and I doubt our 6 other employees would want it shut down either. This insolvent business feeds 7 families! I say your mark-to-market standards can be shoved up your english arse! It is not my problem that you can't read a bank's balance sheet and understand that their assets and liabilities must be understood in the context of a functioning business that generates earnings over time and not in a snapshot. I can't understand a bank's balance sheet either. That's why I don't invest in them. But I do understand my own balance sheet, and I don't think I need to take lessons from the government on how to get back to solvency.

     

     

    Jesus threw the money changers out of the temple as they where turning it into a den of theives, we need to do the same or do you really believe the antichrist Lloyd Blankfein and Goldman Sacs are doing "god's work"?

     

    I agree, let's get rid of the thieves. All I'm asking you for is a coherent explanation of how to identify the thief! What are the criteria that should be imposed to make a trade/transaction illegal? It sounds to me like you think the thief should just be taxed and allowed to continue operating!

     

     

    In business It used to be the natural way that the strong survived and the weak failed, but these days the weak continue and the strong are made to pay for them.

     

    I agree but that has nothing to do with whether or not someone should be engaged in trading. It has everything to do with the government forcing citizens (against absolutely overwhelming public disapproval in the USA) to pay via taxes and inflation for the bailout of their buddies. And you would have more taxes put in place for trades that may be perfectly legitimate and contribute to the well-being of society. I really am having difficulty with your logic.


  11. I don't believe the actual act of trading is evil, it actually is required to provide goods and services. There obviously would be no economy at all without the ability to trade one thing for another.

     

    The problem I think is in the expansion of speculative trading which has come about since TPB got the Glass-Steagall act repealed. So in effect it is the intention of certain agents that make it evil.

     

    Yes the current circumstances which have been created are starting to make a system where speculation is the norm, which I feel is acting against the economy as a whole.

     

    If the object is not evil, and assuming the agent has a good intention ( if it is bad, you probably wouldn't know / couldn't prove anyway) then the action must be evaluated with respect to the circumstances involved. You need to clearly specify under what circumstances trading should not be engaged in (and why) so that social policy can accomodate. I see you have suggested limitations on futures exchange trading. Surprise, there are already limitations. How are your limitations going to be better? Then you suggested adding a small tax, as if that has no bad effects merely because it is small. I'm not exactly sure what logic has it being acceptable to confiscate money from a willing buyer and seller engaged in an otherwise morally acceptable transaction. If the transaction has a multitude of bad effects that outweigh any good effects, then fine - let the transaction be outlawed for the common good. What good is it to let the transaction (with all the bad effects) happen as long as the government can skim a few bucks off the top?

     

    You need to specify more clearly under what circumstances trading is unacceptable (and why) before many people will be convinced by your argument.


  12. I am not trying to project a certain moral outlook, I am just try to explore an idea that has been kicking around in my head for a while.

     

    I understand you're not projecting a moral system here, but you're certainly making a moral claim regarding the activity of trading. What exactly are you claiming? Is the object - the trade itself - evil? Is it the intention of certain agents that make it evil? Are the circumstances such that evil effects outweigh any good effects? You need to be more specific (on a personal level) on why you believe trading is not a good action for someone to engage in.


  13. I have been thinking for the last couple of years that the cause of this financial crisis is the greed of traders and their continual want for increased profits at whatever cost.

     

     

    You are making a moral claim here - that trading is not a good action for a person to engage in. However, I haven't seen much consideration of the elements of morality (e.g. the object, end, and circumstances) on the thread. And before one can consider the elements of morality, there are certain philosophical principles that are necessary to accept. I have been away from this board for a long time, but as I recall there were many here who did not care to accept the principles that make morality possible. Has there been a change here or am I wasting my time?


  14. PS:

    Santa Fe Gold

    neg. working capital $17 Mio

    convertible loan $7,6 Mio

     

     

    I believe $15.9MM of the negative working capital is a liability related to warrants that will be non-cash??

     

    I've been selling Columbus as it looks like they're having difficulty executing the buy-out. I don't want to be stuck with Columbus if the transaction doesn't go through - would rather hold SFEG here so I'm taking a little loss.


  15. 1. Options/Warrants: I just calculate the exercise value; i.e. the cash that the company will receive. Then I use the fully diluted share count in per share valuations.

     

    2. Profits: I don't calculate profit. Cash is what's important. Profits are just an accounting gimmick. My guiding principle is that a company is worth a sum of its future free cash (which could be distributed to shareholders), with the sum being discounted somewhat for risk & time preference.

     

    3. Taxes - I call or email individual companies to get this info. It varies widely.


  16. Hi folks, I haven't posted here in a very long time just due to being very busy with running my business. I was fortunate enough to see Dominic at PDAC and resolved to try to come back here more. Hopefully everyone is doing well.

     

     

     

    Here is what I currently have in my portfolio in order of largest to smallest positions:

     

    1. Gold Resource Corp (GORO): I've sold about 1/3 of my position since this went up about 500-600% for me. Pretty expensive stock now. Pays a monthly dividend.

     

    2. Fronteer Gold (FRG): This equity is being taken over by Newmont but I'm still holding to get the free shares of the spinoff company. Probably not worth buying now that the takeover has already been announced. Watch for the spin-off explorer that will be called "Pilot Gold" and run by the same guy Mark O'dea.

     

    3. Hecla (HL): This is a good mining company in the Silver Valley & Alaska, primarily silver but also big amounts of gold, lead, and zinc. I think they are still undervalued and I wouldn't feel bad about buying some right now.

     

    4. Alacer Gold (ASR.to): Gold miner in Turkey & Australia. Probably still a buy but not spectacularly undervalued.

     

    5. Silver Wheaton (SLW): This is a good company but very expensive. I wouldn't buy it now. My position came from the takeover of Silverstone several years back. I've been selling this position down. It will basically track the price of silver with approximately 1.5x leverage.

     

    6. Santa Fe Gold (SFEG.ob): A junior gold/silver miner in Western U.S. I think this company is a good buy right now but their performance is still unproven so it could go either way. If they are successful it will be a 3 to 4 bagger at least. They are currently taking over Columbus Silver and I've been buying shares in the latter to capture a few % in arbitrage.

     

    7. Nevsun (NSU): This is a copper/gold miner in West Africa. I bought more of it in the past few weeks as the price took a big dip. I'd say it is a buy anywhere under $8/share.

     

    8. Rambler (RAB.v): This is a copper/gold junior building a mine in Newfoundland. I've been buying it over the past couple months. Be prepared to wait for a couple years for the payoff. Very small and illiquid.

     

    9. Rio Novo Gold (RN.to): Junior gold miner in Brazil that I just became aware of after the PDAC conference a couple weeks ago. I think it's a buy.

     

    10. Silvercrest (SVL.v): This is a junior silver/gold miner. I'd rank it a hold right now as the price has already gone up substantially. Performance still unproven.

     

    Good luck to all,

     

     

    Ace

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