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Friday, June 24, 2011

Top Early Developers

Gold Stocks… The Most Undervalued Asset Class on the Market



The time to buy gold stocks is now. Never before has there been such divergence between an asset class and the related spot price of the metal. I firmly believe that the divergence between the spot price and the underlying asset class will be resolved with a massive resurgence in share prices of gold stocks to the upside. All gold stocks will at least challenge 52 week highs in the last half of the year and many will take the lead and make new highs come late fall. Double dip worries have lead to a fleeing of risk-on type assets which has led to a major selloff in a gold related name for the last 4 or 5 months while the spot price of gold has remained very strong. This is giving investors an unprecedented buying opportunity in the sector. Many gold developers and explorers are at their 52 week lows, which is a very strong contrarian buy signal. On top of a strong contrarian buy signal we also are entering into a period of seasonal strength for gold stocks and POG at the end of July which makes this the best entry point of 2011 for all gold related investments. The best value lies in the junior producer, developer and exploration categories.

The fundamentals have never been better for Gold

Right now it’s a win/win situation for gold. Either way you look at it or what ever direction markets take this summer and fall, the macro conditions are set for POG to increase in value. NO MATTER WHAT HAPPENS TO THE MARKET. It is clear if a double dip recession happens, it will be predicated by global developed world debt woes which will result in a massive devaluation of currencies worldwide.

Where do you go in a situation like that?

US treasuries? I don’t think so…

Buy gold, buy silver, buy any commodity that is scarce ad has strategic value.

The conditions right now are set for gold to go up to at least $1700 this winter as the markets are at a crossroads with either extreme outcome pointing to a further rise in gold. Debt crisis comes to a head and causes a currency crisis… You bet your bottom dollar you want to own gold in that environment. A debt crisis will send gold through the roof to astronomical levels if it comes to head when we are not prepared for it, like now. If there is no other asset of safety, if there is no other currency in the world we can trust…. every person in the world will want their savings denominated in gold in silver.

If it is the status quo with continued debt monetization and a QE policy for the developed world… gold still goes up because of inflation and monetary asset debasement. You will see a rise in gold at the pace it has risen for the last 2 years. It will keep the same pace to match the steady debasement of currencies in the developed world. You get inflationary factors coming from Asia and other parts of the developed world pushing gold higher. Developing countries are also buying precious metals to replace treasuries to protect themselves for a coming debt crisis that will implode the western world if not dealt with properly. With no other alternative currency to go to while everything is weak… just keeps gold moving higher on a pace that suggests it is going to grind it out much higher no matter what the pundits say. Monetary debasement of global currencies keeps gold from crashing. We are now on what I call the duh facto gold standard as the global market continues to buy gold as the only alternative currency of choice. As long as these conditions exist, there is no reason to believe gold is anywhere near a top.

If you see debt problems coming to a head sometime in the next 5 years…. one of the few things you can do to protect yourself is to buy precious metals. Duh.

Gold will not fall in a market crash

  • Instead of a liquidity crunch we have too much liquidity flowing through the system.
  • Gold trades as a monetary asset in addition to an inflationary hedge.
  • Gold is trading as a duh-facto currency
  • Any crash on debt fears will push gold higher in fears of defaults and restructurings of global balance sheets.
  • US treasuries less and less a safe haven asset. Gold more and more a safe haven asset. Developing alternative to US treasuries… GOLD and SILVER!
    • At least you get a real rate of return if you buy gold

Developed world debt problems not getting any better… they are not going away!

The USA is at the point where if they don’t borrow more money, they will default on their interest payments. That is pretty much as duh facto bankrupt as you can get. DUH! Let me repeat… if USA government cannot borrow more they will default. DOH!

Let me say this one more way… If the US doesn’t borrow more money… they are insolvent. DUH or DOH? I dunno?!?!?! One thing is for sure… it is the Homer Simpson of America (self entitled baby boomer) that is killing it.

Welcome to HOMER SIMPSON LAND!!!

They can’t increase revenue, they won’t cut spending (not in a meaningful way), they won’t reduce obligations like pensions, perish the thought of even asking them to reduce their military spending… the only solution for the US government is to borrow more money to solve the governments current liquidity problems. They think they can just sail away and do what they want because they are in Homer Simpson land and nothing bad ever happens to Homer even though he seems to be always just narrowly avoiding disaster. If you don’t think the US government has a liquidity problem you are fooling yourself. But who cares!!! Everything just keeps falling into place for good ‘ol Homer despite all the narrowly avoided disasters along the way. One of these days Homer won’t be able to avoid the nuclear meltdown that is on the horizon if things don’t turn around in a big way. Sluggish growth is not going to do it because at some point… the rates are going to have to come up. How Homer is going to avoid the bond vigilantes is going to be an entertaining story. So the USA better take advantage of time while the getting is still good and while the still can, because some day… they will not have free reign of the financial world.

Ask yourself this… what if?

The US problems are much worse than most people realize. Think about this, what if no one bought their debt? Of course they will sell another round of treasuries in August, but at some point the USA will have the same problems the Greeks are having. No one will fund their debt. The bond vigilantes won’t put up with a negative rate environment forever. They will just buy gold and watch the dollar fall cuz no one wants it. Of course the vultures will step in at some time… but where? Probably around 10 or 20 cents on the dollar… if it ever got to that. Hopefully not because $5,000 gold will be a small number if it gets to that point, especially if there is no alternative financial system to save us.

What if the USA couldn’t borrow anymore money this summer? What if they raised their debt limit but couldn’t sell a dollar of their T-Bill sale? What happens at that point? Who in the developed world comes in to save the USA and issue debt to do it? Sounds like the Euro game… issue debt to pay back debt. Sounds like a fun game. How long can it go? It can go as long as the kings of the game want it to go. It will go on far as long as the cash rich individuals in the developed world can continue to draw blood from the lifeless dying corpses we call our economies and broke governments that run them.

At some point the money runs dry and it seems to me that most of the cash these days is in the Far East, cash that is in the hands of the governments, anyways. There is a lot of cash swimming around in the developed world, but it is just not in the hands of government. So when the developing world stops buying the developed worlds debt. We may have a problem because then it all becomes a game of hot potato and pass around the ugly ball of debt until it the potato blows up. If and when the world’s debt problems blow up… it will look more like a nuclear bomb than potato blowing up. Keep the monetizing please. It really is our only alternative unless we want Armageddon and a US peso tomorrow.

This is the best entry point on you will get as the entire sector is a screaming juicy buy.

Gold isn’t going down any time soon. Anytime someone sells, there is a buyer to quickly replace the seller. Anyone short past July in gold will get severely burned. It may still be range bound for another 6 weeks or so but I expect by mid August the POG will be challenging all time highs. There is undeniably no other asset class on the market that screams as much a value buy than the gold explorers and developers category. The developer and exploration categories host of whole portfolio of premium tier stocks that are trading at or near their 52 week lows which are screaming value. POG is trading within 5% of its all time highs and the gold stocks cannot remain this oversold for much longer. At some point this asset class turns around in a big way. Something has got to give and I am convinced that it will be the gold stocks that resolve to the upside.

So why are gold explorers and any risk on type of gold asset trading at such undervalued prices?
  1. Seasonality.
  2. Last years over achievement in the group means more severe and prolonged selloff.
  3. QE indecision.
  4. Belief gold bubble about to burst. Thank you very much for Prechter and Soros.
  5. General fear of a severe market correction appearing after a 2 year bull market run.
  6. General slowdown in global markets appeasing inflation worries.
  7. BRIC nation’s fiscal tightening – risk-off.

Beat the Market’s Premiere Developers

The development projects are where the producers will look to add the ounces and grow reserves as well as production. This category offers the best risk adjusted returns as these companies all have significant resources in the ground, but offer substantial growth in several areas.
  1. Resource expansion potential
  2. Projects that offer leverage to the spot price of gold (1 – 2 g/t au open pit projects)
  3. Projects that offer material revaluation as they are developed towards feasibility

All these grassroots projects have 5 – 10 million ounce potential. This asset class is where the producers will look to add cheap easy ounces to their inventory and increase production.

North CountryGold
NCG-V $1.59
$154 Million Market Cap

Premium @ $0.48 +$1.16 / 242%

3 Bluffs Project, Nunavut

Indicated… 508,000 oz
Inferred… 244,000 oz
Total… 752,000 oz
  • High grade banded iron formation gold deposit >5 g/t au
  • 6 drill rigs delineating resource along 4.1km Walker Lake Trend
  • District scale potential with multiple 2 – 5 million ounce targets
  • Significant resource expansion potential (3-5M oz potential)
    • Current resource only to 100 meter depth and small portion of the overall strike
    • Titan 24 indicates impressive depth profile to 300 plus meters.
  • Impressive management team (Kaminak related)
  • Valued @ $204 per ounce


Trelawney Mining & Exploration
TRR-V $4.20
$600 Million Market Cap

Premium @ $1.30 +2.84 / 218%

Cote Lake Project, Ontario

Inferred… 4,200,000 oz
  • Potential to be >10M oz gold deposit
  • Successfully extended initial resource 300 meters (43%) to 1000 meter overall strike length
  • Open long strike and at depth
  • 4 drill rigs currently defining deposit
    • 1 drill focused on infill drilling
    • 3 drills focused on resource expansion drilling
  • Small scale gold production from underground Chester mining operations
  • Management shows ability to raise non dilutive capital
  • Valued @ $143 per oz


Gold Canyon Resources
GCU-V $2.66
$255 Million Market Cap

Premium @ $0.41 +$2.29 / 559%

Springpole Lake Project, Red Lake Ontario

Indicated… 45,000 oz
Inferred… 197,100 oz
Total… 242,100 oz
  • Low grade alkaline porphyry intrusion >1 g/t au
  • Current drilling indicates a 4 – 6M oz deposit
    • Greater than 1km strike
    • Depths in excess of 350 meters
    • Widths average 100 – 150 meters
  • Drilling from 2 barges this summer
  • Testing Portage Zone to depths of 700 meters
  • NI 43-101 resource calculation fall of 2011
  • Valued @ $63 per ounce (@ 4m oz)


Belo Sun Mining Corp
BSX-V $1.00
$210 Million Market Cap

Premium @ $0.80 +0.22 / 28%

Volte Grande Project, Para State, Brazil

Indicated… 1,307,000
Inferred… 2,136,000
Total… 3,443,000
  • 11 drill rigs in operation designed to upgrade and expand existing resource
  • Low grade >5 million oz potential @ >1g/t au
  • Increased project area by 700% to 1,305 square kilometers
  • Valued @ $61 per ounce


Volta Resources Inc
VTR-T $1.27
$170 Million Market Cap

Kiaka Project, Burkina Faso

Indicated… 1,384,000 oz
Inferred… 480,000 oz
Total… 1,864,000 oz
  • Focused on fast-tracking Kiaka
  • Typical West African low grade ~1g/t au
  • Commenced prefeasibility in H1 2011
  • Ongoing 50,000 meter drill program
  • Initial resource indicated single open pit to 200 meter depth
  • Significant resource expansion potential >3M oz
    • Doubled depth to 400 meters
  • Updated NI 43-101 for Kiaka at the end of June
  • Positive initial metallurgy with expected recoveries >90%

Gaoua, Burkina Faso

Inferred… 1,072,000 oz au
725,000,000 lb’s cu
  • Initiated 15,000 meter drill program
  • Property covers 35km porphyry trend
  • Nassara Main Zone target is a mineralized sheared contact between low chargeability volcanics and highly charged sediments
  • Valued @ $58 per oz


Lydian International Ltd
LYD-T $2.25
$213 Million Market Cap

Amulsar Gold Project, Armenia

Indicated… 1,100,000
Inferred… 1,400,000
Total… 2,500,000
  • Gold soil anomaly covers 9 square kilometer area
    • Resource covers 1/3 the anomaly
    • Hug potential for increased global resource
  • Low grade ~ 1 g/t au open pit heap leach project
  • 30,000 meter drill program initiated in May targeting anomaly 2km to southwest of current resource
  • Deposit is open in every direction and to depth
  • Initial optimization studies show robust economics
    • Low strip 2 – 3:1
    • Low cash cost of $300 - $400 per tonne
    • Low cap –ex costs
  • Valued @ $85 per ounce


Midas Gold Corp
IPO end of June @ $3.50
$360 Million IPO Market Cap

Golden Meadows Project, Idaho

Indicated… 2,050,000
Inferred… 3,737,000
Total… 5,787,000 oz
  • Golden Meadows project is one of the largest undeveloped gold projects in North America today
  • Low grade 1.5 – 2 g/t au open pit projects
  • 30,000 meters of drilling planned designed to upgrade and expand known resources
  • Economic studies and baseline environmental work planned for the rest of 2011 into 2012
  • PEA planned for early 2012
  • The deposits that make up Golden Meadows…
    • Yellow Pine (2.4M oz)
      • Limited resource due to lack of drilling to the west
      • Open along strike and to depth
      • Silver, antimony, and tungsten credits
    • Hanger Flats (1.9M oz)
      • Previous drilling intercepted
        • 177m @ 2.4 g/t au
        • 163m @ 2.2 g/t au
        • 56m @ 4.0 g/t au
      • Deposit is open at depth and to the north where it has been traced over a 1.5 km strike
    • West End(1.5M oz)
      • Previous drilling intercepted
        • 33m @ 3.4 g/t au
        • 39 meters @ 2.8 g/t au
      • Open along strike in both directions at to depth down dip
  • Valued at $62 per oz


Company Project Ounces Grade a(u) $/oz
North Country 3 Bluffs 0.75M ~ 6 g/t $204
Trelawney CoteLake 4.2M ~ 1 g/t $143
GoldCanyon Springpole 4M(e) > 1 g/t $63
Belo Sun Volte Grande 3.44M > 1 g/t $61
Volta Kiaka 1.86M ~ 1 g/t $58
Midas Gold Golden Meadows 5.79M ~ 2 g/t $62
Lydian Amulsar 2.5M ~ 1 g/t $85


Early stage development projects
Minimum 3 million ounce potential

Canaco Resources Inc
CAN-V $3.40
$675 Million Market Cap

Handeni Gold Project, Tanzania
  • Magambazi zone was one of the biggest discoveries in 2010 fast tracked for production
  • Defined along a 900 meter strike and open within a 1.4km structure
  • Open at depth
  • Quality ounces with shallow high grade discovery with open pit potential
    • Low capex – close to infrastructure
    • Low cash costs – high margins
    • Favorable mining jurisdiction in Tanzania
    • Excellent recoveries 94%
  • Drill results include…
    • 56.2m @ 6.39 g/t au
    • 37m @ 12.54 g/t au
    • 48.6m @ 14.81 g/t au
    • 53.2m @ 9.51 g/t au
  • Initial resource calculation targeted Q4 2011
  • Prefeasibility in 2012
  • Feasibility in 2013
  • Construction and production 2014 - 15


Batero Gold Corp
BAT-V $2.85
$135 Million Market Cap

Quinchia Gold-Copper Project, Colombia
  • La Cumbre zone gold copper porphyry mineralized from surface to 600 meter depth and open (currently drilling 1,000 meter vertical hole)
  • High grade zone start from surface vertical hole 10 meters from surface assayed
    • 135.7 meters grading 1 g/t au and 0.16% cu
  • Area drill covers 500 meter by 300 meter
  • Bulk tonnage open pit potential with high grade starter pit
  • Massive bulk tonnage project with 250Mt plus potential
  • Phase 1 drilling highlights include…
    • 460 meters @ 0.7 g/t au and 0.12% cu
    • 407.5 meters @ 0.64 g/t au and 0.13% cu
    • 519.7 meters @ 0.8 g/t au and 0.14% cu
    • 452 meters @ 0.6 g/t au and 0.12% cu
    • 458.5 meters @ 0.64 g/t au and 0.12% cu
    • 602.5 meters @ 0.45 g/t au and 0.12% cu
    • 510 meters @ 0.45 g/t au and 0.11% cu
  • 24,000 meter phase 2 program underway
  • Significant near surface zone of secondary enrichment showcase La Cumbre increasing La Cumbre economics early in the mine life.


Almaden Minerals
AMM-T $2.95
$169 Million Market Cap

Ixtaca Epithernal Gold & Silver Project, Mexico
  • Blind epithermal gold and silver discovery in 2010
  • Defined along a 550 meter strike length
    • Somewhat constrained to the north
  • Open at depth and potential for higher grade feeder zones
  • Drilling highlights include…
    • 133.34 meters @ 0.71 g/t au and 48.9 g/t ag
    • 81.55 meters @ 0.29 g/t au and 24.2 g/t ag
    • 165.07 meters @ 0.83 g/t au and 50.8 g/t ag
    • 203.65 meters @ 1.01 g/t au and 44.3 g/t ag
    • 158 meters @ 0.94 g/t au and 61.1 g/t ag
    • 302.41 meters @ 1.01 g/t au and 48 g/t ag
  • Multimillion ounce gold and silver deposit if continuity persists at depth

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