Sunday, July 31, 2011

ASX Precious Metal Stocks - Live Ann Feed

A couple of days ago I added a new feature to the site that many precious metal stocks investors and traders might find handy (those looking for opportunities on the ASX). The feature is a live stream (note: live aspect is dependent on the Twitter feed that the stream is pulled from) of ASX announcements, specifically from companies that have precious metal related projects or interests. You can view the feed here (also linked via a permanent button on the column to the right):

Basically the feed provides live coverage of ASX announcements as they are released, with a quick interface that instantly links you to the PDF files containing the details. It only shows related announcements in the last 200 released by the ASX, so they only show on the page for a few hours to a day (depending on the rate of new announcements released on the ASX). You will need to refresh the page at regular intervals if you are monitoring it for brand new announcements.

The page might come in handy for instance after a strong night for Gold where you are looking for positive announcements from metal companies to trade or where you might just be interested in keeping regular tabs on what companies in this sector are doing.

If you know of others who may be interested in the feed (investors/traders in precious metal equities on the ASX) then please pass the link on (email, tweet, share).

Some credits due: for providing the Twitter feed (all ASX announcements before it's filtered to precious metal stocks only). Thanks also to goosmurf for the yahoo pipe which is the basis for filtering the above Twitter feed.

Gold Nerds for their list of related stocks as a starting basis from which to filter (a very happy subscriber to their precious metal stock spreadsheet).

Thanks also to Rezin from Overclockers and jnkmbx/fishball from Silver Stackers for their assistance with the html and scripting to get this working efficiently and also to joshrichy (also of Silver Stackers) for an additional ASX ticker that wasn't on the Gold Nerds list.

A list of the stocks covered by the feed (if there are others that you feel should be included then please let me know in the comments below this post):


Depending on the popularity of the page I may consider looking at options to extend the features and usefulness of the feed, if you have any ideas then feel free to pop a comment below or drop me an email.


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Saturday, July 30, 2011

Gold putting in a short term top?


I've talked about Gold as a financial instability and uncertainty hedge in the past on this blog and that's exactly the part Gold has been playing over the last few weeks as the debt ceiling talks come to a head with an agreement needing to be reached ASAP before the US defaults on their obligations. This instability has pushed the price of Gold up against the resistance level on a channel that Gold has been trading in for the past two and a half years.

The miners are also not confirming this move higher in the price of Gold with the HUI Index having lost around 7% over last week whereas other US stocks only lost around half of that. The miners failed to confirm Golds new high in late April as well which preceded around a $100 drop in the price of Gold. The miners often do lead the price of the metal itself, rising out of bottoms before Gold does and easing off the gains and falling before Gold does.

It's my opinion that when a deal is made for the debt ceiling in the coming week we will likely see the start of a multi week correction in the price of the metals. Although the debt ceiling agreement does not solve any issues, it does remove the uncertainty which has seen Gold launch to and trade at new highs (in USD).

Of course this opinion of mine for the short term does not change my position that over the medium-longer term Gold will continue to outperform.


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Wednesday, July 27, 2011

#OpPayPal - Is this a 21st century bank run?

It's 11pm in Adelaide and I happened to be checking something on Twitter when I noticed an interesting trend called #OpPayPal. Curious, I started reading through the tweets that were coming through with this term to find out what it was.

It appears Anonymous and Lulzsec (two "hacker" groups, for lack of a better term) have teamed up in an effort to bring down the PayPal empire as part of their anti security activities (AntiSec).

Here is their message (from PASTEBIN):
Dear PayPal, its customers, and our friends around the globe,

This is an official communiqué from Anonymous and Lulz Security in the name of AntiSec.

In recent weeks, we've found ourselves outraged at the FBI's willingness to arrest and threaten those who are involved in ethical, modern cyber operations. Law enforcement continues to push its ridiculous rules upon us - Anonymous "suspects" may face a fine of up to 500,000 USD with the addition of 15 years' jailtime, all for taking part in a historical activist movement. Many of the already-apprehended Anons are being charged with taking part in DDoS attacks against corrupt and greedy organizations, such as PayPal.

What the FBI needs to learn is that there is a vast difference between adding one's voice to a chorus and digital sit-in with Low Orbit Ion Cannon, and controlling a large botnet of infected computers. And yet both of these are punishable with exactly the same fine and sentence.

In addition to this horrific law enforcement incompetence, PayPal continues to withhold funds from WikiLeaks, a beacon of truth in these dark times. By simply standing up for ourselves and uniting the people, PayPal still sees it fit to wash its hands of any blame, and instead encourages and assists law enforcement to hunt down participants in the AntiSec movement.

Quite simply, we, the people, are disgusted with these injustices. We will not sit down and let ourselves be trampled upon by any corporation or government. We are not scared of you, and that is something for you to be scared of. We are not the terrorists here: you are.

We encourage anyone using PayPal to immediately close their accounts and consider an alternative. The first step to being truly free is not putting one's trust into a company that freezes accounts when it feels like, or when it is pressured by the U.S. government. PayPal's willingness to fold to legislation should be proof enough that they don't deserve the customers they get. They do not deserve your business, and they do not deserve your respect.

Join us in our latest operation against PayPal - tweet pictures of your account closure, tell us on IRC, spread the word. Anonymous has become a powerful channel of information, and unlike the governments of the world, we are here to fight for you. Always.

Signed, your allies,

Lulz Security (unvanned)
Anonymous (unknown)
AntiSec (untouchable)
The trend has gone global and thousands of tweets are coming through from all over the globe, many people claiming to have closed their accounts. There are a few people lashing out and suggesting this sort of activity is unethical, but clearly the majority are in support of the operation.

When some users started struggling to close their accounts (measures being taken by PayPal to slow the mass closure of accounts?), the messages started to include PayPal's phone number so users could call and close their account.

PayPal is owned by parent company eBay. As I write this the price of eBay stock has just opened and is plunging (granted the rest of the market is looking red, but nowhere near this bad):

Are we witnessing a new age where a few hours worth of trending social media terms can wipe shareholder value off a publicly listed company?

Assuming these people closing their PayPal accounts are also withdrawing funds could we also be looking at a bank run of the 21st century?

Has a bank run turned from this:

Into this?

Interesting times that's for sure.

For more information here are a couple of recent articles on the events over the past few hours. Link 1. Link 2.


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Monday, July 25, 2011

Gold as a hedge against uncertainty

Almost 3 months ago to the day I wrote an article titled: Is Bob Moriarty shorting Silver? A look at his "Facts", the article looked at recent predictions for the Silver market from Bob Moriarty in the months leading up to the collapse in Silver price from $50 down to low $30's. The other day Bob sent me an email suggesting an update to this piece.

Although some of the specifics to Bob’s predictions were off, the general timing of his warnings came fairly close to the peak including the last one which was within a trading day or two from the start of the crash in Silver price. To his credit Bob got much closer to calling a peak than my suggestions that started several months earlier at around the $30 mark.

In a few emails we shared back and forth I found that we had similar views on some aspects of the Silver market and the financial system in general.

On the Silver market (and precious metals sector in general) we both agree that there is a ridiculous amount of spruiking that occurs. It could almost be said that those pumping the manipulation angle in the Silver market are infact manipulators themselves, playing on the fear, greed and herd mentality of smaller and inexperienced investors.

The amount of misinformation and rubbish that circulates as precious metals 'news' is atrocious.

Anyone remember in late 2009 when we were told 25% premiums were being paid for those seeking physical Gold delivery to settle in cash instead?

Remember when the LBMA made a slight change to their website causing a popular commentator to suggest they were days away from implosion and hiding the data?

Remember when we were standing for delivery which was going to cause the COMEX to default in December and then again in March?

Remember when every ounce of Silver purchased was another step to toppling the much despised JP Morgan?

Fantastical stories are circulated to encourage investors to get involved personally & emotionally with their investment in metals, which is exactly what you shouldn't be doing!

Further to discussion about those pumping the Silver market we also briefly discussed the possibility that Silver could head to much lower prices which would probably occur in a deflationary collapse. I later found a recent article which presented Bob's views quite succinctly:
TGR: You've also expressed serious concerns about international governments and their debts underpinning the increase in the gold price. Are you still making that argument?

BM: Well, here's the key, and this is what the gold bugs totally ignore. You can die of lung cancer or a heart attack, and the end result is exactly the same. In a financial system, you can die of hyperinflation or you can die of deflation. With $600 trillion worth of derivatives in the world, the risk of deflation is enormous, and that means that gold could drop to $500/oz. It might buy 10 times as much as it does at $1,600/oz., but everybody in the gold arena believes we're going to go into hyperinflation, and that's a slam-dunk. What if we don't? What if they're wrong?

TGR: It's interesting that you bring up the need to look at the price of gold in terms of what it can buy, but if you believe in the theory that gold at $500/oz. will be able to buy 10 times more than it does today, doesn't that make gold great regardless of whether we're in a hyperinflation or a deflationary environment?

BM: Yeah, I absolutely believe that the financial system of the world will collapse—and I think lots of people have now come into this camp. Even Tim Geithner came out just a few days ago saying that we're in some really, really, bad times. I was saying that five years ago and 10 years ago, and now Mr. Geithner's finally figuring it out.

But the gold bugs need to understand that Greece could default, Italy could default, Spain could default, starting a series of cascading defaults and the banking system could close in a month. Then maybe gold isn't $10,000/oz.; maybe it's $500/oz. The Gold Report
Some good points are made here and I'm inclined to agree that we shouldn't look at an inflationary outcome as the only possibility. On this blog I have measured Gold against other assets (including houses and oil) as I think this is probably a more important metric than against fiat currencies. We could still see Gold head into the 3rd phase of the bull market, but doing so priced lower than it is today when measured in dollars. From a chart perspective that might look odd, but measured against other tangible assets is where you will find the move to an overvalued state.

When we have continents, countries, states and regions that have their finances so intertwined it's hard to imagine how just one of these counties could default or even partially/temporarily default without setting off some sort of chain reaction. The NY Times image 'Europe web of debt' is a nasty reminder of just how tied together the countries in Europe are:


It was in part the unforeseen side effects of the Lehman Brothers bankruptcy that seized up the markets earlier in this rolling crisis. I certainly don't have any confidence that central banks and governments will manage this new series of risks (sovereign default) with perfect timing and resolution...

Decisions they make and actions they take could result in unintended and unforeseen circumstances. They might be able to change the route we take, but ultimately the destination is going to be the same either way. Gold can provide a hedge to the unknown events and uncertainty that lie ahead of us.


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Sunday, July 24, 2011

Silver bullion coins - Which should you buy?

You can now buy Perth Mint 2012 Lunar Year of the Dragon Silver & Gold Coins at Bullion Money:

Buy gold online - quickly, safely and at low prices
Click this banner or the one at the top of the page to visit.

A new sub-forum (Panda Forum) on Silver Stackers has sparked some worthwhile debate on which Silver coins investors should be buying. The debate is generally around 1oz Silver bullion coins, some of which come with a mintage limit and others without (although those without usually cease production at the end of the issued year).

First up I would like to point out that I do not consider myself a numismatic coin collector. However I am happy to pay a small premium to purchase bullion grade coins that have an obvious advantage over their peers. I look for those that might bring a numismatic premium in the future to amplify gains on top of that achieved from an increasing Silver price.

I think it's worth noting that while numismatic coins performed well during the last precious metals bull market, the real bull run gone bubble actually came several years after the peak in metals (which is illustrated in the below chart from PCGS). The Professional Coin Grading Service produces a long-term rare coin index, the PCGS 3000 Index:

There is no guarantee that the numismatic bull run will once again follow the precious metals peak, but I think it's important to identify in your own mind when buying metals whether you are a 'coin investor' or a 'precious metals investor'. Note: I will be using the term 'investor' throughout this post, but ultimately buying coins based on an outlook that the underlying metal or demand for a specific coin will push the price higher is speculation, not investing.

A precious metals investor might be buying metals for several different reasons or suspected economic/monetary outcomes, but they should always be following one of the fundamental rules to investing:

"Don't fall in love with your investments"

A coin investor may do so for the love of the coins themselves in which case the monetary value of the coins (or the price they pay for them) may not matter so much. They might also be buying to speculate on the demand for a specific coin pushing the price higher.

Now there is no reason that you can't be both a coin investor and a precious metals investor, but if that's the case then you need to be brutally honest with each purchase and label each buy as either part of your collection or an investment. Mix these two together and you are walking a dangerous line which will likely result with you being unable to sell the metals when you should be doing so.

An example of someone who is both a coin and precious metal investor might be someone who buys some rolls of a bullion coin for a few dollars over spot as well as some proof versions of the same coin for twice spot price or maybe they buy some of last years version of the series for 50% over spot.

With that out of the way I would like to take a look at the options that investors have for purchasing 1oz Silver bullion coins.

One of the options that will soon be available (likely only for a very limited time) is the 2012 Perth Mint Lunar Dragon, which I previously discussed on my blog around a month ago (LINK).

Note: Mock-up design. Official pictures yet to be released.

Some of the most heated debate on Silver Stackers has been comparisons between the Perth Mint Lunar series and the PBoC Panda series.

The coins in these two series:

- Both have Chinese influence to their designs
- Both are well recognised world wide
- Both have aesthetically pleasing designs

The Lunar coin has a set mintage of 300,000 (which will be in place until Series 2 concludes) whereas the Panda mintage is increasing (900k in 2009, 1.5m in 2010, 6m in 2011, how many in 2012?).

It seems the PBoC is happy to increase mintages of the Panda mid year to meet demand (which they have done in both 2010/2011), which means you can't be sure of the final mintage until the next years design is being sold. In my opinion this is a huge disadvantage for those who are buying the coins for their rarity.

The Lunar is more readily available in Australia from a greater number of dealers.

The Lunar coins come in a much more convenient form from the mint, in rolls of 20, whereas the Panda comes in hard to stack plastic sheets.

The Lunar can be bought at a lower premium to the Panda on release (before they sell out at the Perth Mint), which means more Silver for your dollar and you are better exposed the the price movement in the underlying metal.

Fake Panda's are common and the counterfeits are becoming increasingly harder to spot. As someone who has been caught out buying fake Panda's in the past this is probably somewhat influencing on my personal decision to avoid them. I have never seen (or heard of) a fake Perth Mint Lunar series coin.

It has been identified by members on Silver Stackers (as well as by Peter Anthony, Panda Collector) that there are several varieties (e.g. slight differences in coin by coin comparison) of some Panda designs (up to 5 in 2003!), making it even more difficult to identify genuine Pandas over counterfeits.

Some Panda enthusiasts argue that although the mintage on the Panda is higher there is a much larger local population to support this, however I would argue that Australians have much higher salaries and net worth than the Chinese which might also be taken into account in such an argument. Further to this with eBay and other ways of selling coins around the world I think the local population of the coins 'country of origin' is largely irrelevant.

Another argument put forward for the Panda is the performance of the previous years coins which have risen much higher than the price of Silver and many other coins, however over the last several years we have seen the mintages of the Silver Panda series increase almost exponentially:

2008 - 600,000
2009 - 600,000 (+ 300,000 commemorative coins)
2010 - 1,500,000
2011 - 6,000,000

So we have seen it increase by a factor of 10 over the past few years, whereas the Lunar series (Silver BU) is fixed at a guaranteed 300,000 maximum (although this doesn't stop the Perth Mint from producing a much larger number in alternative sizes and designs some of which don't have limits).

The new Panda coins now have a larger mintage than some other series, such as the Canadian Wildlife series which has a mintage limit of 1,000,000 per coin with two released so far (Timberwolf and Grizzly), although the Panda still has a smaller mintage than other coins such as the American Silver Eagle and Canadian Maple.

Earlier Pandas (especially those with small mintages) have performed extremely well over the last few years as Gold and Silver investment increases in China, however it remains to be seen whether the later years (2010 onwards) with much larger mintages will see the same performance. As it stands today the 2010 Panda vs the 2010 Lunar (Tiger) has the two coins priced pretty much neck and neck (Panda slightly higher, but the Lunar coin was generally slightly cheaper to buy for us in Australia to begin with). That was when the Panda had a 1.5m mintage (vs the Lunar 300k), what bearing will the quadrupling to 6m Pandas in 2011 have? How many more millions will the 2012 mintage be?

Of course the coin mintage isn't the only factor weighing in on future price. The design has some bearing (as well as popularity of the specific animal portrayed in the case of the Lunar coin which changes every year). The 2010 Lunar Tiger has outperformed the 2009 Series 2 Ox for example. The Tiger proving to be a much more favorable design.

In my opinion the 2012 Perth Mint Lunar Dragon (Silver 1oz BU coin) will be the pick (over Panda or any other bullion prices 1oz variety) if you can get your hands on any this coming September. However a mix can never hurt and if you have a sharp eye (to avoid fake coins) and can obtain the 2011/2012 Panda for a reasonable premium to the price of Silver then it's also probably not a bad coin to buy as well.

While other coins (Maples, ASEs and others) might come with a slightly lower premium to the Lunars and Pandas, I believe it is worth the extra couple of dollars per ounce to purchase the coins that have the potential for numismatic premiums in the future.


Buy 2012 Perth Mint Lunar Dragon Coins at Bullion Money.

Wednesday, July 20, 2011

Wage/Gold Ounce Ratio - Australia

In the comments section on Macro Business earlier today there was a suggestion to draw a chart showing the price of Gold relative to wages in Australia (after Macro Business published my charts showing Australian houses priced in Gold/Silver). With some time on my hands this evening I decided to see what the results were.

I couldn’t find a single data set which provided Australian wage data that extended over more than around 20 years, so I have spliced together two different sets of data before graphing them (they were relatively in sync). From 1972 to 1994 I have used the total (weekly) full time average earnings (for an adult) from the RBA (LINK, see item 4.18) and for the period 1995 to 2010 I have used the total (weekly) earnings for a full time adult from the ABS (LINK, see Table 3).

The AUD price of Gold was achieved by averaging monthly figures (to get an average price for the year) provided in a spreadsheet by the World Gold Council (LINK).

The chart simply shows the number of Gold ounces the average weekly wage would buy (technically it would be a fair bit less after tax and living expenses!):


This chart shows the last 40 years, but how expensive was Gold relative to wages before that?

Here is some information from the ABS on wages and the Gold price in 1901:

In 1901, the average weekly wage for an adult male was about $4.35 for a working week of almost 50 hours, which after inflation equates to $217.50. However, wages have grown much faster than inflation, with the average weekly ordinary time earnings for adult males in May 2000 being about $830.00 for around 37 hours work, in far better conditions.

The price of gold has often been used as a measure of inflation. At Federation, the price of gold was $8.50 an ounce, or $425.00 in today's money. The actual price of gold in 1999-2000 averaged about $460.00 an ounce, showing that it has generally maintained pace with inflation. ABS

While the ABS has shown that Gold has kept up with the pace of inflation, it’s not necessarily a good tool to use as an inflation hedge unless held over very long periods of time. The 30 year bear market after the last nominal peak in 1980 to 2000 is proof of that.

Based on the above figures from the ABS the Wage/Ounce ratio was around .51 ($4.35 wage / $8.50 oz) in 1901.

20 years later and the ratio had changed quite significantly.
In 1919, Billy Hughes appointed a commission to reconsider the basic wage of the worker - a family with three children needed £5 16s which was 30s more than the current minimum wage. For most of the 1920s, the average wage for an Australian worker was £9 30s. Skwirk
At this time the price of Gold was fixed in USD at $20.67 an ounce. In 1920 the Pound was valued at USD$3.66, so in USD an Australian weekly wage was around $38.43 and bought 1.86 ounces of Gold.

To get back to the .42 ratio seen in 1980 (remembering that is with the price of Gold averaged over the year) we would have to see Gold at AUD$3200 and obviously even higher assuming wages rose while Gold climbed to that level.

Will we see the ratio fall back to the level seen in 1980? What are your thoughts?


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Tuesday, July 19, 2011

Gold $1600, Silver $40, where to now?

I thought I would share some thoughts from several technical analysts I have a great deal of respect for.


Firstly the Midas Touch Gold and Silver report from Florian Grummes:
Gold is on the way to my new price target of US$3,500. Given the current constellation, I think it is even conceivable that gold could double by spring 2012 already.

In the next few weeks until mid of august I expect gold to move towards around US$1,650. Here a brief pullback could calm things down before gold will shoot higher to around US$2,000 by year´s end.

In the short term gold might need some days to digest the big move during the last two weeks. I do not expect any more significant pullback below US$1,575. On the contrary, we are probably in the early stages of the largest upward move in gold in this bull market.
Charts and extensive commentary, as well as subscription details (free) are at the following link -> Midas Touch: Gold and Silver Analysis

Unfortunately Florian was sending these out by email PDF for sometime, so past commentary & charts don't go back that far, but I have been subscribed and following his work for over 18 months now.


Gary Savage from Smart Money Tracker is a cycles analyst and recently timed entry back into Gold (after the correction to sub $1500) almost perfectly.

This from Gary in the comments section of the blog on July 5th:
The move back above $1500 was powerful and gave back nothing.

Since it is late in the intermediate cycle we have to consider that the bottom may very well be in.

Let me say this. If you are going to wait hoping on further declines be prepared to chase the move just in case gold doesn't give us a lower entry.

I started to build a position in the model portfolio today. I do still have some dry powder just in case there is another dip down.
Based on the patterns we are seeing Gary has indicated that a price target of $1800 may be possible over the next several months (based on the percentage gains we've seen in other runaway moves).

The Smart Money Tracker is a great blog to follow, although Gary has flip-flopped a couple of times with the medium term outlook (e.g. 3-6 months) in the recent choppy action he has still consistently been able to catch some great entry points for his subscribers. There is a free blog and if you want his further commentary it is around US$200pa for subscription (I'm now subscribed after following his free blog for almost 2 years).


The Prince is an analyst from Macro Business and has been posting some great charts and commentary about Gold. This from a post today:
If you consider that history is repeating, than the target is more likely in the $2700 to $3500 range (using 500 as the nominal point for 2011, and 900 as the “terminal” point in 2012-13):
Gold in USD compared to other bubbles (note this is not semi-log)

Of course, what we are talking about here is the broad assumption that gold will inexorably continue its bull market, flittering from one economic and monetary crisis to the next, with no end game in sight.

Is this time different? Or will The Bernank pull a Volcker and raise rates above their negative real terms, or will the ECB try to contain inflation (or will it be contained by a great swithe of debt destruction?) There are known unknowns that traders and investors face going into the 10th year of this bull market – take care. Link to complete post.

You can follow The Prince's commentary on Gold, the markets and specific stock profiles on this page.


We've just witnessed the longest Gold rally in 31 years (since 1980). Silver has also performed well slicing through resistance at $39.50 and has managed to hold on for now.

Consolidation or a temporary pullback from these levels would keep the rally looking healthier and setup nicely for a further push into the end of the year, perhaps to around $1700-2000 as suggested by the analysts above.

I have been quite bearish on equities (including precious metal stocks) for a few months now and have avoided some pretty serious draw downs in stocks that I owned. Over the last 2 weeks I have added to some positions so that I am now sitting around 1/3 cash, 1/3 resource & metal stocks and 1/3 physical. I am still cautious about the potential for a deflationary period in which the stocks could be hit hard, but my position has not changed from 6 months ago when I suggested that we could be on the cusp of the 3rd phase of the bull market where we really see what Gold can do!


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Monday, July 18, 2011

Update on Aussie Property vs Gold/Silver

I had a request on a forum I frequent to update my charts on Gold/Silver vs Australian housing and thought I would post the charts here as well. Don't have time for a lot of commentary, but you can see my previous ramblings on the topic in these two past posts:

Australian Housing Priced in Gold and Silver - Feb 16, 2011
Australian Property priced in Gold & Silver - Sept 22, 2010

Residex only has data up until May for housing (so any change in prices over June will not be reflected in the chart). For the last month in the data I used spot prices instead of the monthly average (AUD $1500/$37.50 for Gold/Silver) to show the down tick that current metals prices are causing. It's worth noting how little a difference the Silver 'crash' had on the pricing when moderated to a monthly average (the monthly average fell from around AUD$40 in April to just under $35 in May, certainly not as drastic as the daily price action we saw).

It is my opinion that the metals will continue to outperform Australian property over the medium term.



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Saturday, July 16, 2011

Metallica Minerals (MLM) & MetroCoal (MTE)

It's pretty rare that I cover a company whose assets aren't dominated by precious metal tenements and resources, infact the last may very well have been my first ever post on this blog when I covered Mantle Mining (MNM). Mantle Mining, like the company I will be covering today, has predominantly coal based assets/exposure and since the writeup on the site last year MNM's share price rose from 4.5c to 29c and following has drifted back down to 11.5c.

Metallica Minerals (MLM) provides fairly diversified exposure to several different resources through their large positions in several other ASX listed companies as well as a flagship project of their own.

A summary of their current positions is best summarised using a slide from a presentation they made available several days ago:

Their share price closed today at 43.5c (down 7.5% after shares from a rights issue started trading). At 43.5c MLM has a market cap of approximately $56m (including additional shares from rights issue). Their investment in MetroCoal (MTE) was worth $66.8m as of today's close (80m shares @ 83.5c), so MLM is trading at a 16% discount to the value of their MTE holdings alone (without taking into account their almost $10m in cash and major stakes in several other resource companies). ** See more information on MetroCoal later in this post.

Further to the above cash and investments held by MLM they also have their flaghip Nickel-Cobalt & Scandium “Tri-Metal” Project (Nornico). The project contains approximately 400,000t Nickel, 42,000t Cobalt and 3,000t Sc Oxide. Production is targeted for 2014.

Owning 2 out of the 3 known Scandium deposits puts MLM in a powerful position to be THE company to provide this Rare Earth Element (REE) globally.

With the price of Sc Oxide currently commanding around US$1600kg it's not hard to see the potential here if MLM were able to mine it at a rate of 40,000kg pa ($64m revenue) and that's just one of the three metals!

I suspect the biggest concern here is the Capex that will be required for the 500ktpa HPAL plant which will likely be in the vicinity of several hundred million to develop. Further studies and analysis on Capex costs and plans are in progress.

**Further information on MTE:

176.7m Shares on Issue (approx 78m in escrow)
$147.5m Market Cap
$13m in Cash (excluding JV funds)
1,188 Mt Coal Resource
Market Cap/Resource at around 12.5c per tonne

Top holders include Metallica Metals (45.3%), Mathews Capital (17%), National Nominees (2.7%) & UBS Private Wealth (2.7%), the top 20 hold over 70% of the company.

The discount to the value of their MTE holding makes MLM an attractive alternative for investors looking for cheap entry into MTE. Technically if buying MLM at today's prices the buyers would be exposed to a larger number of MTE shares (by proxy) than if buying direct. Of course there are downsides to not owning MTE directly. If a takeover offer eventuates then investors will be relying on MLM to make the decision on their behalf.

Recent speculation on outside interest in MTE's projects has been confirmed:
Three top Indian companies, including Reliance Power, Aditya Birla Group's Essel Mining and the RPG Group, have been shortlisted for final round discussions to buy a strategic stake in Australian coal mining firm, MetroCoal. The Australian company plans to raise $600-700 million from the sale.

The Queensland-based MetroCoal has put two of its thermal coal bearing blocks with proven reserves of 1.2 billion tonnes [BB Edit: Note companies correction to this figure in response below], up for sale and has invited expressions of interest from suitable companies. According to people familiar with the development, the three Indian companies along with at least two other foreign companies have been shortlisted for the final round of talks.

In fact, a team of senior executives from MetroCoal is touring India next week to visit the shortlisted Indian companies. MetroCoal did not respond to email queries on this issue. Metrocoal is planning to divest equity stake at either the entity level or project level, said the people cited earlier. The two exploration blocks in the Surat basin in Queensland, have high value thermal coal used by Indian power plants. Economic Times
Response from MTE in regards to above article was as follows:
MetroCoal Limited (ASX-MTE) is responding to an article published in the Indian media speculating on the progress of discussions on the marketing of the Joint Venture process for EPC 1164 and EPC 1251.

MetroCoal wishes to clarify that discussions with companies are at a very early stage following the receipt of Expressions of Interest from a number of parties from China, Korea, Japan, India, Australia and the United States of America.

The media article contains a significant inaccuracy that the project has a proven reserve of 1.2 Billion tonnes. MTE advised the ASX on 12 May 2011 that the project areas within EPC 1164 and EPC 1251 contain an inferred resource of 767Mt*.
In the announcement a time frame of late July was given for receipt of Non-binding Indicative Offers with Formal binding Offers to be received by late August.

Recent consolidation in the coal industry points to a positive outcome for MTE. For example Cockatoo Coal (COK) recently sold partial stake in a Queensland project:

COCKATOO Coal will sell 49 per cent of its Woori project in Queensland to Japan's Mitsui for $37.25 million.

Mitsui now owns 49 per cent stakes in the Woori, Collingwood and Taroom projects, all in Queensland's Surat Basin, and Cockatoo Coal said these will now be consolidated into one joint venture managed by Cockatoo.

The joint venture will work on completion of a feasibility study by December 2013, Cockatoo Coal said. The deal with Mitsui remains subject to relevant regulatory approvals. The Australian
In another recent example a take over offer at around a 40% premium to the last share price was made for Macarthur Coal (MCC):
THE world's largest listed coal miner and steelmaker today sweetened their offer for Australian pulverised coal miner Macarthur Coal to about $4.73 billion, while moving a step closer to success by agreeing to start due diligence on the deal.

Peabody Energy and ArcelorMittal on Monday announced they would start receiving data and site-access from Macarthur from next week.

That offer came at a 40 per cent premium to Macarthur's previous share price, but was treated as an upper limit that would be further reduced by subtracting the value of any final dividend declared by Macarthur's board. The Australian
An even more interesting potential takeover is occurring just next door to MTE's Columboola tenement (as pointed out by valinvestor on HC, thanks!):
China Knowledge reported that Yanzhou Coal Mining Co, China third largest coal producer is likely seeking to acquire privately owned Australian coal miner Syntech Resources which owns the 700 million tonnes Carnaby Downs thermal coal project in Queensland's Surat Basin.

Surat Basin is a little developed coal province to the south of the Bowen Basin, Australia's primary coal-producing region. At present, the thermal coal project exports a small amount of coal through Brisbane port. Syntech Resources has plans to expand the output of the project to 15 million tons a year by 2013 if it obtains using rights of the port.

According to unnamed sources the acquisition is valued between several hundred million Australian dollars and more than AUD 1 billion.

Yanzhou Coal Mining acquired Australia Felix Resources Ltd for AUD 3.5 billion in 2009. The deal was China's biggest-ever takeover of an Australian company. Steel Guru
Granted Syntech Resources is far more advanced than MTE with their nearby Columboola tenement, however MTE already has a resource around 75% the size of Syntech's (with further drilling results to come) as well as a much larger area for exploration.

If the figures for a JV operation or takeover of MTE are anywhere near what is being suggested by similar activities in this sector then we could easily see the share price of this company skyrocket (after already doubling in the last couple of months).

It would seem that the recently announced Carbon Tax is having little effect on this booming sector.

It's pretty obvious that the recent appreciation in MLM's share price has been driven by MTE's share price rise. If the market cools on MTE (or the takeover/JV interest doesn't develop into something solid) then it's likely that MLM will also moderate:

That said MLM could just as easily play catchup in the meantime given their undervalued position!


Disclosure: Position held in MLM. Not investment advice. Do your own research.

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Tuesday, July 12, 2011

Resource junior paying 10% fully franked dividend

Royalco Resources (RCO) is an interesting little company. They were incorporated in 2001 to acquire royalties and then listed on the ASX in 2006. Royalty payments started in 2008 with the largest payment currently coming from the Reefton Project in New Zealand (belonging to Oceana Gold, ASX: OGC). RCO's focus is not to manage projects from exploration all the way to production, but to sell them off beforehand maintaining a royalty interest to provide future income streams. As far as I'm aware they are the only company on the ASX that operate in this fashion with a precious metal and resources focus. Their strategy as per the latest quarterly is:
The Company’s strategy is to expand a core royalty portfolio of income producing base and precious metals interests. This may be achieved by direct acquisition, exploration initiatives, or as a result of mezzanine/project financing activities. In addition, successful exploration activities will be maximised to the benefit of shareholders in whatever corporate format deemed appropriate.
Their unique model makes direct comparison to peers in the resource sector difficult; however a review of their current position makes them an almost irresistible proposition.

A great summary on why royalties are a smart way to get exposure to resources was detailed in the companies original prospectus:
The rationale for acquiring royalty interests was to acquire the potential cash flows as the underlying assets are developed. The establishment of a mining house with cash flows based on royalties over a wide range of assets and commodities has several important advantages over resource companies based purely on exploration, or with operations over a limited number of projects.

• Cash flows from a diversified range of royalties may provide a basis to more readily identify the fundamental value of a company – a diverse royalty portfolio provides an asset more readily capable of being valued than a single exploration play. This structure can provide as much or more exposure to upside in commodity prices as a pure exploration play – but with a much lower level of risk.

• With royalty interests, the income flow from operations is not directly reliant on project profitability. Most resource royalties, whilst being exposed to metal price risk, are not exposed to the same variables and risk factors as is the owner of the underlying tenement. Royalty owners are not usually subject to production cost risks, environmental obligations, and resource rent taxes; nor are the royalty streams subject to any project financing charges. The project operator will invariably attempt to optimise mine life and recovery of metals, yet the royalty holder has no requirement to spend any further capital, whether it be for exploration, infrastructure or additional mine development.

• Royalty assets have the significant advantage that they are usually purchased for a single upfront payment, based on known reserves and recoveries at the time of acquisition. An operator will usually attempt to increase metal recoveries and extend reserves - at no cost to the royalty owner, yet improvement in either of these factors enhances the value of the royalty assets. This can often represent significant “hidden” value, and is a substantial benefit of investing in the resource sector through royalty based assets. These factors can create considerable potential upside at no cost to the royalty owner.

• Royalties are leveraged to metal price movements. Some royalty agreements contain “escalator clauses” that can result in a much higher participation in production and price movements than the simple percentage movement in the price.
I have held them on and off over the past couple of years. Last week I bought a new position at 40c (ahead of an expected bi-annual dividend which should be due around mid to late August).

One of the major risks for junior resource companies is their continual need to raise capital (in such volatile times this risk can crush companies, look at Navigator Resources [ASX:NAV] recent attempts to raise capital and how this has affected the share price). The royalty streams that RCO receive means no dilution, no discounted shares to brokers, they can self fund exploration/administration costs and the income recently (February 2011) resulted in the payment of a healthy dividend (annualised rate of 10% fully franked, pretty much unheard of for junior resource companies).

Here are some of the basic figures:

Shares Issued: 52.7m
Share Price: 40c
Market Cap: $21m
April 1st Cash: $14m (should be around $15m EOFY)
Dividend: 2c (biannual basis, fully franked)

RCO is paid a royalty from the Reefton Project of 1250 ounces (before tax) per quarter or around 5000 ounces per year (around $7.25m gross pa at current Gold price of AUD$1450). After withholding tax this is roughly 1060 ounces net. Here are some further specifics on the Reefton Project royalties:
As the Reefton royalty specifically relates to MP41 164 and the royalty will cease when cumulative production reaches 400koz the aggressive drill programme on the near mine targets is highly positive for RCO. The structure of the Reefton royalty is as follows:

* The maximum royalty payable is 5,000ozpa until the royalty ceases once the total combined production from the Globe Progress mining lease reaches 400koz, which should be reached in DH12.
* The royalty will only be reinstated as a 1.5% nsr once the total production from the Globe Progress mining lease (MP41 164) and other surrounding tenements, which are also under separate RCO royalties, exceeds 1.0Moz’s.
* A sliding royalty of 1.0% to 3.0% will apply to any production where RCO has royalties from the 6 other tenements in the Reefton gold project. Other existing resources in the Reefton royalty asset portfolio are the historic underground Blackwater mine (340koz at 21.9g/t, EP40 542) and the shallow Supreme deposit (40koz at 1.5g/t Au, EP40 183).
* At the Sam’s Creek gold project located to the north-east of Reefton, a separate 1.0% flat royalty applies (31 Dec 09 resource of 0.8Moz).
Courtesy of Veritas Securities Limited.

So even though the most lucrative royalty payment will cease (likely in second half 2012), the production royalty from other various tenements will continue to provide RCO with ongoing income.

There are far more royalties and potential prospects than Reefton. In early 2011 the total number of producing royalties has increased from two to four.

They have a 3% Net Smelter Return on production from the original Mt Garnet tenements, this resulted in over $400k revenue in the March Quarter.

In early 2010 Vale (one of the largest mining companies in the world) completed an option agreement for the Gambang tenement (Philippines). $1m has already been paid to RCO, Vale must now spend a minimum $1.5m (up to $3.5m spend over 3 years) on exploration and pay $5m to Royalco in order to purchase the tenement. A net smelter royalty would be payable if the deposit is developed. RCO has other tenements in the Philippines (Pao & Yabbi).

Recently RCO has entered into MOUs in Ethiopia and Uganda (East Africa) where they can earn an interest in each of the projects with a set expenditure.

To sum up Royalco Resources has cash backing at 26c (is likely to be more like 28c, waiting on June Qtr report for confirmation), is paying a fully franked dividend of 10% (at 40c SP), has ongoing income to be paid from existing royalties with many more prospects in the pipeline. A recent on market purchase by one of the directors (approx $40,000 worth at 40.7c average) is a healthy sign.

RCO isn't without its risks. The large percentage held by management and other top holders results in a fairly illiquid share price (Directors and Anglo Pacific hold over 50%), so trading can be thin and a fast exit not always possible if you hold a large number. The latter half of 2012 could bring an end to their largest royalty which means their ongoing position following this could change quite dramatically.

All things considered I think RCO is one of the safest small cap precious metal/resource plays on the ASX presently. There is potential upside from several tenements being explored (although news from these can be quite slow) and in my opinion RCO is already well undervalued at the current share price.

That said, even as I write this the markets are tanking with the debt crisis worsening in the Eurozone and concerns about the US debt ceiling which will come to a head within the next few weeks... it's a dangerous time to be in the market and care should be taken when purchasing any equities. My position has not changed a great deal over the last couple of months and I am still largely in a mixture of cash and physical (or equivalent) precious metals, with only a small percentage of my portfolio assigned for precious metal related stocks.


Disclosure: Position held in RCO. Not investment advice. Do your own research.

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Monday, July 11, 2011

Keeping up with the Bullion Baron

In an effort to keep this site updated with new information on a more regular basis (hopefully daily!) I will be using Twitter to provide updates on precious metal/resource related stocks that are on my watch list. I will also tweet some commentary on short term price action (stocks and metals themselves). I will also be using Twitter to link to articles that I've enjoyed and think are worth the read.

If you don't want to visit Twitter then you can read my updates through the feed I've placed near the top of the page in the column to the right (this will show my latest 10 tweets).

Just to summarise, here are your options for following my updates:

Bookmark my Website - (view Twitter feed on right)

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