Thoughts from Myron—Focus on Silver

by Myron Martin | September 15, 2013 9:58 pm

Ed. note: Today we have another piece from Myron Martin, who writes for us primarily about junior miners. He has agreed to our trading restrictions, and, as usual, we have not reviewed, approved or screened his stocks or ideas, and the opinions he expresses are solely his own.  Myron’s past commentaries can be seen here.[1]

There is an excellent video to watch concerning the theme of silver as a timely investment, here[2].

Warren Buffett is known in investment circles as one of the smartest, most successful investors of the past few decades, and many people try to emulate his success by investing alongside his highly publicized investments for his Berkshire Hathaway fund. Could they be barking up the wrong tree? Recent interviews suggest that Mr. Buffett laments that due to the size of the Berkshire fund he can no longer make the most profitable investments that launched his career. That’s right, he has spilled the beans that he wishes he could still invest in small caps to achieve 50% or better yearly returns as I have been doing using a similar strategy.

While the following is a promo I will share because it tells the story firsthand, I want to emphasize that I am not endorsing the software being touted because I have not tried it, and further I believe I am already able to pick the stocks that have that doubling or better potential in my chosen sector of stocks, junior miners. Like most promos it sounds very appealing, as can’t-lose type of  “must have” assistance, but biting on too many can also cause you to spend yourself into the poor house. I do think watching the first half of the video could be worthwhile toward helping your understanding the concept of why “buy and hold” is dead, and trading small caps is a more profitable pursuit.

The promo is here[3].

Also check out this one[4] on why remembering 9/11 is important.

Another essay worth reading is “Making The World Safe For Bankers[5],” difficult as it may be to believe the reality it portrays, and just how evil some of our leaders actually are.

If I give you a good stock pick that makes you money, then by analogy I have “fed you for a day,” on the other hand, if I can teach you how to be a better investor, then I am “feeding you for a lifetime” as the popular expression goes. It is with that analogy in mind that I usually start my columns with some significant market news or links to commentary that I believe will add to your store of knowledge and broaden your perception of what the market is doing, and most importantly, why! Ben Davies of Hinde Capital U.K. (I maintain a broad world view, not just a narrow Canadian one) has been so frequently interviewed by King World News that I almost feel I know him. With a headline of “Turning Adversity in Gold[6],” his most recent interview was by Futures Magazine (September issue) and though lengthy at 10 pages, is worth your time to read.

To whet your appetite, here are a few prescient quoted paragraphs:

“One dynamic of the gold market that is very difficult to explain to investors is that because of this dichotomy between the paper market and the physical market, it sometimes is hard to read the real cues as to what is going on. Typically, when local London is trading at a premium, it means that there’s normally a dearth of metal in the system and that normally leads to a significant price reversal. Now in this case, we saw that come much earlier, and the price of gold probably dropped another 20%. So, there are not any absolute levels that necessarily could have given us a warning of that. You can see that it’s perhaps not as simple as other markets. Suffice [it] to say we are the leading gold fund over the last five years, and although I’m pleased with that, we have higher performance aspirations and perhaps have not been (as) good as we had hoped, considering the skill sets and modelling we have…

I would argue that we are in the process of witnessing the bursting of the great bond bubble, which is at the center of our financial system. You have to think about how fractional reserve banking ultimately is collateralized with sovereign debt. When you undermine the credibility of sovereign debt by getting to a level where the country doesn’t have the income to service its debt repayments, then you have to look to the growth of a new monetary system. I certainly think that gold is part of that new mechanism.”

Agreed, and this[7] is a pretty good essay on how I see things playing out. 

The following is an excellent quote from Rick Rule, one of the smartest commodity investors over the past few decades, quoted from “Sprott’s Thoughts” of September 13th:

“Meanwhile many junior mining companies with little hope of generating value for shareholders are doing capital raises just to afford their management and administrative expenses. This is very obvious when a company raises only $200,000 or 300,000 dollars. That money only serves to cover salaries and rent, not to do exploration. I believe money that goes into these equity raises will almost surely be lost by investors.”

I totally agree, best to stay away from these types of companies in this difficult market!

There are, however, still lots of companies with healthy treasuries and others, because of the reputation of management and the quality of resources, are able to raise millions for development of their projects and/or further exploration. In this depressed market many of these companies are what I call “Hidden Gems,” which are unknown to most retail investors because they are intent on preserving capital, therefore not doing much promotion to tell their story until market sentiment improves. This was very evident at the Cambridge House Miners Conference in Toronto I just attended, where much less than half the normal number of miners had booths, and attendance was very sparse. From my standpoint however, it was a positive in that I was able to visit every booth and made excellent contacts that will result in some exciting material for future columns.

Many of the future Goldcorps, Agnico-Eagles, Yamanas, Kinrosses (companies you don’t need me to profile for you), are simply too small for establishment analysts to pay attention to, and likewise too small to interest institutional investors and hedge funds, unless they make a big discovery, which is why we want to be holding such stocks well before the positive news comes out that attracts the big money and moves the stock forward to doubles and triples, and yes, even a few 10 baggers plus, over time.

One stock I mentioned previously that nobody commented on, yet in my mind is one of those “hidden gems,” is International Northair Mines (INM.V INNHF) and I can only surmise that I provided insufficient guidance to interest subscribers in this excellent stock, you can review my previous comments here[8]. In researching it further I came across another analyst’s report on the company that I thought was pretty good, so here is where you can access a “second opinion” on this stock[9], and since he also covers five other silver miners, I will comment briefly on all of them because they either have been, or are currently in, my personal portfolio, then I will follow up with my two key picks.

Brien Lundin, a highly respected analyst makes the case for investing in silver very well, and comments on silver stocks showcasing at the New Orleans Gold Conference!

Since I am familiar with all of these companies, I will simply list them in the order they appear with brief comments and the observation that if you have limited capital and have difficulty making a choice based on comparing cash on hand, size of resource, stock price, number of shares out, warrants or options outstanding, and other key factors, then the easy choice is Global X Silver Miners ETF (SIL) a silver ETF that holds most of the known silver miners, and has done well for me over the years.

I do urge you to buy on the home market rather than the Pink sheets or OTC because you will usually get a better price and certainly better liquidity when it is time to sell.

Dolly Varden Silver Corporation (DOLLF DV.V): This is indeed an overlooked stock I just began to receive reviews on a few weeks ago and have not yet had time to do my own research, but Brien makes a pretty good case for consideration. It may indeed be one of the “hidden gems” but with my own picks as priority I can not cover five additional stocks in detail.

Great Panther Silver Ltd (GPL GPR.TO): an excellent company I owned back in 2009-10 that became free trading for me and is reasonably well known and on my Watch List for an appropriate re-entry point. You could certainly do worse as silver demand ramps up in the months ahead.

International Northair Mines (INM.V INNHF): Brien mentions several things that had originally attracted me to the stock. It is, “undervalued compared to its peers” and has a strong backer in Coeur d’Alene Mines Corp. (CDE) which is a big plus for any junior and may indicate a potential buyout at a premium when enough ounces have been discovered.

Kimber Resources Inc. (KBX KBR.TO): Another one that became free trading for me in 2010. I am still holding shares and consider it a reasonable buy at a recent $0.12 price.

Santacruz Silver Mining Ltd. (SZSMF SCZ.V): Note: “emerged onto the mid tier silver producer scene almost fully formed with four silver focussed projects in Mexico” and indeed this may well be the most impressive performances of any of the management teams given they are already in production from a launch in 2012! I rate it a “must buy”!

Tahoe Resources Inc. (TAHO THO.TO): The biggest and most expensive of the group. While I have known about it for over a year, the price kept me from doing “due diligence” until recently and while it is impressive and may well be worth its current price given its resources, my personal bias is toward companies that still have that huge run to make. At over $18.00 and 148M fully diluted shares, I consider it more fully valued, and for dollars invested not likely to generate the percentage of increase possible with the best of the juniors.

Except for Santacruz I would probably not have written about the rest of the companies at this point in time were it not for Brien Lundin’s coverage on International Northair.

Now for my own picks, and this one actually has been mentioned in Gumshoe before, which you can read about here[10].  I actually owned it before the article appeared where Travis identified a Greg McCoach pick as Tinka Resources Ltd. (TKRFF TK.V), which I had identified myself from the many promos on it years ago. With huge resources in Peru, who, along with Mexico jockeys for the #1 spot in world silver production, Tinka, like many juniors, has fluctuated from a high of $1.20 to as low as $0.40, currently about $0.59, but has recently increased its silver resources by 32.7%. That is based on only 25 drill holes at its Colquipucro project, which has high grades up to 500 g/t silver and 12.3% lead and 1.9% zinc, which is projected to go into a supply shortage. The project has excellent metallurgy and is easily mined.

At another earlier stage project, Atawilca, the initial results are very promising and a new drill permit is said to be imminent. The zinc resources are compelling here, and with 32.7 million ounces of silver in just their first project and growing rapidly, Tinka has more potential and “bang for the buck” than most of its peers. They have added a third project called “Tingo Este,” so the company has plenty of land to explore and develop to a potential takeover offer, given the multi-million ounce potential of their holdings.

I have other excellent silver holdings in my portfolio, which I will report on as the market turns rational again and values companies more realistically based on their “ounces in the ground.” And, while more established companies closer to production may be “first movers,” acquiring companies like this at severely depressed prices will likely be very profitable once market confidence returns.

Finally my number one pick that very few investors have yet discovered, and that in my view represents the best leverage to silver in the market: Levon Resources Ltd. (LVNVF LVN.TO). I actually discovered it at last year’s mining show in Toronto, and talked to management at length and was very impressed, but somehow never found a “round tuit” to actually buy the stock in this manipulated and depressed market. Like many juniors, it has languished, going nowhere in respect to stock price, and I applaud management for having the wisdom to conserve their cash and wait for a more opportune time to let the market know what they really have. Their original PEA was based on just 30% of their outcropping resource on 20,000 hectares of property. They are at a phase four drilling program with a $3 million budget allocation for the fall of 2013, since the Cordero project is open to expansion on strike and at depth; a Phase 4 drill program leading to a new 43 -101 resource estimate and revised PEA should provide lots of market-moving news going into early 2014.

Levon has a $46 million war chest to expand this monstrous asset that has already defined nearly a million ounces of gold (945,000 to be exact) and more importantly, 364 million ounces of silver indicated and 91 million inferred, plus substantial zinc and lead as byproducts that will result in a very low mining cost. They are projecting  the first 15 years of this long-life resource in four stages as costing $13.82 per ton of ore processed. At a mill rate of 40,000 tons per day of mill feed, production would produce a total of 131,156,000 ounces of silver, 190,000 ounces of gold, 1,373,359,000 pound of zinc, 1,033,407,000 pounds of lead, with an initial IRR of 19.5%, which will undoubtedly rise nicely with a revised resource estimate next year. Calculated at a silver price of $25.15, and gold at $1384.77, zinc priced at $0.91 a pound and lead at $0.96, by the time a development decision is made, these prices may well have advanced substantially. These preliminary figures, remember, were based on about 30% of the original project being explored, and in July 2013 the company purchased an additional claim block of 16 hectares, which should improve the project economics as the AIDDA resources are explored and added into the new PEA. With 214,944,423 shares out, it is probably inevitable that a share rollback will be necessary to raise capital once a development decision is made, but even with a 10 x 1 share consolidation, the price paid for “ounces in the ground” would compare very favorably with any other project I am aware of.

My question is, can you find a primary silver producer with a better resource and lower per-ounce cost as reflected in its stock price? Compare the economics of developing a 30M to 50M ounce resource compared to one of 10 times that, with strong by product credits, and it should be evident what a bargain Levon really is once the market discovers it.

LATE BREAKING NEWS: No doubt you are aware of the as-yet-unproven allegations that JP Morgan Chase (JPM) has been manipulating the precious metals market for years along with some lesser entities, and that story has now been broken wide open by confirmation of some ex-employees. You can read about that disclosure here[11]. This is explosive stuff. 

All hell may break loose as early as Monday morning, but certainly over the coming weeks. If the main stream press picks up and reports on these allegations there could be a “moonshot” in precious metals and their miners as more people become aware that the fractional reserve banking system may be on its last legs, triggering the collapse of fiat currencies. It is just a matter of time, and the catalyst may well be the “cat just let out of the bag” by these JP Morgan Chase employees!

Much as I might like too, I will not trade in any of the stocks mentioned until at least three days after publication.

Stocks mentioned that I own: Global X Silver Miners ETF; International Northair Mines; Kimber Resources Inc.; Santacruz Silver Mining Ltd.; and Tinka Resources Ltd.

Endnotes:
  1. Myron’s past commentaries can be seen here.: http://stockgumshoe.com/author/takeprofits/
  2. here: http://www.youtube.com/watch?v=ImHb_RKOcv4
  3. here: http://www.markettrendsignal.com/secure/c8.php?a=C-CANV-SCHAEFFERS0902BUFF_B&p=MTS
  4. this one: http://www.youtube.com/watch?v=yuC_4mGTs98
  5. Making The World Safe For Bankers: http://www.informationclearinghouse.info/article36123.htm
  6. Turning Adversity in Gold: http://www.futuresmag.com/2013/09/01/ben-davies-turning-adversity-into-gold?t=financials
  7. this: http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/9/6_The_Real_Carnage_The_World_Will_Have_To_Face_Is_Still_To_Come.html
  8. here: http://stockgumshoe.com/2013/08/microblog-thoughts-from-myron-emerging-markets-precious-metals-and-fiber-optics/
  9. here is where you can access a “second opinion” on this stock: http://www.jeffersoncompanies.com/marketing/files/2013_SilverSectorReport.pdf
  10. here: http://stockgumshoe.com/reviews/mining-speculator/billion-dollar-mountain-of-silver-trading-for-under-1-mccoach/
  11. here: http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/9/13_Historic_JP_Morgan_Whistleblower_Interview_Moves_Markets.html

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