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"Devastated" miners being discussed - Time to Buy?

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"Devastated" miners being discussed in the press

Does that mean it is time to buy?

====================================

 

 

Small-cap miners 'devastated' by credit crunch

 

By Sarah Arnott

Monday, 17 November 2008

 

The toxic combination of falling commodity prices and the global financial crisis is wreaking havoc on small-cap energy companies in the oil, gas and mining sectors.

 

 

Oil and gas companies listed on the Alternative Investment Market (AIM) lost 44 per cent of their value in the third quarter of the year, an Ernst & Young report published today will say. Their mining counterparts lost an even more desperate 54 per cent, compared with the 35 per cent decline in the index as a whole, and raised a paltry £128m of funds, the lowest quarterly amount since 2004. The oil price has dropped from an all-time high of $147 per barrel in July to around $50 last week. Similarly traded metal prices have dropped through the floor over the past few months. Copper, for example, has dropped from more than $8,000 per metric ton to just above $3,500. Nickel has fallen from around $54,000 to nearer $9,000.

 

In the mining sector, even big players are having a hard time. Judging by forward price-to-earning (p/e) ratios, many are now looking unusually cheap. Kazakhmys has a p/e of around two times, Xstrata less than four, ENRC not much more. Even giants like BHP Billiton and Rio Tinto are on just 7.1 and 7.8 respectively.

 

Dr Tim Williams, director of global metals and mining at Ernst & Young, said: "These sorts of prices are clearly absurd, but the market is telling us prices are going to fall even further. In major mining stocks, the market is predicting Armageddon, a total meltdown in the world economy, and the complete collapse of demand." But at the smaller end of the scale, the industry is being reshaped altogether. Smaller companies in the sectors are largely prospective businesses: they buy licences, raise equity and conduct exploration. Only when resources are found are the claims either sold on, or developed in partnership. It is a business model that relies on being able to raise money.

 

With confidence falling, institutional investors such as hedge and commodities funds have sold out their positions, sending already-collapsing share prices even lower. Mercator Gold, for example, lost 87 per cent of its value in the third quarter alone, Serabi Mining, 95 per cent. Only the cash-rich will survive, and, according to Ernst & Young, fewer than half of AIM-listed mining companies had more than £5m in cash at the end of August. Dr Williams said: "These companies are completely devastated because, having never been able to raise debt, they now can't raise equity either."

 

The danger is that huge swaths of the research capacity of the sector will simply cease to exist, storing up considerable problems for future supply

 

/see: http://www.independent.co.uk/news/business...ch-1021812.html

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WHO are the cash-rich companies?

 

If you see some mentioned in the press or elsewhere, why not post the names here

 

SEARCH:

Google terms : "cash rich junior miners"

 

Some results:

 

Nevsun/NSU : 21 Oct 2008 ... The analysts noted that Nevsun has $58 million in cash and modest near-term

 

"In its analysis Haywood highlighted Nevsun Resources (TSX: NSU) and its 60% ownership in the "world class Bisha gold-copper-zinc project" in Eritrea where construction activities have commenced. The analysts noted that Nevsun has $58 million in cash and modest near-term financing requirements."

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From a ongoing Business perspective Cash Rich is certainly a good criteria. I would add

Current or very near term production

Track record in keeping costs under control

Cost per unit of extraction substantially below current market price aka a margin of safety

 

If the company has cash, is producing AND selling with a healthy margin between cost per unit and sale price per unit then this could be a good stock to own.

 

However others investors are behaving even less rationally than normal (were they rational in the first place?). Liquidity.

 

For the stock itself anything illiquid these days investors are staying away from. If HF are not trading the stock then the liquidity is not there. Smaller Funds are also staying away even if the value etc is great as all Funds need Liquidity now to meet potential redemptions from their investors. These funds are in Treasuries even Japanese ones as holding Cash is very dangerous as cash in a fund has to be pledged by the depository to avoid a situation where the fund loses its cash when a bank goes flop. Who would want Japanese Treasury otherwise?

 

Capital is also leaving emerging markets back to US or Europe. Great value opportunities mind you but have the 5 year + view on returns.

"time to buy" might be a good title but investors think what is my time horizon?

Are you contrarian enough? Is your time horizon long term enough?

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WHO are the cash-rich companies?

 

If you see some mentioned in the press or elsewhere, why not post the names here

 

Have bought into a couple of junior producers in the last week or so that you may find of interest.

 

The first one is Pan African Resources - PAF - AIM and AltX

It acquired the majority, 74%, of the producing gold mine ( just under 100,000 oz pa ) at Barberton in South Africa last year and results to Jun 30th 2008 came up with just under £12 million pre tax profit, healthy cash balance -- current mkt cap of £24 million.

Manica project PFS due very soon - 1.7m oz in Mozambique.

Current value of reserves/resources is about $11 per ounce including Barberton and Manica

Futher gold projects in CAR and Ghana

Metorex listed on LSE and JSE is a major shareholder

 

http://www.panafricanresources.com/

 

The second one is Vatukoula Gold Mines - VGM - AIM

Ramping up production to 108,000 oz pa by mid 2009 at the 6m oz Vatukoula Mine in Fiji. See new thread on this board.

 

 

Seems early stage junior gold producers are in an irrational depression -- am looking for one or two more myself.

 

.

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Yamana, it's not just the juniors who are possible takeover targets.

 

Yamana, HudBay and Uranium One Noted as Possible Takeover Targets - Canaccord Analyst

 

With market volatility as a backdrop, analysts at Canaccord Adams have identified a number of potential takeover targets in the mining space as well as their possible buyers. Three names in particular stand out among the targets: Yamana Gold Inc. (AUY), HudBay Minerals Inc. (HBMFF.PK), and Uranium One Inc. (SXRZF.PK).

 

Yamana has been a very aggressive buyer in the last few years, but analyst Steve Butler figures it is turning into an attractive target because of its production growth, discounted valuation, and outstanding El Penon asset. Yamana is trading at just 4.1 times estimated cash flow for 2009 compared to a sector average of 10.5 times, he noted. Possible buyers include Barrick Gold Corp. (ABX), Kinross Gold Corp. (KGC) and Newmont Mining Corp. (NEM), all of which are big investors in the Americas.

 

HudBay has long been considered a target because of its huge cash position, and analyst Gary Lampard noted that the company's projects are robust enough to survive the economic downturn that has hit the base metals sector. He does not believe that HudBay's Manitoba assets are good enough to attract a major, but does think that Quadra Mining Ltd. (QADMF.PK) could be interested.

 

The stunning collapse of Uranium One, which was one of the industry's biggest upstarts last year, has been well-documented. The stock is now dirt-cheap, and analyst Orest Wowkodaw wrote that the company's low-cost assets in Kazakhstan could be appealing for Cameco Corp. (CCJ), which is currently commissioning its Inkai project there.

 

The analysts also mentioned a number of other possible takeover targets in the mining space: Andina Minerals Inc. (ADMNF.PK), Detour Gold Corp. (DRGDF.PK), Premier Gold Mines Ltd. (PIRGF.PK), Canplats Resources Corp. (CPQRF.PK), Colossus Minerals Inc. (CSIMF.PK), Corriente Resources Inc. (ETQ), Hathor Exploration Ltd. (HTHXF.PK), MAG Silver Corp. (MVG), Ur-Energy Inc. (UREGF.PK), PhosCan Chemical Corp. (PCCLF.PK), and Potash One Inc. (KCLOF.PK).

 

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RHEOCHEM PLC was another that I recently took a look at, as much/more cash as market cap. However it is a bit diversified and I am not exactly sure what it intends to do with said cash.

 

Had recently raised cash via a placing on the Aussie Ex.

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The second one is Vatukoula Gold Mines - VGM - AIM

Ramping up production to 108,000 oz pa by mid 2009 at the 6m oz Vatukoula Mine in Fiji. See new thread on this board.

 

Dave Paxton just joined them as CEO, I believe

 

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Dave Paxton just joined them as CEO, I believe

 

 

Dave Paxton was appointed CEO of Vatukoulu Gold Mines a couple of weeks ago and seems to have the respect of many existing VGM shareholders. Certainly got a strong vote of confidence on other BB's also.

 

.

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"Devastated" miners being discussed in the press

Does that mean it is time to buy?

 

Barry Sargeant thinks so:

 

For some investors, at least, gold equities remain historically cheap and attractive. One measure used by some is to compare the dollar gold bullion price with the quote for the Philadelphia Gold and Silver Index, currently at 88.8 points. The equation applied, 800/88.8, means that an ounce of gold can currently "buy" nine "units" in the index, compared to an annual range of 4.5 to 11.5, and a 2008 average of 5.8. To extend the argument, if the pricing of gold equities were to mean revert against dollar gold bullion, the rally in equities would still be north of 50%.

 

 

Also some very interesting analysis:

 

http://www.mineweb.co.za/mineweb/view/mine...6&sn=Detail

 

 

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Mark Faber was talking about buying Explorers in an interview on Bloomberg today

 

He mentioned that they were cheap and oversold

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Mark Faber was talking about buying Explorers in an interview on Bloomberg today

 

He mentioned that they were cheap and oversold

 

So Frizzers and Bob Hoye (and others) are suggesting gold stocks now...

 

Any new tips Dr B? RGLD is the only thing in my trading a/c that's +!

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So Frizzers and Bob Hoye (and others) are suggesting gold stocks now...

 

Any new tips Dr B? RGLD is the only thing in my trading a/c that's +!

Captain Kirk always comes to mind when I think about the beaten up miners.

 

The USS Enterprise, itself beaten up, had only enough energy for one shot as the enemy craft circled in. To Scotty:"Wait... wait.....wait.............wait......wait.........FIRE!!" :lol:

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Captain Kirk always comes to mind when I think about the beaten up miners.

 

The USS Enterprise, itself beaten up, had only enough energy for one shot as the enemy craft circled in. To Scotty:"Wait... wait.....wait.............wait......wait.........FIRE!!" :lol:

 

Yes, it does feel desperate!

 

Well, I topped up my Blackrock and Ruffer funds and got some GDX and GORO too. Lets see if Dr B./Frizzers have some top tips.

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Day One At Mines And Money: Not Too Much Money In Evidence, But A Refreshing Lack Of Gloom Too

 

By Alastair Ford

 

They came, they saw, and they had mixed opinions. Day one of this year’s Mines and Money conference met with a mixed reception from delegates. Some, having arrived in the expectation of a fairer hearing here than they were getting on markets were disappointed. Companies that are going under will find no stop-gap or release here, even if it is the key event in London’s mining corporate calendar, and the last best hope of the cash-strapped and the nearly busted. One waggish delegate, who left early, coined the choice phrase: “Mines and No Money” for this event, but actually, the general mood inside the conference room wasn’t quite that bleak.

 

To be sure, the days of loose money and the speculative punt are long gone, and there are no sympathetic sugar daddies to be had anywhere. In many cases the sugar daddies themselves have gone bust, or at least, have moved on in the face of changing market conditions. Where was Fidelity’s Ben Payton this year, with his ready wallet and his happy history of wide ranging and successful investments across the sector? Long gone, is the answer. Where was Ian Henderson? Not in evidence today, though there’s always tomorrow. Philip Richards? You must be joking.

 

But miners are a pragmatic bunch. Unlike previous years, not too many turned up with the expectation of walking away with new money. So on that score, there weren’t too many disappointed faces. Some, like the ubiquitous Apollo Resources, were simply working the room as a profile raising exercise. Apollo plans to emerge as a dominant force in the likely consolidation of iron ore properties in Australia’s Pilbara region. But chairman Sevag Chalabian is reconciled to the fact that he won’t be raising any money next year. Others were simply on a mission to keep London in the loop. Thus Jeff Rayner of Kefi is happy to update all comers on Kefi’s progress in Turkey with joint venture partner Centerra; booth babe Eileen Carr puts a smiling face on Cluff’s rising production numbers in West Africa; Tim Read reassures that Kopane is still getting set to develop a large diamond mine in Lesotho, despite having put a smaller one on care and maintenance; and Bill Hooley from Anglesey Mining is still giving out company pens embossed with the name of the Parys Mountain copper project, following the withdrawal of a bid for Parys from an Australian company.

 

But of course all this activity only tells half the story. Most of the companies here have at least a million or two in the kitty, if not more. There are plenty around who may have to look for new money before the end of next year. But not too many who need money at the start of it. And therein lies a clue to one developing characteristic of this market – companies are already dropping away. There were enough people walking the floor of the Islington Business Design Centre to have made taking a booth worthwhile, if success be measured in terms of profile. But those who walked past Jeff and Eileen and Tim and Bill were actually missing out on 30 companies that had said they’d attend, but that in the end didn’t. That’s right, 30 companies found it more economic to lose their deposits than actually to show up and man their booths. According to a whisper that went around the Centre, 12 of those had actually paid in full. Some hadn’t even given the organisers enough notice to dismantle their booths, which stood empty, like so many empty shop-fronts on so many high streets around the world. Euromax was one. There were others.

 

What does this tell us about the market? One thing perhaps we might learn is that those who’ve been in this game since before the current boom started will be those who survive after it finishes. There’s something reassuring in listening to Eileen Carr reminisce about Algy Cluff’s adventures in the 1980s, in talking to the old hands from HSBC, or seeing John Park of African Eagle stride across the exhibition floor as he must have done countless times across countless parts of countless cycles, exuding an understated confidence, and all with a twinkling eye.

 

Old hands won’t be too surprised that all the talk now is that the boom is over. The word “supercycle” hasn’t been figuring in many people’s conversations in the past few weeks, not playing cheekily across the lips of the Australian iron ore promoter, not lurking unspoken at the back of any presentation by City gurus. Tim Read, just back from China, reckons that the new breed of capitalist there looks something akin to a rabbit caught in the headlights. It’s the first time round for capitalist China into a fully-fledged bear market, he says, and it’s not at all clear what they think about it. In his own space, he reckons it may take the diamond market a couple of years to come good again.

 

But in the face of the gloom there are also vague rumblings of positivity. At Ocean, they’re beginning to wonder whether there isn’t more upside in zinc than downside now, although no-one’s calling the bottom of anything. It’s possible to find supporters of gold and uranium here and there, if you look hard enough. There are people around too, who think there’s an outside chance that markets may come good again next year. And then there are the people around who will always be around, whether markets come good in 2009, 2010, or not until 2011 or later. And in a way, they’re the ones to back. And always have been.

 

 

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Day One At Mines And Money: Not Too Much Money In Evidence, But A Refreshing Lack Of Gloom Too

 

By Alastair Ford

 

What does this tell us about the market? One thing perhaps we might learn is that those who've been in this game since before the current boom started will be those who survive after it finishes.

 

Thanks DrB

 

I am rather disappointed that this thread is not getting much input from the GEI community.

 

Alastair Ford used to be resources editor of Investors Chronicle and is now @ Minesite. H have thought before he would be an interesting candidate for Frizzers to interview

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CRND Central Rand Gold

 

$132.55 USD of cash as at 2007

£62.96M Market Cap today according to LSE Website

Just poured its first gold.

 

Dr B this thread is really not getting enough attention.

 

Benjamin Graham value investor legend etc etc wrote about being able to buy shares with other peoples money when the **** hits the fan and prices are depressed - of companies with good balance sheets. OK he would probably have never touched mining stocks - not unless they payed generous dividends and had a good 10 year record :lol: . However for junior miners who are entering production and are about to cover their costs/become profitable is this not as close as we will get?

 

Im not saying that these are screaming buys. I am saying the cash rich juniors deserve attention/consideration - especially if you are bullish on the gold price.

 

Maybe we should change the title of this thread to BUY GOLD WITH OTHER PEOPLES MONEY

 

- that might get some attention

- I am actually serious - really I am

 

Come on guys one of you must be able to come up with another cash rich candidate surely?

 

Have not had the chance to look art CRND in great detail. But the more I look at Avocet the more I like it,

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CRND Central Rand Gold

 

$132.55 USD of cash as at 2007

£62.96M Market Cap today according to LSE Website

Just poured its first gold.

 

Dr B this thread is really not getting enough attention.

 

Benjamin Graham value investor legend etc etc wrote about being able to buy shares with other peoples money when the **** hits the fan and prices are depressed - of companies with good balance sheets. OK he would probably have never touched mining stocks - not unless they payed generous dividends and had a good 10 year record :lol: . However for junior miners who are entering production and are about to cover their costs/become profitable is this not as close as we will get?

 

Im not saying that these are screaming buys. I am saying the cash rich juniors deserve attention/consideration - especially if you are bullish on the gold price.

 

Maybe we should change the title of this thread to BUY GOLD WITH OTHER PEOPLES MONEY

 

- that might get some attention

- I am actually serious - really I am

 

Come on guys one of you must be able to come up with another cash rich candidate surely?

 

Have not had the chance to look art CRND in great detail. But the more I look at Avocet the more I like it,

 

Check my thread on CRND, I bought some the other day, my first PM miner. :P

 

Also tipped hear:

 

http://www.telegraph.co.uk/finance/markets...s-for-2009.html

 

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Hibernation may be junior market's best survival strategy

 

By William MacNamara

 

Published: December 2 2008 02:00 | Last updated: December 2 2008 02:00

 

Stayin' Alive is the theme song at today's Mines and Money conference in London. Not only is it a change of tune from last year's gathering - when dozens of smaller mining companies traded wisdom about which metals prices would double by year's end - but it encapsulates the mood of most of this year's attendees.

 

In fact, the past three months - as metals prices and share prices spiral downward and funding lines are cut - have been so shocking that some junior mining companies have not yet processed the implications.

 

For many, the focus has changed from profitability to simply survival.

 

One popular survival strategy is to find an outside "strategic investor" willing to buy a big stake and perhaps loan money on top. China is where many junior miners are looking.

 

Dale Rogers, managing director of Albidon, an Aim-listed nickel company with a mine in Zambia, says: "China's vision on commodities is about more than this month or this quarter, it's about 10 years from now."

 

Albidon approached Jinchuan, a huge Chinese mining company that already bought a portion of Albidon's nickel. Jinchuan, it announced last week, will buy 20m new shares in Albidon, raising $5m (£3.3m) for the company, and will receive a further 10m shares through a debt conversion, taking its total stake in Albidon to 18 per cent.

 

The Chinese company now has rights to 100 per cent of the nickel that comes out of Albidon's nickel mine. "They have indicated they will take that," Mr Rogers says.

 

Junior miners are also scrambling for similar partners in the Middle East and India - almost as if banks, funds and individuals had a red "evacuate emerging markets" button that they all pushed in late September, as one mining analyst puts it.

 

At the same time the "evacuate commodities" and "evacuate start-up companies" buttons were hit, devastating the positions of the small, Africa and South America-focused miners that flocked to Aim in the past five years.

 

The wise investor, many junior mining executives say, will realise that this reflexive pull-back has left mining companies grossly undervalued - so convincing investors to stake-build for a pittance is another strategy to stay alive.

 

Pangea Diamondfields last week signed on existing shareholders to a radical share offer. Its issuance of 2bn new shares at ½p each would have been extremely dilutive if three institutional shareholders - including Brait and Capital International Funds - had not oversubscribed, says Brett Thomson, chief executive.

 

"Basically they had an opportunity here to buy into a company that is worth £150m and buy a good chunk of it at half a pence per share," Mr Thomson says. The company's current market capitalisation is £21m.

 

Irrevocable undertakings worth £12m will allow Pangea to push forward on its most valuable diamond project in Angola, even as it - like most juniors - puts most capital expenditure on hold. "To be brutally honest, you cannot raise money in this market," Mr Rogers adds. "Your only option is a discounted placing or rights issue, and that's if you're lucky enough to find someone."

 

"Canvassing the usual suspects" for financing in London and Toronto, Mr Thomson says, did not work, and neither did finding a Russian, Indian, or Chinese investor.

 

The difficulty of fundraising has led other juniors to follow the most conservative strategy available: hibernation.

 

Mwana Africa kicked off this trend in late October, when it halted most operations across Africa. Since then it has mothballed its principal nickel mine, all in a bid to conserve its £26m in cash. Others such as Camec have suspended their copper and cobalt mines in the Congo while Australia's Talison Minerals has closed its tantalum mines, which had supplied a third of the world's tantalum.

 

Their strategy is to wait for prices to recover. However, the bet at this week's Mines and Money conference might well be which metals prices halve by year's end.

 

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From another forum - a very knowledgeable guy I know, may give you some ideas if you are thinking of picking some metals stocks - PLEASE do your own DD, all stocks are risky, especially now...

 

2008 was a disappointment to metal investors. We might have profited on bullion setbacks but, our share portfolios took a major bath. Sinclair's prediction of $1200. gold by years end looks bleak at best, although still possible. No-one could foresee that a 700 billion banking bailout would be approved that is being used to help manilulate both gold and silver longer than ever expected. I do not fault Sinclair at all. His expert knowledge can not possibly predict every temporary move the elite make.

 

So, what will 2009 bring ? I will state right now that I firmly believe 2009 will be the year of metals. Bullion and all the metal shares will explode sometime in 2009. The long term trend of both gold and silver has never been broken even, after all the manipulation applied to both. The current derivative crisis isn't even midway to unfolding the world damage to all fiat currencies. Gold and silver will regain its proper place as true money around the world in 2009.

 

Assuming, that everyone has already established a major bullion portfolio, the main question is how to secondly, best play a share portfolio ? Knowing that every single gold and silver company will profit in 2009, which group in this sector will outperform ?

 

I firmly believe that the smaller major producers will leed out of the gate. Yamana, AUY, Kinross, KGC, and similar majors will soar first. The larger majors will not move as fast.

 

Secondly, the large Jrs. with massive known reserves will explode in value. Aquiline Resources, AQI-T, Great Basin Gold, GBN, and Seabridge, SA, and Nothern Dynasty, are a few.

 

Third, top Jr. producers or near producers, will follow close behind the above and may eventually outperform most majors. Endeavour Silver, EDR-T, First Majectic Silver, FR-T, Great Panther, GPR-T, ATW Gold Corp, ATW-V, New Guinea Gold, NGG-V are only a few excellent choices in this group.

 

Finally, the top exploration jrs. will explode when the entire sector reaches a frenzy. Don't worry about the credit freeze. Private, and institutional money will flood this tiny sector in 2009. Jrs. like Colossus Minerals, CSI-T, and others that are rapidly proving up new resources at existing historical properties are realistic to be 10 baggers in 2009. Even tiny Jrs. that I still hold because they have fallen to low, to even consider trading, will bounce back. Gemini Explorations and Dhanoa Minerals are two of these.

 

On Uranium, Forsys Metals Corp. will be the next major producer. Forsys also owns excellent gold properties. As more war occurs, this uranium Jr. will outperform most others.

 

A large diversified share portfolio is not necessary to reap huge profits. A portfolio of only 10 to 15 top selections can bring enormous profits. Gold and silver will not be held down much longer.

 

2009 will be the years of metals.

 

Cadged from CDSwamp post (ta) over on the gold thread - copied here for easy reference.

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Silver stocks I'm pondering... Any thoughts?

 

First Majestic (tse:fr)

Endeavour Silver (tse:edr)

Great Panther (tse:gpr)

 

Others that have already had a hefty lift over the last few weeks:

 

Silver Wheaton (tse:fr)

Silverstone Resource Corp (cve:sst)

Silver Standard Resources (nasdaq:ssri)

Pan American Silver Corp (nasdaq:paas)

Coeur D'Alene (nyse:cde)

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FR - high cost miner; current prices likely have all three of their mines operating in the red. Options on silver price would likely be safer.

EDR - I don't follow

GPR - I haven't reviewed their status lately

SLW - Watch out for counterparty risk. Highly liquid if you are a trader rather than an investor. Bill Cara likes them.

SST - I own some of this. Neves-Corvo may shut down if copper keeps falling but I think the Minto and Capstone streams should be safe due to hedges in place. Much less debt than SLW.

SSRI - I haven't reviewed their status lately.

PAAS - be careful here, PAAS doesn't give sufficient disclosure to determine how exposed their mines are to base metal price plunges

CDE - A bunch of crappy assets and are in danger of losing their NYSE listing

 

You are missing Hecla on your list. They currently have a financing/loan problem but if they get that straightened out then I think Hecla will emerge as one of the stronger silver miners b/c they have two great assets in Greens Creek & Lucky Friday with costs in US$.

Also you are missing GORO which is basically half gold half silver.

You have to be very careful with silver miners right now because many of them are dependent on lead, zinc, or copper for a big part of their revenue.

 

 

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Silver stocks I'm pondering... Any thoughts?

Bear Creek Mines (BCM) - SLW owns a stake

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