Note: This is not financial advice. I’m not a financial advisor and I’m wrong 100% of the time. Investments are risky and nothing mentioned here should be considered financial advice. Invest at your own risk.
Side note: as I was writing this, my silver prediction has come true and my AG options went parabolic as silver has shot up in price today as forecasted by me. Check out what I wrote about this option play in my last post.
In one of my recent writings, I let people know of three strategies to deal with potential stress to the markets.
- Do nothing. If you are holding stocks for 40 years, your financial analyst will tell you to do nothing. Everything will grow over time, and you weather the peaks and valleys.
- Sell everything. You panic and sell everything, and then the market goes vertical and you missed out on a big move.
- Sell a portion. When you sell some, you hedge your bets. You can get traction on a big move, but if there’s a big dip, you can buy back in.
Everything on the YouTubes is screaming that another crash is coming.
Let me be clear: I do not see this as a crash. I see this as a correction back to reality based on how the economy actually is, versus what the hyper-inflated prices are. I felt the initial correction was to be from 29,000 down to maybe 22,000-24,000 based off of fundamentals. What usually happens with these types of markets is overshoots. It went past the 22,000 down to 19,000 or so. Overshoot. Stimulus comes back, they overshot upward. I feel this move will be a correction down to 23,000-24,000 but might also overshoot down to 21,000. An equilibrium will be found in the free market, eventually.
The catalyst for this in the next 1-6 weeks or so will be 2Q profits. I feel this will affect just about every company. For some, like Zoom, they will have record profits. However, what is the P/E ratio? For a “good” company, you might be looking at 12-20x. A 6x might be a steal, but maybe that company is flying under the radar for good reason?
For instance, a “good” company that has been around forever that probably did OK with COVID being open is CVS. Any guess at their P/E? 12. Their current stock price is $64 and an average analyst project has them at $79. Respectable.
Any guess at what Tesla P/E is? 0. Yes. That’s not a typo. ZERO. They haven’t been profitable yet. That being said, this falls into the Amazon bucket of investments, which doesn’t have any rhyme or reason, it’s a cult following. The problem with these types of picks are that someday….these companies need to be profitable. What happens when another crash hits and investors need to pull back all of their cash? Finance lines start to dry up? TSLA is valued somewhere around $350 per share and trades at $1000. So…you are paying 3x for a share. If the company goes bankrupt and liquidates, your BEST CASE scenario is 1/3 your money back.
Let’s also talk about ZOOM! Everyone now uses it. Their stock is on fire. What is their P/E? 1374. Yup. They need to monetize the app, somehow, and maybe they will have really good profits for 2Q and reduce this..to maybe 80. Maybe.
So what you’re looking at here is lots of money going into stocks that aren’t creating shareholder value. Essentially, you are taking your money and throwing it into a furnace.
To add to this, at the end of July a lot of this stimulus is supposedly stopping. Those that have stopped paying rent and have been saved by a “no eviction” order may now start to be evicted.
Unless more money printing starts. Oh – and we are finding that COVID is raring back up and now people are clamoring for things to be shut down again.
All in all, July is going to be tumultuous, at best. Stocks do not thrive is this environment. In years’ past, this risk off would go to the 10 year treasury, but since those yields are somewhere at .6% and inflation is at 2%….you are getting what Rick Rule calls a “risk free return”.
I would say this would be a good environment for gold…BUT….
The dollar milkshake theory by Brent Johnson
From above – Johnson is suggesting the dollar will get extremely strong. And I don’t disagree. Before big money swarms gold, I think people are going to cash out of stocks and ponder where to put it. At the SAME time this is happening, the metals will be getting hit just like they were in March.
Despite mine shut downs, you will start to see the Barricks and Newmonts of the world have really good 2Q profits, at the same time Nike just lost $790 million. If you are a big pension fund and most of the big names you have are losing their asses, and the gold mining sector is on fire – and all fundamentals say they will be on fire for years – your money will now swarm the big miners and mining index funds.
Brent Johnson essentially says this….
While the entire world was going low interest rates, the US in 2018 increased their interest rates. This had the effect of sucking in all of the world’s wealth. In a risk scenario now when every starts to sell everything not nailed down, this will have an immediate affect of strengthening the dollar.
Historically, a stronger dollar is then weaker for gold and silver.
So early to late July, with the stock sell offs, and de-levering of margin calls, I see people fleeing to the dollar. This will not only strengthen the dollar, but due to metals being sold, those prices will be depressed – despite ridiculous demand. The COMEX pricing mechanism on this is already strained, and most predict this will break by Oct. Long story.
So the month of July it seems like there’s going to be a deflation of sorts. Harry Dent called $800 gold, but he does that every month. The overarching point is that metals may have an initial deflationary effect. This may also trigger a sell off in the miners.
And there I wait. I lie in tall bush, waiting for the prey to come closer. I have all of my price points set for a 38% retracement on most of my favorite stocks. I will WAIT until they lower, and then when I see a MACD crossover going back up, I will get them NEAR the bottom of their move.
How does the math work? Let’s use a $100 pool of money to show how this works.
From that $100, I am halving my investment to $50.
If I’m wrong, and the stocks keep moving up 10% over the course of July, instead of me having $110 at the end of July had I kept everything in stocks, I would have gained 10% (or $5) in the stocks I still have invested – plus I will have the $50 on the sidelines.
At the end of July, I would have $105 in my account instead of $110. That is a net loss of gains of 5%. This is…LOSS OF GAINS. This is MONEY I NEVER HAD. So, my risk here is….LOSING MONEY I NEVER HAD.
Part of this is silver hits $26 ad gold hits $1900. This could be a BIG move I miss. So, yeah, there’s a risk there of losing money I never had.
If I’m right….
Let’s say the stock market bombs 50%. It won’t go that much, but let’s just use this for round math. I will have $25 in my stock account along with $50 cash. You would have lost $50 in value, I would have lost $25. However, the stocks that you have you would have to sit and hold for them to re-inflate again. These stocks you have may be the Nike type of stocks. Maybe these don’t re-inflate for months or years.
The stocks I’m holding, I feel have a strong possibility of re-inflation more rapidly – AND there’s a high, high probability of massive growth in 3 years.
So if I’m right, I have $25 that can re-inflate back to $50 in 2 months. PLUS, that $50 cash, I’m putting in at the low and that doubles to $100. So my position when the re-inflation happens is $150. I would have a $50 gain, or 33% gain. This is on NO NEW CASH added to the position.
The upside here can be tremendous if I’m able to get back into some great mining stocks at half price. A stock like Great Bear Resources has gone up 40x in 2 years. What I’m suggesting is some of my stocks might be early stage of a Great Bear, and if I can get in on that ground floor on some of these again, a $1000 investment in some of these could yield a $40,000 payout in 1-3 years for them. Even if Great Bear gets hit in half, you get back in on that, it doubles, and then someone pays a 100% premium to buy Great Bear so you can get a 4x on a late stage development.
If it’s a push…
Let’s just say 2Q terrible earnings were baked in to stocks and there’s a lot of noodling around. Nike tanks, but CVS booms. For tanks, but TSLA booms. Your $100 in stocks at the end of the month might be $95-$105. Give or take a 5%. My stocks go up and or down 5% as well and my total account value is $97.5 to $102.5.
My miners. I’m going to add the miners here I have, and why. It’s not just looking at the books. Remember – my projections are all of these guys are going to take a hit in the upcoming weeks as part of the greater economic issues. However, when the dust settles, this is who I’m laser targeting.
As the saying goes, BIG money towards big companies, moderate money toward medium sized companies, and small speculative money towards small companies.
The lassonde curve. I need to explain that mining companies for the most part may have different projects along the lassonde curve. Smaller companies that are a single project may fall in one area on here. Other companies with many projects may have many projects in exploration. Other ones may have some in exploration, development, and production.
One of my biggest areas of concentration, for me, is the “pre-producers”. These may have an upside of 2-4x, maybe more. I implore you to watch this video which discusses more on the Lassonde curve and how this works. Long story short….here’s how it goes…
- There’s a big mine in Alaska. Let me look for gold on a spot next to that claim. Give me money.
- I secured the claim. Give me money to drill.
- I drilled a little and it looks like there’s some gold. Give me more money to drill.
- I drilled a bit and some of this looks REALLY impressive. I’m going to let people know and this will send the stock price up. Give me more money to drill a LOT more.
- I drilled a lot more. LOTS of gold here!! Stock price shoots up!!! Give me money for feasibility studies. I may have $6 billion in gold, but it doesn’t mean it’s economical to mine.
- I just did a feasibility study. Lots of gold at GREAT prices to mine. Oh. We’re 50 miles from a highway or power line. It’s going to take a billion dollars to do this. I’m going to give you an IRR estimate of 30%. We have $7 million in the bank. Give us a billion dollars, as this could take 2-3 years to develop, permit, do environmental studies, get the local tribes onboard. We have to do this without diluting the shares too much. Give me money for permits, studies, to build roads, plants, and mines. Stockholders bail at 2-3 years of waiting and worries about stock dilution. OR…a big company can come in right now and buy them out at 50%-100% value, depending on how good the projects are. If you hold the long term, and had them since the beginning, your $.06 stock can eventually be worth $15. So for some of these great projects, you might hold during the downswing and even buy more in at lower prices.
- We have an amazing CEO with lots of contacts and we raised the billion in 6 months!! Everything looks good, and we have a construction decision and will have an operating mine in 12-18 months! Now, give us more money. Oh…let’s get the word out that we will be making money soon. STOCK PRICE SHOOTS!
- We are now at “first pour”. This is the day we go from money taker, to money maker. We are now going to be re-rated for stock value, and this could up our value by 2-8x!!
- We are now a producing mine!! Time to make the profits. Now, is our management team good? Can we keep costs in check? How do we address counterparty risks. What is the mine life? What is the price of gold or silver – which depends on what grade of ore we are running? Do we want to give dividends? Let’s give you money and shareholder value!!
Most people think of mining stocks as the last item (number 9) only. This is important to understand the books, but what’s also of interest is a company like Newmont has producing mines all over the world. They also have number of projects at each stage of the above, and they also may be buying companies at all stages of the above. So with a Newmont and Barrick, you are probably more focused with how your money is returned to you in growth.
That being said, the BIG money first will be going to the majors like Barrick and Newmont, which are part of the GDX. This is where your institutional funds are going to get in at….this will sharply drive these prices up.
But how can you get in on the next Great Bear resources? Well, it’s not easy. If you see step 1 above, there’s something like 3,000 junior mining companies in that stage. Who do you back? Well, the truth is – you have to do a lot of research, and a lot of this means listening to people who know what the hell they are talking about. Consider:
- Who is the team? Have they done this before? Maybe they have discovered 8 properties before and sold each of them for a billion. I will throw money at them.
- Where is the project? Is it adjacent to a 10 million ounce mine, or is it in the middle of nowhere?
- Is there infrastructure around it? That could be the difference between needing $1.5 billion or $300 million to advance it. That is many rounds of financing and possible dilution.
- What is the geology? You don’t need to be a PhD in geology, but understand “high grade” versus “low grade”.
- What do the numbers tell you? If you have $1.6 billion of metal in the ground, and your market cap is $79 million, there’s a nice opportunity there. Likewise, if your net present value is $100 million, but your market cap is $500 million, that could be a problem. Two key things to look at:
- Net present value. This comes somewhere around stage 4 or 5 above. This “de-risks” a project more. Maybe this stock was $.12 2 months ago but now $.40. If you get a NPV of your company and it’s more than 2 times your market cap, that’s a REALLY good buy for me. Some of these early you may find a multiple of 10-15.
- AISC. All in sustaining costs. If an ounce of gold is $1700, but it costs you $2000 to get it out of the ground, those 10 million ounces of gold are mothballed. However, if gold now goes to $3000 – there are a TON of projects out there suddenly worth an assload of money. Be careful, as these may also be the first to be abandoned or put on care and maintenance.
- Where are they on the Lassonde Curve? In some cases, from start to finish, it could take 10 years to get a mine going. Let’s assume this bull market is 3-5 years. Right now, I’m focused on companies mostly:
- Producers with good balance sheets
- Near term producers who have yet to be re-rated (<1 year)
- Close to near term producers that have some obstacles ahead but are winning projects (>1 year)
- Project generators who have “shovel ready” projects. Maybe some of these have an AISC of $1900 gold. Once some of these get going when gold hits $2000, they might be able to de-risk this more and find cheaper grade ore on the property. These are takeover/purchase candidates.
- Exploration projects with over 1 million ounces of gold – these are likely to be purchased by the big companies or advanced quickly.
- Who is backing the project? If you have big mining names associated with it, and their money has gone there, I’m following the money.
Now that I gave you some tools to fish on your own, here’s who I have in my bag of tricks and why.
Bigger money (producers, pre-producers, and streaming)
Producers (in no particular order)
- Newmont (Gold) – while they are a gold company, many don’t know they are also the largest silver producer. So if silver hits stupid high numbers, these guys win on both gold and silver. They are a major producer and doubled their dividend in a world where everyone has removed their dividends. An analyst had a high target of $97 per share and they are about 39% under that high, giving them a lot of upward moves in the next year.
- Kirkland Lake (Gold) – I picked these guys because their share price dropped a bit from a few months ago on a merger they did. This was a value pick, and this is a much, much smaller company than NEM, so I could see a lot of money pouring in here for the value as well, sending my stock much higher.
- First Majestic (Silver) – as a “pure” silver play goes, they are the largest pure silver company…but by revenues they are at 60% silver and 40% gold. One big issue I have with them is they now are down to 3 operating mines in Mexico. That being said, with 40% of their revenue as gold, and gold going to $2-3k soon, this helps a lot with profitability. They also have a HIG mill which helps with their efficiency of mining, taking their returns from 66% to 95+% on ore grade processed. The last 10 years have made a lot of mining companies more tech savvy and efficient. When prices get stupid silly with metals soon, these guys should be in a great position for free cash flow. They do have some debt, however, but I feel this will be mitigated soon.
- Pan American Silver (silver) – they are a silver company that only has 37% revenue by silver. Silver is getting harder to find and ore grades are getting worse, and companies are going out of business now at $17 silver. This company is huge, but I think they have been having profitability issues as of late, and missed last quarter earnings targets. That being said, in the very near future, silver prices are going to break upward, and this company is primed to capitalize on that.
Pre-producers (<1 year). This is my favorite area to grow money. Any and all pre-producers are targets for takeover once massive money starts hitting the majors from institutions.
- Pure gold – first pour Dec 2020. Jeff Clark picked this as his “top stock pick of 2020” in 2019. AISC of 787 and backed by Eric Sprott and McEwen. This is one I bought at $.61 and it’s about $1.25, which led me to buy in more as the price shot up. Jeff Clark has them to be re-rated to $4.50-$6.00 in December, so I’m trying to back the truck up on $1.25 stock now – but buying on dips. This upcoming dip is one I’m watching like a lion. What I do NOT like about Pure Gold as a buy, today, is their RSI has them slightly overbought at 75.16. I’m waiting until this is back in the 50s or 60s.
- MAG silver – first pour Dec 2020. Will be the largest silver producer, immediately. Share around $13, and estimates have them re-rated around $18-21ish. $1.6 billion NPV with $1.6 billion market cap. What’s of most interest to me here is if…when…if…when…silver hits $50, what the hell is going to happen to that stock? Big money here on silver price upside. 19 year mine life should also have this producing a long time, and they also only have explored 5% of their property, giving this another upside with exploration play with this. Ridiculously low AISC of $5 per ounce. This will then have my silver investments moving from FM to MAG when they are in production. As the price of silver increases over the next 2-3 years, this stock will go to the moon. RSI of 59.33 is still a buy for me at this price.
- Minera Alamos – (gold) – Construction stgarted January for first pour in Dec 2020. Their NPV to market cap isn’t great, but that’s because they have several mines they are opening in succession (with exploration also on their land) and the NPV is based on the mine they are opening now. Another next year, and so on. This is a growth company and this should be a solid growth over 3-4 years. Cheap price at $.39 and over time this will grow and be re-rated.
Pre-producers (>1 year). These have more risk and are advancing mines. Maybe they need another $40 million? Maybe they are awaiting a local government on permitting? That being said, these projects have some big visibility at this point.
- Treasury metals (gold) – may convert to mining in 2022. Cheap at $.32. The NPV was at $1250 gold, and the re-rating could be epic. Backing the truck up on this one as well. This has a 4x in near future, another 4-8x in the distant future. Adding to my position a little at a time, and will continue to do so, over time.
- Paramount gold – Mine to be built in 2021, environmental impact study being done. Feasibility study any month now, which is then used to do the NPV and AISC and get the financing needed for the mine. NPV of 72 mil with mkt cap of 37 mil. This is projected to move to $1.40-$4. The NPV of 72 mil is using $1300 gold. No debt with high grade finds. This is also heavier in my portfolio based on the possible near term of 3x from current price of $1.29.
- Silvercrest (silver) – my top silver pick, and they are a ways out. However, these guys are finding ridiculous grades of silver. NPV of 406 mil with $1100 gold as model. Mkt cap of $1.5 billion. Production starts n 2021 or 2022. Added to GDXJ, closer to 600mil NPV with 91% IRR. This was .80 per share in 2017 and $8.50 now. On Jeff Clark’s top list. AISC of $489 for first 4 years for silver, making this a cheap producer and high profits if silver at $25-$30 per share. Market cap has grown by 15x in 2 months, showing that attention has moved here.
- Chesapeake mining (silver and gold) – this one is the next Great Bear, in my opinion. I just placed a decent sized order for them when I’ve lessened my portfolio in everything else. It’s now $3.80 and if it gets smashed below $2.50 in the next downturn I will sell plasma for this. Why? It has 15 million ounces of gold and 524 million ounces of silver. They are several years out, but already have a NPV of $2.7 billion and a market cap of $220 million. Eventually, if nothing changes, this could be a $20-$30 stock inside of 2 years. Just imagine 2 years from now where it is $2700 gold and $38 silver? The market cap of the company will be 10x from here. Will buy every chance I get. The downside with this stock is it may not perform well with lower gold and silver prices. Pit mining for the lower grade ore, but there is a LOT of it. I like this play because it is both gold AND silver.
- Silver One – Ridiculous high ore grades, 2-3 years out from production and may be re-running some old ground to fund. Cheap speculative buy
- First mining – they look to be almost 4 years out, but have a NPV of 841 mil with a market cap of 220 mil. Founded by Keith Neumeyer who is the owner of First Majestic. 5 years from now, this stock could be $6-$20. Longer hold and grow, but at $.28 per share, it’s good to add a little every month.
Streamers – these guys lend out money and buy cheap gold or silver in return. Instead of financing through banks who have monthly deadlines and interest – streamers lend millions, then have dibs to buy so many ounces of gold or silver at lower prices. This is extremely profitable if you have a deal to buy gold at $400 and the price is $1700. It gets obscene if you have that same deal and a year in, gold goes to $2500. These guys typically only have a small number of people in their offices, small overhead, and no debt. As one exec called it, “my business is collecting paychecks in gold”.
- Franco Nevada – one of the big ones. I don’t see good analyst forecasts for these companies, and I’m not sure why. With gold and silver prices to go up the next year, and these companies have little to no debt, I’m unclear why they wouldn’t be projected much higher. The best guess I have is they are using old gold prices and thinking COVID negatively affected them somehow. This is a company with a $35 BILLION market cap. With $3000 gold in 18 months, I can’t see why a company like this wouldn’t have a shareprice that’s doubled.
- Ely gold royalties – this is a junior company but growing quickly. Lots of companies these guys lent money to are coming into the “first pour” stage or will be soon, so they expect to start collecting lots of gold paychecks. $250 million market cap, and on their company presentation, compared themselves to FNV in the early stages of growth. Hard to disagree.
Prospect generators – not going to go into great detail with these. These groups all seem to be experienced with getting projects ready to sell for mega money. They all seem to know what they are doing.
- Goldmining Inc – a little high on the RSI right now, but they have projects all over the world for sale. The trick here is waiting for the big institutional money to hit GDX and then it’s off to the bidding races for Barrick and Newmonts of the world.
- Vista gold – NPV of 1.6 billion and mkt cap of 85 million. Sick.
- Lion One – sitting on 10 million ounces in Fiji. Set up a small mining camp there to run samples and run their own assays from drilling there. Team has history of selling billion dollar projects.
- Midland Exploration – 20 or so projects with lots of joint ventures (6). No debt and $17 mil in the bank.
Exploration – less risk (but still speculative). These guys may also be wanting to build out mines, but many of these already had some decent wins and are somewhat de-risk. Also have good backers.
- O3 mining – Osisko backing This is a long hold for me. 6 existing mine deposits with 5.2 mm ouz AU. Suggest share price could hit $7.50 someday on its corp presentation and current price is somewhere around $1.80.
- Freegold – I sold this for over 100% profit and will buy again on a dip, but I needed the money to buy in on something else. 24 year mine life with 158,000 oz AU mined per year. What I don’t like is an IRR of 19.6, and you need 20% to get financing. Sprott backed. Last I checked RSI was at 90.
- Tudor gold – over 100% on them as well. High RSI at the moment. next to properties that have 38 mm oz AU, another that has 49 mm oz AU.
- Great Bear – a little pricey for me now at $14, but this apparently may have some room up to $18 yet. Tons of gold. I missed on this one, but if there’s another pullback and this drops to $7, I’m all over it. 10 mm oz and takeover candidate for maybe 35-50% over price. Still – I’m looking at this on pullbacks only. With all of the other items that have 3-10x potential, I am not looking to commit resources to a 35% upside. I got that with my major producers.
- Wallbridge – I have a decent position on this and the RSI was at 45, so it was undervalued. It was supposed to go on the GDXJ for 2nd quarter and didn’t, so shares dropped. Looking to be added in Sept. 2021 production at Fenelon. Backed by Eric Sprott and in a great region.
- Discovery metals (silver) – 23,000m of drilling in June (a lot) sitting on 400mm oz AG. Imagine $50 silver? Share price probably going to double – but on higher silver prices, this will attract a lot of attention. Backed by Eric Sprott. Expected market cap of $300-$400 million, market cap now $150 million
High risk/High reward exploration. Want to get a Great Bear before others know about them? These are on the earlier stages of the Lassonde curve. When they hit big discoveries, they get attention with share price and the mining media. These are a handful I’m tracking.
- Minaurum – “discovery generator”. Could be 3x in short term. Sprott backed. Strong team from MAG that found their discovery. Lots of projects with lots of silver.
- Precipitate gold – I’m wayyyy in on this one, as I had heard in some circles this was going to be a 10x when it was $.11. I bought in at $.12. It’s now $.17. Has a deal with Barrick and land is adjacent to Barrick’s largest mine in the Dominican Republic. Company has 2 other projects there they are now focusing on. Could be a buyout from Barrick.
- New Oroperu – In BIG on this as well. It had some deal with Barrick for like 17 years. Barrick dragged their feet and and kept paying yearly options. The LAST option was paid in June, and this means by Dec – they will dissolve the agreement or there will be a production decision made. I feel in either direction this shoots the stock price up.
- Contact gold – risk play, $.11 share price. Has a good property and awaiting a discovery. This is also listed as a 5-10x potential at $.12 share price.
- Liberty gold – high RSI at the moment of 81, so I’m not buying more at the moment. This team has advanced 8 projects previously, and have 5 current projects. Metallurgical and PEA results in Q3 2020 and Sprott backed – share price could take off on this news. Legend Mark O’Dea on board.
- Klondike gold – wild speculation on this one. 524 sq km on this property. Think about that size. This was on a list of projects that could produce a many multiple. The comment was “smart money is running it”. So, this is backing really good jockeys on a claim that is enormous.
- Brixton – Early stage explorer and it is expected to be a 2-3x by Sept. Sprott backing (18.5%). Drill results should be back by end of June and these results could help share price.
- Millrock – this is a project generator and doing discovery – one of their proejcts at 64 North could be a “company maker”. Wild speculation on this one. Sprott owns 9%. $5 million committed and funded to drill this year. Recent drill results not great. Market cap could go 5-10X of the existing $15 mil.
- Rugby mining – this one is a WILD speculation, as I bought in at $.0656 per share. They have a lot of properties all over the world. A discovery on any of these might double the share price. The team has been responsible for 2 companies that have sold off for $200-$400 million. With an existing market cap of $7 million, this is a wild risk play. Or…this could go to zero. That’s how these work. Could it get to $1 and get a 16x? Sure. Not likely – but some of these high risk, high reward miners are a gamble. Follow where the money and the top analysts point you to.